Monthly Archives: June 2017

Malltown America

A few posts ago I mentioned concern about how the transformation of retail might hurt the interesting cultural feel in Europe.  However, after reading this article about how small towns might be the savior for retail, I am a little more optimistic.

There is no question online shopping will further transform the retail shopping model for some time to come.  But maybe small towns give us an early clue to how everything will shake out.   Perhaps retail will just get more focused – not a wide variety of shopping centers spreading a feeling of ‘Generica‘ throughout the country – but a focal retail center in every town, large and small.  Perhaps each collection of retail centers will have a theme or specialty.  Strip malls will disappear, with retail clustered around core centers of small towns or neighborhoods within large cities.

This central core would have more than just retail shops.  Much like you are seeing shopping centers branch out into restaurants, gyms, and other service providers.  I think it would be much more interesting to see neighborhoods within cities have a central core of unique combination of shops, and a place that can be the central gathering place for residents in the neighborhood.  Europe has perfected this model, with the central town market square typically lined with restuarants with outdoor seating, with stores surrounding the central square.  The further you get from the central square, the more it turns residential.   We do see a flavor of this today in some neighborhoods (i.e. Fremont in Seattle) – perhaps the future looks like a lot more small funky neighborhoods and fewer strip malls and big box stores.

As our society becomes more virtually connected and physically isolated, a changing retail model might be the solution to bringing back a feeling of a physical community.   The next waves of technology will be bringing even more social upheaval – perhaps those surviving physical retail stores will evolve and thrive in the coming new world.

 

 

Stock Updates – Nordstrom and Hooker Furniture Dropped

I have been doing some portfolio pruning of late, and have decided to drop two stocks from the Puget Investor Portfolio.

Nordstrom (JWN) has been a long time holding that I finally decided to drop altogether.  Last year I wrote about my concerns about Nordstrom, and why I unloaded most of my holdings.  The thesis from last year remains – Amazon is going after clothing retailers, and I don’t want to bet against Amazon.  When I saw that Amazon has come out with the Echo Look Style Assistant, I knew it was time to fully abandon my Nordstrom position.  The Echo Look appears to go after the young fashion conscious consumer that would shop at Nordstrom – and I don’t know if Nordstrom has an answer for that.

Last week Nordstrom’s announced it was considering going private and the stock bounced a bit.  An interesting development, but I am not sure if that is the answer.  But I wish them good luck.

One related interesting stat I heard regarding retail.  Because brick and mortar retailers have such high fixed overhead – if online takes just 25% of the traffic from stores, the store cannot survive.  Most retailers are operating under such tight margins already, even a small drop-off in traffic could have painful consequences.  Something to think about.

My reasoning to drop Hooker Furniture (HOFT) was a different story.   I originally bought HOFT a couple years ago while perusing AAII‘s model portfolio of cheap, small cap stocks.  After looking at a few of these stocks, I opened a small position in several of the stocks that looked like they had decent business models.  As is often the case, this strategy had mixed results, some stock had done well – some did not.  At the time Hooker was amazingly cheap – price to book around 1, little debt, flat to growing revenues.  Seemed like a no-brainer, so in March of 2016 I picked it up around $32.  It soon got cheaper, for no apparent reason (my thesis was still intact), so I picked up some more at $25.  I was beginning to sweat my decision as the stock went no where for months, but I held on, and suddenly this month it surged to $46 on decent earnings (who new.. millennials are buying furniture!).  Since the stock no longer is dirt cheap, and I am not a big bull in the growth of home furnishings, I decided there is no reason for me to keep this.  So I am out.

I still have a couple stocks from my foray into the AAII model portfolio, Rocky Brands (RCKY)  and Ultra Clean Holdings (UCTT).  I am going to have to make a decision soon on these stocks also, as these have started to move up and I am not sure I can call them cheap anymore.  Either come up with a new thesis, or drop them.

I am re-evaluating how many individual stocks I should own, so I may not replace these stocks with new holdings.  I may go back and look at other AAII Model Portfolios for ideas, or just add to existing positions.

 

Virtual Reality’s Next Step

A friend of mine recently sent me a note on his first experience with Virtual Reality, and he was impressed and enthused for its future. So I got back to thinking about Virtual Reality (VR), and how close or far away it will be to being a viable mainstream technology.  I have made numerous posts in the last few years, thinking VR was closer than it turned out to be.  But its been awhile, and so here are my current thoughts in a nutshell:

  •  I don’t think gaming will be enough to jumpstart VR into mainstream usage.  I think its a chicken and the egg thing.  Manufacturers wont be able to get prices down until gamers buy it en masse, and gamers wont buy an expensive headset until decent games are developed for it, and most gaming studios wont put the extra money into building a decent game for it it until a market exists.  So its kind of a three way deadlock.  I could be wrong, perhaps a game company such as Valve has a hit that jumpstarts adoption (Valve is in a unique situation where it is partnered with a headset maker, so they have much more incentive to push the adoption).  But at this point, I am in the camp that it will take something other than gaming  will break the deadlock.
  • That something else will be social.   It seems that all new technologies have been built on social interaction – and I think VR will come to mass acceptance via some social interaction app – not gaming experience.  My current thought is ‘Virtual Reality will be to human interaction what Television is to a Movie Theater‘.  We all watch movies on TV, even though most would agree a theater is a better experience.  But television is just much easier.  So it is with the promise of VR.  If I can use it to hang out with my friends without going anywhere, I will do it virtually with my friends, then on special occasions  I will actually physically get with them.  Isn’t this much of the appeal of Facebook?  You can easily keep engaged with friends, but only when convenient (and in small doses).   Perhaps this is why Facebook is spending boatloads of money on Oculus Rift.  So I look for early VR adoption to be driven by a combination of Skype and Facebook and VR.  An interesting example would be renting out ‘virtual luxury suites’ at a ballgame – where you could get together virtually in a room with your friends and watch a sporting event or other pop culture event.  I think this is the kind of thing that will end up driving mass adoption, get Virtual Reality headsets into everybody’s hands, and kickstart the revolution.
  • We also discussed the worry that Virtual Reality will bring on a new social problem – full immersion into a virtual world.  Given the current problems with have with alcohol and opioid addiction, it does seem foreseeable that many people will prefer a virtual world over the physical world.  Of course, for generations we have been told we watch too much TV, or spend too much time on the computer, so maybe that fear is just an an echo of previous fears about technological advances.  But the full immersion of the mind into a vivid fantasy world might be too much for many of our minds to rationally handle.  So this will be interesting to watch.

I am not negative on the future of Virtual Reality.  Prices are coming down to be more approachable and the quality is getting better.  I just think adoption will appear via a backdoor application that is not currently obvious.   And I think once the price gets to under $200’ish – watch out – we will see things we never dreamed of.