February 16, 2014

The Rewards of Being Choosey

As earnings have rolled out in predictable fashion with results being hyper analyzed and focus disproportionately placed on style over substance the real trends often disappear in the deluge of information at our disposal. With that being the muck that I generally wallow in I couldn’t help noticing something amiss in the aggregate earnings of the retailers that recently reported results and guidance. What stood out to me is not only the consistency in the disappointing earnings of the most high profile retailers, including American Eagle (AEO) and Amazon (AMZN), who saw their share prices decline, but that those results don't reconcile with the surprising 31% increase in advertiser paid clicks that Google (GOOG) reported sending its stock higher. Or do they?

Back in the 1990s a company called Napster exploded (pre viral verb) on the internet and quickly gained infamy singled out as the scourge of the music industry. But its stature as a resource to millions of potential consumers wasn't lost on those companies looking to navigate their business models on the internet.  As composite data from Napster was analyzed it was clear that in addition to the contemporary hits of the time amounting to the bulk of sharing it was the thousands (yes thousands) of one-off tunes that millions of music enthusiasts found interest in. Seeing the internet as a platform to distribute a product that could easily fill the demands of this new and traditionally ignored consumer base, budding entrepreneurs, among them Jeff Bezo's of Amazon fame, focused on the product that presented the main catapult of potential, it was choice. In his book "The Long Tail" Chris Anderson describes the notion that the traditional distribution resources, such as music or book stores, could never compete with the ability of the internet marketplace to distribute five times the inventory of the largest brick and mortar establishments. True to historical precedent the music and book industries pushed back hard. While accepting that the internet could reach more interested consumers than your well known bookstore and record chain it was believed that elusive product desirability could only be reached by still holding tight to the old model of finding and exploiting hits. Napster proved that giving the people what they want, all the people, not only those looking for hits, was the future of retail sales. And whether consumers knew it or not didn't matter, Google knew it.

So is it possible that there is a permanent move away from the traditional storefront in areas that can never be as faithful to customers as can be delivered over the internet? Perhaps, although there is still a lot to learn about how the internet hasn't changed the consumer, for example a paid click could be about window shopping as much as about retail sales. At the same time we can see in the employment reports of the past year the sectors showing a visible expansion in growth underway in restaurants and bars, satellite medical businesses, medical offices, grocery establishments, barber shops and the thousands of nail stylist storefronts punctuating the New York City landscape.

Many of us were told over the years that the challenge of being faced with too many choices is that they undermine decisiveness. That probably remains somewhat consistent for many of us, but companies are increasingly finding ways to provide choices on a scale never envisioned possible. And when older companies are being assailed for not being innovative enough, what's really being said is they don't have enough choices to establish their model with the potential of a global consumer. Once they do that potential is enormous. And I always thought you had to try shoes on before you bought them, guess not.