Michel de Guilhermier's Blog

E-commerce Christmas Shopping Season !

The days after Thanksgiving mark the beginning of the Christmas shopping season, a key period when most retailers and e-tailers make a big chunk of their annual sales. Shutterfly.com, a leading Photoways-like online photo destination, make more than half of its annual sales and all its profits during Q4 (in fact, it has lost money in the 1st 3 quarters and is supposed to more than compensate in Q4).

There's for long been "black Friday", the 1st Friday after Thanksgiving. 

There's now "Cyber Monday" which is supposed to mark the unofficial start of the online holiday shopping season. Web sales for Cyber Monday were up 26% with roughly $600M (in the US), making it the single biggest day in e-shopping history !

The online retail industry wanted to put a specific hype on this very Monday, with more marketing and media coverage than last year, it even created a specific store - www.cybermonday.com - to help spur traffic by giving consumers a single online place to shop for deals (it attracted 300,000 visitors), so the +26% may not reflect the season performance on the web, though it should once again be a good and record one.

What's interesting is that beyond Amazon.com, which scored 12% of the day's retail market share, most of the other traffic leaders were not pure players but established brich & mortar players such as Walmart, Target, Circuit City, Best Buy and JC Penney, all finishing in the top 10 with at least 3% market share.

November 30th : Retail's report Day !

Today is a big day for retail. Not only because I'm turning 44, the very same age at which Sam Walton opened his first store (I somehow have the impression I will soon open many stores), but because major US retailers are reporting their november sales, a key month which starts the important Christmas season.

In particular, Walmart is to detail why its sales have declined 0.1%, its firts drop and its worst performance in a decade. As the largest retailer on earth, Walmart sets the tone for general consumer spending trends.

Costco and Target (n°2 US mass merchant) are also set to report.

Stay tuned, I'll come back this evening on retailers' november performance.

Update 9PM Paris time :

- Gap november same-store sales fell 8%, significantly below analysts' target. Obviously, Gap has lost its magic touch in designing the right products.

- Walmart predicted december same-store sales flat.

- Target november same-store sales up 5.9% (company had forecast 4 to 7%, so right in the middle) and sees december same-store sales up 3.5 to 5.5%.

- Costco reported a 5% increase, below the 5.8% expected.

- JC Penney badly disapointed the market with a 1.4% increase vs 3.7% average.

- Federated Department Stores (which includes Macy's) enjoyed a strong november with 8.5% increase, significantly above the 4.5% expected. Interesting enough, Federated Departtment Stores, turned 400 former May Co stores into Macy's in September. That's the kind of initiatives which usually drive traffic and sales up.

- Pier 1 reported 15.3% drop in same-store sales.

All told, rather weak holiday season start for major US retailers. As a consequence, it today has negatively impacted Wall Street with most retailers dropping.

However, as it happens in such cases, the general trend also affects good companies with strong competitive position, including e-tailers, creating buying opportunities.  I rank Netflix or VistaPrint among those e-tailers with great potential ahead.

Apple vs Bang & Olufsen ! iPhone vs Serene !

Il y a quelques temps Michael Dell avait sorti son fameux "Apple est le Bang & Olufsen de l'informatique". Remarque non dénuée de fondement, mais un peu limitative cependant avec la place de plus en plus importante prise par le business musique et l'iPod.

Et c'est vrai qu'Apple a toujours misé sur le design pour ses ordinateurs et ses lecteurs MP3, comme Bang & Olufsen l'a fait pour la hifi et la video. Et je me retrouve également dans les objets de B&O, quoi que je trouve le premium colossal, bien supérieur à celui que charge Apple. Payer un lecteur MP3 ou un ordinateur 5 ou 10% plus cher que la concurrence (et cela est en plus de moins en moins vrai pour les ordinateurs) ne coûte finalement que quelques dizaines à quelques centaines d'euros en plus maximum, mais acheter du Bang & Olufsen ça peut amener à quelques milliers d'euros à débourser en plus...

Apple produit en fait des objets design pour la masse, "for the rest of us", ce qui n'est pas le cas de B&O qui produit des objets design "for the very few of us".

Bientôt, ces 2 icônes du design vont quelque part entrer en confrontation dans ce qui est pour eux un nouveau secteur : le mobile !

Apple n'a pas confirmé son intention de produire et distribuer un "iPhone", mais cela ne fait plus aucun doute, c'est même une nécessité stratégique pour protéger son business iPod comme je l'ai déja je crois expliqué. En effet, les portables deviennent de plus en plus des lecteurs MP3 et Apple ne peut prendre le risque de voir une partie de son marché partir.

De son côté, le Président de B&O a lui récemment annoncé son intention d'attaquer le marché avec le "Serene", un superbe appareil offert pour la modique somme de 1200$ environ !

C'est une belle et sacrée somme, mais qui dans cette catégorie des mobiles de luxe n'est pas excessive. Après tout, il y a une cible de clientèle qui achète des mobiles Vertu pour plusieurs milliers d'euros. C'est bien sûr une niche, très spécifique et étroite.

Mais dans un marché de la hifi ou de l'ordinateur personnel très encombré et concurrentiel, B&O et Apple réussissent très bien avec une approche de niche qui leur procure une belle rentabilité, à l'écart des "me-too" products proposés par leurs concurrents.

Ce que j'aime et qui est remarquable dans le cas d'Apple et de B&O, c'est que le design est au coeur même du process de création. Alors que pour la plupart des concurrents développent d'abord une technologie, avec un ensemble de fonctionalités, et après demande à des designers de la packager, ces 2 firmes font le chemin inverse, imaginant un design et après demandant aux ingénieurs de réaliser le concept.

Apple se contentera certainement d'un prix plus grand public, je le les vois pas proposer un appareil à plus de 500€. Au suvre début 2007...

Apple's iPods in the Center Stage !

While the market was falling down yesterday monday with the bad news from Walmart and the negative article on Google by Barron's, Apple was shining and hit an intraday all time high above $93, before retreating amid broad market sell-off.

The reason being that iPods are selling like hot cakes these days !

Apple claimed 5 of the top 10 spots on the list of most purchased consumer electronic items sold  through Amazon.com (a very good observation desk !) and 10 of the top 25 spots ! The best selling item on Amazon was the 2Go silver Nano (true, it's so cute !).

In contrast, Microsoft's Zune came only n°75, trailing for example Apple's $29.99 iPod USB adapter, a mere accessory. But geeks seem to like the Zune as you can see here...

Quand Walmart Tousse... !

Il y a quelques décennies, la coutume était de dire "quand General Motors tousse, l'Amérique s'enrhume...".

Les temps ont bien changé, et c'est Walmart qui est devenu le symbole de l'Amérique (profonde ou pas!). Avec 350Mds $ environ de ventes cette année, plus de 1 million d'employés, la firme créée par Sam Walton en 1962 quand il avait 44 ans est devenu un vrai mastodonte de la distribution américaine, même si ses succès à l'international sont bien plus mitigées (ie retrait d'Allemagne).

Hier, Walmart a annoncé ses "same store sales" (ventes à  périmètre comparable) du mois de novembre, et les chiffres sont vraiment mauvais à -0,1%, sa pire performance des 10 dernières années. Il faudra d'ailleurs que je revienne en détail la dessus quand on aura plus d'explications (sans doute jeudi 30).

Cela a suffit à largement suffit à insuffler un grand froid à Wall Street, surtout que le magazine Barron's avait écrit un article ce week-end où il exposait que Goole était sur-évalué, et le Dow a alors perdu 1,3% et le Nasdaq 2,3%. Bonne correction après la forte hausse des dernièers semaines (le Dow a gagné 5% et le Nasdaq 8% sur les 2 derniers mois).

Les valeurs de distribution ont été largement affectées par l'annonce de Walmart, Whole Foods étant bien entendu de celles-ci...

Ceci étant, dans le même temps, la National Retail Association annonçait que les ventes du Black Friday (le vendredi 24, lendemain de Thanksgiving) étaient en hausse de 6% vs 2005...Et les e-tailers eux peuvent encore plus se frotter les mains : les ventes sur Internet lors du Black Friday furent en hausse de 42%. Alors quand je vois certains e-tailers côtés lourdement chuter aussi dans la panique générale, je pense opportunité d'achat !

Comme me le disait hier un de mes amis, grand avocat de la place parisienne, la révolution du e-commerce, c'est maintenant qu'elle se joue. J'en suis bien convaincu !

Je lis d'ailleurs actuellement un bouquin passionnant "les fondamentaux du commerce" de Michel Choukroun où il rappelle que l'homme de distribution est avant tout un homme de bon sens, extrêmement proche des consommateurs, de leurs besoins, de leurs habitudes et de leur façon de consommer. C'est une évidence, et il ne peut vraiment pas en être autrement, intrinsèquement !

Ce qui l'est moins, en tous cas c'est ce que j'observe régulièrement, c'est que c'est exactement pareil pour l'e-commerce que de nombreuses personnes ne voient que sous l'angle technologique.

On a beau disposer de la plus belle plateforme internet qui soit, avoir le système de CRM le plus puissant du marché, posséder une magnifique base  industrielle et logistique, la composante humaine restera toujours essentielle en commerce comme en e-commerce. C'est LE vrai grand driver.

Même pire, tous ses investissements techniques, technologiques, industriels et logistiques coûteux seront largement sous utilisés voire gaspillés s'il n'y a pas dans l'organisation, et à tous les niveaux, les personnes ayant le sens du consommateur...

J'estime qu'un site de e-commerce, toute autre chose étant égale par ailleurs, peut voir ses performances commerciales varier de 10 à 30% en terme de CA, ce qui est colossal, en fonction de la "qualité commerçante" des personnes clés....

Apple Near the $100bn Market Cap !

Back in mid september, at a time when Apple stock had already jumped by 50% in 2 months to hit $75, I expressed how bullish I still was with the company and set up a new $100 target within the next 6 months.

I reiterated my bullish statement on the 19th of October, but obviously the rise has been significantly quicklier than what I had anticipated with the stock now around $92, making a market cap close to $80bn ! Another 25% jump (ie a stock price of $115), and Apple will hit the magic $100bn market cap. To benchmark this milestone, that's the market cap of such giant as PepsiCo or Coca Cola.

As a Mac afficionado for more than 15 years now, I'm pretty happy and proud of this success. It's good that the company which has pioneered design in computers and in other electronics devices gets that kind of market reckognition !

Beyond this kind of emotional feeling, my pragmatic investor view simply points out that the rise is truly justified and deserved : brand is stronger and stronger, ultra-dominance in MP3 players hasn't been scratched (Zune is logically no winner at this stage), promising start of the VOD business, extremely likely entry into the vast phone market early next year, retail expansion to accelerate (40 new stores in FY '07 alone vs the 174 units of today), now agressively-priced laptop and desktop computers with a marvelously executed transition to Intel processors, its website in the top spots of all e-commerce websites, market share in PCs has dramatically increased over the last 12 months, etc...

As concerning key new products, beyond the iPhone and faster Macs with expanded features, I'm expecting new truly video-oriented iPods and the iTV, Apple's answer to the digital home, which could be another killer if well executed.

Sure, Apple is now becoming expensive with a P/E of 40 and a PEG of 1.6. To give some perspective, despite its recent rise above $500, Google has a P/E of 60 but a PEG of 1.5, lower than Apple's. However, I do see some acceleration in Apple's potential growth, which I don't feel that clearly with Google's (to say the least). I'm really talking about growth acceleration here, not only growth, this thanks to new products opening new markets for Apple (iPhone, iTV, video iPods, etc). As usual in those kinds of markets, innovation is a key driver of growth and I assume Apple's new product pipeline is more exciting than ever for FY 07.

To put things differently, I don't think that today Apple is more over-priced than what Google is, and its rich PEG is fully justified by its potential, with the company ideally positioned on so many fast growing markets. But both companies are expensive and would be affected by a general market downturn.

But over the medium term (ie 2-3 years), I still keep the $140 stock price mark, ie a $120bn market cap, I also set up some time ago.

E-commerce Case : B&H Photo, and More on the Click & Mortar Strategy !

Whenever I fly to New York, I like to pop by B&H photo, the incredible photo and video store located 9th Av/34th Street, not far from the Empire State Building.

It's simply gorgeous ! A true category killer in its industry where one can virtually find anything related to photo and video. I this morning spent more than 2 hours in Paris looking for a specific carrying case for my Canon SLR with its long 70-300 zoom lens. I went to Fnac, I went to BHV, I went to Magma, etc, but I couldn't find what I wanted. Simply said, no shop was carrying a large enough range of cases to suit my needs !

All the contrary at the B&H photo video super store : they carry a prodigious 150,000 SKUs which makes them by far the most extensive photo specialist in the world. 150,000SKUs in the sole photo video category looks much more impressive to me than the 10M SKUs Amazon carries in all its 36 categories. The width of products offered is a key aspect for a category killer/specialist.

Beyond choice, staff is nice, helpful and very knowledgeable. Return policy is liberal, one may always return goods if not happy with the product.

Price positioning is good, but one can often find lower prices in New York (or on the Internet). In fact, all the other photo shops in the city can't compete on anything else but price. For choice and service, with still agressive prices, B&H is simply unbeatable.

Translated into the Internet, it works well, but it could be much better ! The B&H website should yield close to $80M this year and is not far from being in the top 100 US e-commerce website. It welcomes close to 1M unique visitors a month, despite extremely little online advertising, with a conversion rate close to 7%, which really is in the very high end of comparable e-commerce websites. For example, Best Buy, NewEgg, CircuitCity, all in the Computer/electronics catagory, range between 2 and 4%.

Obviously, given their unbeatable choice and considerable purchasing power, I feel B&H could do much better on the Internet would they slightly lower their prices and be more aggressive in online advertising. Indeed, many photo e-tailers are cheaper than B&H. However, tough decision as it could probably affect their brick&mortar business. 

Thanks to advise from knowledgeable people, proximity and the fact that the consumer can immediately walk away with the purchase, I feel that brick & mortar stores do have the capacity to charge slightly more than websites for similar goods (that one can easily find elsewhere).

The customer who exactly knows what he wants, who doesn't value the advise from a knowledgeable staff, who doesn't want the item straight away, he is the one who will use the web to find what he wants at the lowest or one of the lowest prices around, and wait a few days the goods to be sent to him.

But in the same time, the one who is coming to a store and want to buy there (careful, there are many people who want to benefit from in-store advise but will buy over the web at lower prices), this one will probably accept to pay slightly more !

However, most click&mortar stores or chains like B&H and Fnac charge the same price in both channels. They must consider a hassle to spend times explaining to angry customers why in-stores prices are higher than on the web. I may be wrong, but I believe this is a lost margin. Newegg, one of the largest US e-tailers, used to be a 100-store chain on the West Coast when it decided to entirely focus on the Internet channel, which is one way to avoid conflicts...

All told, if I believe that in many cases a click&mortar strategy makes sense (when you spend 30 years building an extensive and unique 160,000 SKUs product range, it would be a pity not to offer it in more than one channel), I think that pricing strategies have to be fine-tuned.

And so doing boils down to always the same thing : to understand the relative in-store and the web shopping patterns, customer demographics and typology. Having a clear view of who customers are, what, why and when they shop at one's store (or one's website), can only lead to higher margins.

All told, e-commerce is say a 3 or 4 year old channel (though it existed 10 years ago it really took off a few years ago only) and I believe many things still will evolve in the next 10 years. We are just at the beginning of a retail revolution. Time will tell what works and what doesn't work.

I'm absolutely not sure that the e and retail leaders of tomorrow are the today leaders...

Des Pays et des Elites !

Allez, avec mon retour sur Paris, je me remets au français !

L'énergie électrisante et positive de New York est incomparable, on ressent une ville hyper active où les gens, de toutes origines, se battent pour entreprendre et réussir.

Je suis parti à New York au lendemain de l'élection de Ségolène Royal et à quelques jours de l'annonce attendue de la candidature de Nicolas Sarkozy. Très franchement, rien ne m'enthousiasme dans ce choix probable que nous aurons à faire. Mais les élites que le peuple se choisit reflètent le pays lui-même, son état d'esprit, ses attentes, ses craintes, ses rêves, ses fantasmes, ses blocages et ses problèmes.

Mon ami Fabrice Grinda, Aucland, Zingy et OLX maintenant (qui marche très fort), bien plus américain et new yorkais que français finalement, me demandait ce week-end pourquoi je m'entêtais à entreprendre en France. Et c'est vrai que la question me taraude. Un jour, maybe...

Si l'élection présidentielle française n'a rien d'enthousiasmant, il n'en va pas de même des futures élections américaines de 2008 ou un quatuor de personnalités se détachent d'ores et déja.

Dans le camp démocrate, on retrouve bien sûr le Sénateur Hillary Clinton qui après les Bush père (Georges) et fils (Georges W) pourrait également tenter de faire de la présidence une affaire de famille !

Mais elle aura fort à faire face au jeune (45 ans) et excessivement brillant Barack Obama, lui aussi avocat et sénateur (Illinois), qui fut le 1er Président noir (afro-american est maintenant plus politiquement correct) de la Harvard Law Review.

Dans le camps républicain, 2 candidats se dégagent aujourd'hui : d'un côté le sénateur de l'Arizona John McCain, un vétéran de la politique, qui avait succédé comme à Barry Goldwater et avait lui-même déja postulé pour l'investiture républicaine en 2000.

De l'autre, l'ancien maire de New York (2 mandats), Rudy Giuliani, avocat lui aussi et héros charismatique du 11 septembre, que les foules de la Big Apple applaudissaient en scandant "4 more years"...

Et bien, ce quatuor m'inspire à vrai dire un peu plus que nos élites politiques françaises actuelles, professionnels de la chose, dont les envolées lyriques à base de "grand élan", de "grand projet" ou de "rupture", sont en contradiction avec leur moule conservateur...

Si un ballon se fait porter par les vagues, c'est parce que sa densité est faible...

So, Google Hits the $500 Mark, What's Next ?

The Mountain View search king hit a new all time record yesterday and ended the trading day above $500, at almost $510. A milestone which is purely psychological, but still, a "6 bagger" (August '04 IPO price was $85) in slightly more than 2 years is truly impressive.

However, since Jan 1st, Google hasn't really distanced Microsoft as the Googmic Index stands at 47% vs 45%. In fact, it has oscillated between 35 and 52% over the last 11 months. As I expressed it in August, Microsoft still is a behemoth with considerable financial and technological resources.

With a trailing P/E of 65 and a PEG of 1.5, Google is definetly not a cheap company, but there's nothing outrageous as well : Microsoft has a P/E of 24 but its PEG is also around 1.5. However, as many of its businesses are mature, it today offers more earnings visibility than Google.

True the online advertising market is growing fast and should at least double in the coming 5 years, true Google is a master at monetizing trafic more and better than anybody else (let's just mention that Yahoo drives considerable more trafic than Google but the latter is able to yield 3 times more revenue per search !) but I can't help thinking that Google competition is more formidable than what Microsoft faces in its core markets. Moreover, trafic is coming from everywhere on the Internet and even if Google is a master at turning it into dollars, it will have to share these dollars. This is more or less what it did with buying YouTube, conceding roughly 1% of its equity ($1.65bn out of a market cap of circa $150bn at the time).

Interesting enough, Apple also has a PEG of 1.5, with a PE of close to 40. Despite the formidable rise of the stock over the last 2 months (from the low 50s to almost $90 now, ie +80%), I'm still bullish for the medium term (ie 2 year time horizon), with the same analysis I have explained many times on this blog : Apple is at the crossroad of several fast growing markets and with its strong brand, its consumer electronics hardware + software technological prowess and its financial health, it is ideally positioned to benefit from them more and better than anybody else in the industry.

Bill Gates Talks About Warren Buffet !

Seen on CNBC last night !

Warren Buffet really appeared like "the billionar next door" (name of show), simple, laughing, fun, down to earth, happy in life with simple things, not taking himself seriously...

When interviewed, Buffet conceded that living in Omaha, 1500 miles away from New York, probably helped him become a better investor, as he wasn't distracted by so many things like he would have in NYC.