The Limerick of Finance for 11/29/15

Cyber Monday is looking so good
Shoppers prefer online neighborhood
Retail sales pitches shift
Discount changes are swift
Stores would all sell online if they could

The Haiku of Finance for 11/28/15

Christmas shopping start
People trample each other
They could have waited

The Haiku of Finance for 11/21/15

Launching restaurant
Take a bite out of savings
Tasting sweet success

Restaurant Investing 101's Sustainable SF Bay Area Flavor

A dear friend recently asked me if I would ever invest in a restaurant. The restaurant sector isn't for me, and I don't personally know anyone who invests there, but it's a fascinating area nonetheless. I scoured the Web for some basic coverage of restaurant investing and the investors who make it work. Check out this 101 primer.

The National Restaurant Association should be the first stop for first-time eatery investors. The industry's clearinghouse reveals the inside scoop on managing a store. The search box turned up tons of articles on topics like "investment" and "sustainability," including the NRA's Conserve Program that's worth a look for potential owners.

I tried to find a link to the NRA's annual Restaurant Finance Summit. Instead I found Restaurant Finance Monitor, which runs its own finance and development conferences. Capital sources populate the Monitor's finance and real estate directory. I don't have time to read through their white papers but the ones on sale-leaseback financing and restaurant valuation look especially useful for investors.

Not every source is as authoritative as the restaurant industry's official organs. The Wiley "For Dummies" imprint has a bunch of articles on food trucks, but of course the dining sector is much larger than what rolls on streets. Searching the Dummies brand for "restaurant" turned up tips on menu selection and social media marketing, plus many irrelevant topics. I sought wisdom at Restaurants.com and found mostly anecdotal articles touting "industry insights" rather than the hard research and checklist an owner-operator needs. Gourmet Marketing's learning center has some decent tips on investor due diligence and critical management numbers, but I would prefer to see those suggestions populated with industry data.

Owner-operators have a wealth of prospecting sources thanks to the digital economy. AngelList has thousands of self-identified restaurant angel investors. It is difficult to tell at first glance which ones are still active or have successful investments. Some AngelList people don't mind being prospected because that's how they vet new ideas. EquityEats is a crowdfunding platform specifically for restaurateurs raising seed capital for their first storefront. The good news for all startups, including eateries, is that the SEC is liberalizing rules on crowdfunding right now. Non-accredited investors will soon have many more crowdfunding options available, and entrepreneurs will have more channels to raise capital if they have good legal counsel to keep them compliant with the SEC's JOBS Act rules.

Non-profits like to help with restaurant incubation, at least here in the SF Bay Area. La Cocina focuses on assistance for restaurant owners in disadvantaged demographics, but their resources page includes planning and financing sources invaluable to any restaurateur. Forage runs another Bay Area kitchen incubator and promotes sustainable dining through its supper club.

Speaking of sustainability, it now matters in retail dining. My San Francisco blog coverage must include the local scene's sustainable dining culture. The Center for Urban Education about Sustainable Agriculture (CUESA) covers everything from farm to table. Entire dining supply chains can now be sustainable. The trend towards sustainability also gets national notice. Full Service Restaurants has detailed coverage of sustainability developments. The Center for Food Integrity and its CFI ENGAGE Resource Center offer a national perspective on food supply chain quality. Entrepreneurs launching a sustainable dining space need the seal of approval that comes from participating in these programs. Earning a B-Corporation designation probably helps show a restaurant's commitment to a sustainable philosophy.

There's a lot here for a restaurant owner to digest, no pun intended. San Francisco investors like to see sustainability when they perform due diligence on potential investments in any category, based on what I've gleaned from attending the Bay Area Impact Investing Initiative's (BAIII) events. The federal government is getting into the act with the SBA's sustainable business practices for small firms. It's all food for thought . . . again, no pun intended.

The Limerick of Finance for 11/08/15

Chain eateries give away food
Hoping diners will improve their mood
Something free with a meal
Good for a one-time deal
If it brings repeat business, it's shrewd

Financial Sarcasm Roundup for 08/17/15

I get withdrawal symptoms if I go for too long without sarcasm.  It's a healthy addiction, much better than any narcotic.  I have no experience at all with narcotics, for the record.  Those of you who do use narcotics should stay away from me until you kick the habit.

The IRS discovered its got hacked a lot worse in May than it had thought.  I'll bet nobody gets fired.  "Get Transcript" sounds like a great idea until a taxpayer who didn't choose a strong password gets doxed.  The IRS's CIO should brush up on what FedRAMP says about securing the cloud.  Rename the agency to "Ignore Required Security" for truth in advertising.

Amazon's workplace culture is the focus of major Internet buzz.  It doesn't sound all that bad to me.  I've worked at places where Darwinism, lying, and backstabbing were hidden beneath veneers of civility and chivalry.  Getting it all out in the open with official policy is big progress.  Giving a big bonus to a manager who sells their mother down the river would make it official.  I have blogged before that corporate culture is totally a function of CEO personality and HR policies, because people respond to charismatic leadership and environmental incentives.  Amazon's culture would be a case study in success if the company were a financial success.  The trouble for Jeff Bezos is that Walmart earns more net income in a year than Amazon has in decades.  Walmart solves supply chain problems much more effectively than Amazon, without the internal sniping.

American Apparel is having trouble sticking around.  The teen market is only so big and Millennials are delaying the age at which they start families.  Middle income families can't afford boutique clothes for their kids anyway after watching their incomes stagnate for decades.  Kids these days need to learn to wear homemade clothes from potato sacks and old drapes, just like their great-grandparents did way the heck back in ye olden days of yore.  That'll teach 'em, yes indeed.

I will sign off for now because I need to go look out my window at the fog coming in from the Pacific Ocean.  Anyone who wants me to entertain them when I'm not blogging can log on to Spotify and listen to my music playlists.  Just search for Anthony Alfidi, or "tonyalfidi," because Spotify doesn't have a listing for "Greatest Man Who Ever Lived."

Full disclosure:  No positions in any companies mentioned.

The Haiku of Finance for 02/05/15

RadioShack bust
Electronics retail store
Can't fix broken phone

Destroying The Consumer Mind

I dropped into a Commonwealth Club lecture yesterday by consumer psychologist Kit Yarrow.  She elaborated on points from her book Decoding the New Consumer Mind.  I don't know how much consumer psychology has changed since Edward Bernays figured out how to push people's buttons. One of Dr. Yarrow's main points was that humans haven't changed much since we stumbled out of jungles into settled civilizations, but our desire for the latest and greatest technology has led to big changes.  Those broad facts don't do justice to the ease with which humans can be manipulated into thinking something they merely want is really some "need" they can't live without.

Tricking humans is a skill as old as spoken language.  The erosion of written language, critical thinking, and common sense in the digital age makes manipulation easier.  I don't think I have to recap a century's worth of propaganda to tell my readers that simple messages are powerful.  Humans are still tribal and we look to our tribe's totems and shamans for validation of personal identity.  The so-called "civilized" people I see shopping at Union Square's high-end outlets would probably go into severe depression if they couldn't get that latest Gucci handbag.  I'm pretty sure San Francisco's cognoscenti experience withdrawal symptoms if they can't release their frustrations through conspicuous consumption.

The iPhone is a classic example of a luxury want that humans think is really an indispensable need.  My idiot co-workers lined up all night in 2007 to impoverish themselves by paying a premium for the first iPhone.  It's a phone with a computer processor, folks, but Steve Jobs convinced lame non-thinkers that they couldn't live without one.  The masses use their iPhones in the same banal ways they've always used innovation.  They just do the same things they've always done, like solve crossword puzzles and waste their friends' time with random chit-chat.  No one really needed a smartphone and hardly anyone used it to invent the longer lasting light bulb.  Everyone wanted one because one of our techno-tribe's chief shamans, the late great Mr. Jobs, turned it into a new cultural totem whose possession determined one's intrinsic human worth.  No one who bought an iPhone had to actually think about the choice they made.  Thinking is so unnecessary these days.

I would like to see a follow-up treatment of Dr. Yarrow's insights titled "Destroying the Consumer Mind" because that's what repetitive use of pre-rational stimuli does to human cognition.  It should be a quick read because it must ideally be a how-to manual on turning bland thoughts into action items for the masses.  I would write it myself but I'm quite busy destroying all of the dumb things I can find in modern culture.  

LiveDeal (LIVE) Versus Groupon (GRPN)

I got a glossy flyer in the mail prompting readers to check out LiveDeal (LIVE).  That's usually a bad sign; glossy mailers invite my sarcasm.  I can't see how this company differentiates itself from Groupon (GRPN).  They both allow retail merchants to push first-time discounts to customers.  They both have search functions that instantly geolocate the first-time user.  Their UIs both clarify final-offer prices, but LiveDeal specifies an expiration time to prompt that retail sense of urgency.  I guess that's their differentiator.

Let's glance at the fundamentals from Yahoo Finance and Reuters.  Here's LIVE first.
P/E:  N/A
Profit margin:  -114.42%
EPS 5yr growth:  N/A
ROE 5yr growth:  -84.0%

Now here's GRPN.
P/E:  N/A
Profit margin:  -4.73%
EPS 5yr growth:  N/A
ROE 5yr growth:  N/A

Both these companies have pathetic earnings histories.  They have lost money since 2011 and that's as far back as I need to go.  I am amazed that Groupon's market cap is 63x larger than LiveDeal's given their poor ability to generate earnings.  I guess sucker investors are paying a premium for Groupon's market share in the e-coupon vertical.  Groupon has 100x more revenue than LiveDeal and still can't make a profit.  That tells me that any business model solely focused on channeling retail discounts is not scalable.  A first-mover advantage doesn't mean jack squat in a vertical that offers no economies of scale.

I noticed that Groupon had more pics of attractive women and LiveDeal had more pics of food when I checked them out today.  Those are two of my favorite subjects.  This cursory glance at two sorry companies at least gave me some good visuals.

E-commerce is as crowded now as it was in the late 1990s.  Another shakeout is due and the survivors will have UIs optimized for mobile displays.  I don't care what either LiveDeal or Groupon look like on a mobile device because I don't need apps prompting me to urgently buy things I don't need, discount or no discount.  I also suspect the ultimate winner in the e-coupon vertical will have no more than a dozen employees and a marketing effort governed entirely by BRMS rule engines that automate the sorting and matching of offers.

Full disclosure:  No position in either LIVE or GRPN at this time.  

The Haiku of Finance for 03/13/14

Digital coupons
Challenge to Groupon model
Shoppers benefit

The Haiku of Finance for 02/01/14

Shopping pattern change
Online still chasing retail
Stores adjust poorly

Two More Retail Data Breaches

I don't think I've seen so many banner headlines for retail data breaches in recent memory.  We all know about the data thefts at Target and Neiman Marcus in recent weeks.  Now comes news that Michaels Stores is investigating a data breach.  We're not done yet.  Coca-Cola says a laptop theft may have exposed personal data to loss.  What on earth in Coke doing with people's data?  It's not like they need any customer loyalty programs.  Coke's flavor leaves no taste memory so people naturally crave more.

Corporate IT departments must be at some new level of stupid if they can't encrypt laptops or secure transaction streams.  I spent the better part of last year hearing the superstars of enterprise computing tell thousands of aspiring CIOs how cloud security is totally awesome.  It would help if they addressed device encryption too.

Do you trust your bank to secure your credit payment history?  Do you trust your email service provider to secure your messages and contacts?  Do you trust your web host service to secure your digital storefront?  These are all becoming very relevant questions.  The enterprise computing sector needs to come up with the IT security equivalent of a Good Housekeeping seal of approval that retail users will trust.  That probably won't happen as long as NSA backdoor agreements leave open gaping vulnerabilities that disgruntled insiders can exploit.  The corporate IT sector needs help tying its own shoes; it still has some growing up to do.

Full disclosure:  No positions in the securities of any companies mentioned at this time.  

Holiday Sales Results Show Power of Affluence

America's divide between the affluent and everyone else becomes more obvious by the day.  Mass retailers had trouble making money over the holiday season.  Best Buy's holiday revenue was so disappointing that its turnaround strategy is in doubt.  This invites comparisons to other declining retail chains like Sears and JC Penney.  Contrast this holiday performance with American Express' stellar holiday profits.  AmEx's cardholders have always been significantly more affluent than most other cardholders.  High-income earners are having no difficulty shopping, while more downscale retailers have trouble attracting spenders.  This was the holiday season, for crying out loud, when most retailers traditionally make most of their profits.

The pending end of the Loehmann's retail chain shows just how America has changed.  Loehmann's sold brand names at discount prices.  Brand name clothiers are turning away from discount outlets to protect their brands.  Feedback from affluent clients is clear; they like the exclusivity of the clothes they wear and they don't want to see elite emblems worn by poor people.  Middle-class consumers with aspirations toward brand-name lifestyles can't even afford the discounted versions of high-end apparel.  They will have to become downwardly mobile and shop at other discounters out of necessity.  There is no middle ground left for high-quality apparel at affordable prices.  The center cannot hold, as it were.

I blogged almost a year ago about how mass retail chains that don't appeal to affluent clientele are on their way to extinction.  Rich people like to be seen spending money in public and crave the attention of personal shoppers.  They have the money to support a high-ego, high-entropy lifestyle.  Discount stores catering to the poor have a huge market and good pricing power over their supply chains.  Mid-market retailers chasing a disappearing middle class consumer will suffer the most.  The American middle class is heavily laden with debt and has experienced no real income gains since the early 1970s.  Anyone catering to their aspirations is in for disappointment, because upward mobility is becoming an endangered species in America.

Full disclosure:  No positions in any companies mentioned.  I may do some shopping in the men's section at the Loehmann's in San Francisco before it closes.

The Haiku of Finance for 01/10/14

Target data breach
Impact keeps getting bigger
Neiman Marcus too

The Haiku of Finance for 01/08/14

Macy's laying off
Share price up after trading
Bad news for workers

The Limerick of Finance for 12/01/13

Holiday shopping shifts to online
Retailers who don't change will whine
Lead with a discount
Then watch losses mount
Cyber Monday cuts out the long line

The Haiku of Finance for 11/30/13

"Black Friday" chaos
Fighting frenzies nationwide
Shoppers going nuts

The Haiku of Finance for 11/26/13

Confidence did fall
Broke spenders need one last turn
Shop until you drop

Consumer Confidence Down Before Holiday Shopping

The holiday shopping season is almost upon us, although here in San Francisco it started maybe a week or two ago as Market Street retailers started hanging their fake Christmas wreaths.  It is fitting to note that consumers are starting off on the wrong foot.  The Conference Board reported today that consumer confidence declined again this month.  People must be really bummed about about something despite record numbers of SNAP recipients.

Here's a thought.  Local news shows can share helpful holiday tips on making a Thanksgiving feast from the last few bucks left on an EBT card.  That will go over well with Wal-Mart.  Maybe families could get creative and wrap up some old household items as Christmas gifts and put them under the tree just for show.  On second thought, they may not be able to locate a tree.  Blame the Fed for printing so much money that live trees are priced out of reach.  If the Fed doesn't stop its quantitative easing, we'll all be priced out of everything and no amount of SNAP will feed any of us.  The short-term hit to GDP would be a Scrooge-like price to pay but it beats living through hyperinflation in an unhappy new year.  

The Haiku of Finance for 11/11/13

Serving up free food
Razor-thin profit margin
Starving investors