One of the key terms you will hear us use often on Jerry Tuma’s Smart Money Radio and at our Smart Money Investor Training Conferences in north Dallas is the term “Big Wave Investing”. What that means is that we look at the mega trends in the economy, in business and in demographics and forecast where the next Big Wave is headed from which our clients can prosper and from which we must protect them.
This past week one such wave became painfully apparent as one of America’s giant retailers from just a decade or two ago bit the dust.
I don’t want to grow up…and Toys R Us didn’t
What parent of the last 30 years didn’t get that advertising jingle stuck in their head, “I don’t want to grow up, I’m a Toys R Us kid”? Who can forget taking their young children to one of hundreds of Toys R Us stores to spend hours going aisle by aisle, looking for that perfect birthday or Christmas toy?
But the same Big Wave that has imperiled giant brick and mortar chain stores across America, the online shopping convenience of Amazon, Alibaba and others, finally brought down the magical world of Geoffrey the Giraffe. Fortune Magazine reports that in a 3 p.m. message to all 30,000 employees on March 14th, CEO Dave Brandon announced that the iconic chain was “finished” and would be shutting down for good.
“I am devastated that we have reached this point,” Brandon told a group of about 600 employees. “I truly believe we did our best, under what turned out to be nearly impossible circumstances.” He choked up as he spoke.
Textbook case of old school business failing behind
Last September, just months before the start of the crucial holiday shopping season, Toys R Us filed for Chapter 11 bankruptcy, hoping to reorganize and return stronger, better able to compete. Brandon was hopeful, announcing, “It’s the dawn of a new day for the company.” But creditors and vendors quickly soured his rosy view, as everyone with a stake in the outcome began trying to cover themselves. Creditors owed collectively $5 billion began demanding the closing of 800 stores. Vendors became wary of selling more goods to the chain and not getting paid. Venture capital firms, including Mitt Romney’s firm, Bain Capital, watched their hope of returning Toys R Us to the stock exchange grind to a halt like a toy running out of battery power.
The all-important holiday shopping season was a complete bust, with sales falling 15 percent year over year. Overall retail sales for the holidays grew a mere two tenths of a percent, while online sales leaped 18 percent. Clearly the handwriting was on the wall.
Senior, unsecured bond holders saw their bonds due in 2018 plummet to a nickel on the dollar. Finally, in February, the last of the hold out vendors who had hoped for a miracle, bolted and the iconic chain had no more suppliers.
At Cornerstone, we keep our eyes on the mega trends
Even though Jerry spent most of his book, From Boom to Bust and Beyond focusing on demographic and monetary trends, in Chapter Eight he discussed how rising technology would revolutionize the market place worldwide, leading to more freedom and democratization. What we are seeing with the collapse of former giants such as Toys R Us, Gymboree and Sports Authority is an outgrowth of that Big Wave. No doubt some retailers have held on such as Academy Sport & Outdoors and Dick’s Sporting Goods. Even Mighty Walmart has taken some powerful hits to sales, yet is fighting back with their own online shopping experience.
There is growing discussion of how advances in Artificial Intelligence, or AI, will render humans obsolete at many job positions, diminishing the workforce and increasing pressure on governments to provide a so called “living wage” since people will not be working.
There is still a place for good customer service in brick and mortar stores. Nevertheless, a concept known as “show rooming”, where consumers go to brick and mortar stores to see and handle goods, then go and order it cheaper online, is proving challenging even to these survivors. The Big Wave of online shopping is dramatically affecting business and how you should invest.
For our valued investors, we keep our eye on these sorts of trends and see to position our clients accordingly, whether it be to take advantage of developing opportunities, or to move them safely out of the way of impending trouble for industries and demographic trends that are spelling trouble.