World looks dif­fer­ent now

Cri­sis mak­ing its mark on old es­tab­lished brands and trade­marks

Finweek English Edition - - Openers - VIC DE KLERK vicd@fin­

THE CUR­RENT fi­nan­cial or credit cri­sis that’s turned into a con­sumer cri­sis is also now start­ing to make it­self felt among old es­tab­lished brands and trade­marks. Some lo­gos will dis­ap­pear and oth­ers will get new own­ers. The list of a few of those brands tells the tale of an old world on the point of giv­ing way and be­ing re­placed by new val­ues.

The fi­nan­cial sec­tor is al­ready only a shell of its for­mer self. Sev­eral brand names – for ex­am­ple, Lehman Broth­ers – and the whole con­cept of mer­chant or in­vest­ment bank­ing be­longs to the past. Hope­fully, also the vul­gar bonus sys­tem in that sec­tor.

The sec­ond sec­tor – un­til re­cently, per­haps cur­rently still, the world’s largest man­u­fac­tur­ing sec­tor, the ve­hi­cle man­u­fac­tur­ing in­dus­try – is the next one where brands are fac­ing mas­sive chal­lenges. Jaguar and the Africa icon, Land Rover, al­ready be­long to Tata of In­dia.

Ford’s F-em­blem may be re­tained, just like the Jaguar im­age on a car with a Ford en­gine and an In­dian owner. The Ger­mans have had their own prob­lems. BMW has given Rover back to Bri­tain – for £1. Daim­ler had to be sat­is­fied with even less – just US$1 – for Chrysler.

In the US, the busi­ness sec­tor – called “con­sumer cycli­cals” – is go­ing through very tough times. How­ever, the “con­sumer sta­ples” – among which, in­ci­den­tally, the to­bacco in­dus­try is the largest – are far­ing bet­ter. But a few names, such as Estée Lauder, which is at home in se­lect com­pany, is also none too firm.

Smartmoney’s “map of the mar­ket” is a nice toy for ev­ery stu­dent of the US econ­omy. A visit to the web­site­ket is much more in­ter­est­ing and lively than a we­b­cam at a wa­ter­hole in the Kruger Na­tional Park.

Dis­cre­tionary, or cycli­cal, con­sumer spending is au­to­mat­i­cally the sec­tor that will suf­fer the most when con­sumer spending and the avail­abil­ity of credit dries up com­pletely, as is cur­rently hap­pen­ing in the US. SA in­vestors, and es­pe­cially job seek­ers, would do well to look at which kinds of busi­nesses fall into that sec­tor and then use that in­for­ma­tion for im­por­tant de­ci­sions on where they want to earn their bread and but­ter.

Keep away from any­thing re­lated to ve­hi­cles; even spares and tyres are two of the red spots on the map. Be sure to also keep away from US news­pa­pers. The New York Times was re­cently forced to seek as­sis­tance from Car­los Slim, a Mex­i­can. It and The Wash­ing­ton Post’s mar­ket cap­i­tal­i­sa­tion has fallen so much it takes a lot of care­ful search­ing to find those two small dots on the map. In­ci­den­tally, it looks as if the mar­ket val­ues of the two win­ners in the S&P 500 – Fam­ily Dol­lar Store and Dol­lar Tree, 36% and 39% re­spec­tively last year – are more than those of Ford, GM, The New York Times and The Wash­ing­ton Post all added to­gether.

In SA, Shoprite, Mass­mart and Mr Price were last year’s best per­form­ers. That says some­thing.

Har­ley-David­son In­dus­tries was very pop­u­lar in the US for many years and even started looking like a top share. Last year, this icon, along with Bryl­creem from the Fifties, was hit hard. Har­ley-David­son’s shares are now trad­ing at $14, com­pared with $43 as re­cently as Novem­ber 2008. A re­cent head­line in a fi­nan­cial jour­nal – “An­a­lysts send Har­ley to chop-shop” – tells clearly what’s in store for this well-known brand.

East­man Ko­dak, once “the name” in the pho­to­graphic in­dus­try, is a con­tem­po­rary of Har­ley and has fared even worse. Its share price has fallen by 80% re­cently. Weight Watch­ers’ price dropped from $58 over the past 15 months to a mere $21/share. Many a sup­porter of this pro­gramme no doubt dreams of los­ing weight in that way.

On the other hand – per­haps part of the weight prob­lem – there’s Krispy Kreme (which makes dough­nuts). Its price has fallen from $55 in 2005 to its cur­rent $1,30/share, and more re­cently the drop has in­creased in speed con­sid­er­ably.

An­other sec­tor with par­tic­u­lar prob­lems of late is the casino in­dus­try. For­tune spec­u­lates Trump En­ter­tain­ment is one of the com­pa­nies that may soon dis­ap­pear. The Trump busi­ness prin­ci­ple over the past 40 years has al­ways been one of max­i­mum debt and min­i­mum eq­uity. In fact, it per­fected the use of other peo­ple’s money (OPM). Its cur­rent price of 22c/share – ver­sus $22 as re­cently as two years ago – tells clearly there’s no place for the OPM busi­ness model in the cur­rent credit cli­mate.

My own favourite – Crocs – isn’t do­ing well ei­ther. Slip­slops, or rather the Ori­en­tal im­i­ta­tions, are just as comfortable and at R50/pair it’s no prob­lem to buy new ones when you need them. Crocs, the orig­i­nal de­signer, wanted to cre­ate a brand name and sell his prod­uct at R600. La­bels and brands are im­por­tant for teenagers, but the older you get (es­pe­cially when money is short) the more you re­alise that it’s of lit­tle con­se­quence. That’s why Crocs’ price tum­bled from $80 to the cur­rent $1,30/share. That’s def­i­nitely one of those brands go­ing to qui­etly dis­ap­pear.

The time of lux­u­ries, ex­ces­sive fo­cus on la­bels and dis­cre­tionary spending on what’s not re­ally es­sen­tial tells a clear story. The same goes for the labour mar­ket.

Peo­ple with spe­cial skills, sup­ported by logic and an en­tre­pre­neur­ial ap­proach, will be the win­ners in the new eco­nomic re­vival – when it comes. In­fra­struc­ture spending cre­ates op­por­tu­ni­ties for such peo­ple and not for the smooth talk­ers who try to co­erce you into buy­ing an ex­pen­sive watch.

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