World looks different now
Crisis making its mark on old established brands and trademarks
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 website smartmoney.com/mapof-the-market 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.