NewCo Daily Aug 2 2017
Why are markets ignoring political chaos and merrily pushing upward? Plus P&G fights raiders, and Birkenstock goes ballistic.
Back in the go-go days of the first dot-com bubble, a pair of economic analysts wrote what became that era’s most discredited book: Dow 36,000. With the markets already at historic heights (the Dow reached a peak of 11,700 or so in early 2000, before crashing back to earth later that year), the duo predicted a three-fold rise to 36,000 in just a few short years.
The authors doubled down on their bet by publicly wagering that the index would be closer to 36,000 than 10,000 by the year 2010. The Dow would have had to cross 23,000 for them to have won. Thanks to the great recession of 2009, they lost that bet, bigly.
But just yesterday, the Dow flirted with 22,000, setting another record high amongst a string of record highs and prompting a slew of chin stroking pieces on the state of our financial markets. The New York Times set the tone, pointing out that “the president’s promise to slash regulations and cut taxes — even if unfulfilled — has stoked long-dormant animal spirits among investors. That corporate earnings are excelling and the global economy is growing faster than many expected has only added to the bullish vibe.”
The Wall St. Journal also marked the 22,000 milestone, and credited our globalized economy, arguing that the Dow’s stalwarts — companies like Boeing and Apple — have more than 50 percent of their business overseas. Put another way, the Dow is no longer tied to the whims of the American economy (or its politics).
But will the rise continue? Ah, that’s the $36,000 question. Right now, the wisdom of the market is certain it will. And that’s just about the time most savvy investors start to pull in their horns.
As Goes P&G?
One of those global Dow stocks is P&G, an American consumer products giant that despite strong performance in an Amazon-challenged sector over the past five years, has lagged the market’s overall rise. That lag has drawn the attention of activist shareholders, in particular Nelson Peltz’ Train Partners, which has built a $3-plus billion position in the stock, and is now waging a proxy battle to put Peltz on the board, where presumably he’d do what hedge fund managers do best: Lobby for deep spending cuts and massive stock buybacks, both of which artificially inflate stock price. Once that happens, dump your position, make a fortune, and move on.
Proxy fights, in which an activist lobbies fellow shareholders to vote against the recommendations of the company’s own management, are nothing new, but this one bears watching for a number of reasons. Chief among them is how P&G itself has become proxy for the tectonic transformation of brand-driven retail markets around the world. But that’s not what strikes me as fascinating in this story. Instead, it’s the robustness of P&G’s response that caught my eye.
“No new actionable ideas have been offered by Mr. Peltz,” the company’s CEO said in a detailed response to Peltz’s proxy filing. “‘Why not?’ appears to be the extent of Mr. Peltz’s reason for board membership.”
I should note here that I’ve worked closely with P&G over the past decade, so my views are colored by my ongoing respect for the company. But it’s notable when rather than play the long-suffering Wall St. game of placating activist shareholders and allowing them their obscene profits, the company is fighting fire with fire. Watch this space, because as goes P&G, so may go many of America’s most notable corporate giants.
“A Middle Finger to All Brands”
Speaking of outspoken CEOs, Birkenstock, resurgent purveyor of unfortunate-looking footwear to happy hippies, is well on its way to becoming a modern day David to Amazon’s Goliath. Birkenstock’s particular David is its Americas chief David Kahan, who’s livid with Amazon’s strong-armed tactics toward Birkenstock’s own retailers.
It all started a year ago, when Birkenstock pulled its products from Amazon, claiming the platform enabled counterfeiters and unauthorized merchants to undermine the company’s unique brand. But recently, Amazon began aggressively courting small merchants around the US, encouraging them to leverage the retail giant’s platform to move product. Caught up in the fray were authorized Birkenstock resellers, prompting a fire-breathing, ALL CAPS LADEN five-page response (pdf via the Washington Post) from CEO Kahan.
In it, Kahan argues that Amazon is actively subverting Birkenstock’s own policies, and is doing so to consolidate control of the entire retail sector. “I have never in my 25+ years every heard of a retailer on such a scale as Amazon, actively soliciting other retailers for a brand’s inventory in the case of such brand not choosing to sell them. … [Amazon’s] solicitation is quite frankly a ‘wolf in sheeps clothing.’” He continues: “I take their desperate act as a PERSONAL AFFRONT and as an assault on decency and all we, as a brand, as an organization, and as a partner, hold as shared values.”
Will Kahan rally a brand revolution against the market aggregating power of Amazon’s dominant platform economics? Unlikely. But one thing is certainly true: Birkenstock’s will never go out of fashion — because they were never in fashion to begin with. No matter what, the company’s devoted fans (which include an awful lot of fashionable folks) will always find a way to buy the company’s famous footwear.
Check out NewCo Shift’s latest member-only stories on Medium: noted author Steve Johnson on the creative process, and advertising veteran Rick Webb on how the internet doesn’t understand its own business model.
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