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The Retired Investor: Corporate Activism Comes of Age
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For decades, corporations stuck to their knitting, while letting Washington and the voters decide how to deal with social and political issues. But times are changing as companies become bigger and more powerful.
Corporations are speaking out on issues from LGBTQ rights to gun control. To some politicians, managements and their boards are throwing their weight around in ways that make elected officials uncomfortable. At first, I dismissed much of their actions as simply rhetoric, or just good public relations, but more companies are speaking out frequently on many issues.
Take the gun control issue. U.S. politicians on both sides of the aisle have failed to pass legislation that would reign in the slaughter of our citizens (especially our children) for decades. In response, some companies such as Salesforce, Shopify, Amazon, Walmart, and eBay, have taken matters into their own hands. Several companies have simply banned sales of firearms on their platforms, or have refused to supply e-commerce software to gun sellers. Their actions have all but stopped online sales of firearms in the U.S.
Other issues such as abortion, LGBTQ, and voting rights have also been taken up by a wide spectrum of corporations. Film studios have boycotted the state of Georgia, for example, over abortion rights, while Bank of America and PayPal forced North Carolina to roll back a bathroom bill that discriminated against transgender people.
Most of the big social media companies such as Facebook, Twitter, and Google, are actively attempting to limit misleading or false information, as well as hate speech, on their platforms. To their credit, the backlash from some politicians and individuals has not deterred them from pursuing those goals — and they are succeeding.
And while the country continues to debate and argue over the need to require vaccinations, corporations are not waiting around for Washington to make up their minds on that either. Proof of vaccinations started with retail shops and restaurants, which are on the frontline of potential contagion from the latest surge of the coronavirus Delta variant cases. Since then, the number of employers who are posting jobs requiring proof of vaccination is steadily increasing. The number of job postings on Indeed.com, an online employment website, for example, requiring vaccinations as a job condition, has increased by 90 percent over the last month. Google, Netflix, Disney, Morgan Stanley and Facebook are just some of the big companies involved in this trend.
You might also remember President Biden's effort to raise the minimum wage to $15 an hour as part of the $1.9 trillion COVID relief package. It was shot down back in February by the Senate parliamentarian, who would not include it as part of the reconciliation budget process. Republicans refused to back it, claiming that it would hamper small businesses in various parts of the country. Fast forward to today. Corporations, both large and small, took matters into their own hands. As of June 2021, almost 80 percent of U.S. workers are now making more than $15 an hour, according to a Washington Post newspaper survey.
Corporations have always had a fair amount of influence and power in this country, but it has usually been exercised in cloakrooms and behind the scenes. Now, however, companies face a groundswell of pressure from a socially aware public (as well as their own employees) to right perceived wrongs.
A big change has occurred within certain elements of our society. The vast majority of millennials, Gen Xers, and baby boomers believe that companies they buy from should be investing and supporting causes they care about. And if not, boycotting a company or brand, they have learned, is far more effective than writing a letter to your congressperson.
National politics are at an impasse with neither party willing to compromise on issues as diverse (or deadly) as climate change, health, or even raising the debt ceiling. Clearly, part of this new corporate direction is meant to fill a power vacuum in Washington. Critics argue that affecting policy changes through unelected corporate leaders is troubling at best.
It is. But at the same time, with public confidence in our leaders and institutions at an all-time low, the consumer (voter) evidently feels more confident in corporations and the brands they identify with to get things done than they do in some politician they rarely if ever see.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
The Retired Investor: Back-to-School Season
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It is not an easy decision. On one hand, consumers want to go out and shop for their children's upcoming school year. But at the same time, they are concerned that if they do, they might catch the coronavirus. There is no easy answer.
This 2021-2022 school year was supposed to usher in a new beginning. As such, retailers are still expecting sales of clothes, school supplies, and college dorm décor items to increase by 5.5 percent from last years' depressed COVID-levels. Even so, that still won't match 2019's 6.7 percent increase, but it is getting close, or was until the Delta variant arrived.
I thought that parents have the extra cash to spend, given the rounds of government stimulus checks, enhanced unemployment benefits, and the child-tax credits that have been arriving in the mail over the last few months. The question will be whether those parents go out and splurge during the back-to-school season (mid-July through early September), or hold back.
If they splurge, then apparel will likely lead the list of items most in demand, and understandably so. Last year, during the great shut-in, you could wear the same sweat pants and T-shirts all week long and no one would be the wiser. But today, more families are hoping to go out, impress classmates, or start going back to the office, and if that is the case they want to look good.
Retailers are hoping that the desire to look fresh and fashionable will convince consumers to venture out, and browse the malls and department stores once again. It is those brick-and-mortar stores that suffered the "ground zero" economic impact (along with restaurants) during last year's closing of the economy.
However, weighing against these expectations is the upsurge of the Delta variant Coronavirus mutation. As the number of cases rise, more consumers are beginning to throttle back their plans to visit stores. Shoppers are once again growing wary of dressing rooms, public bathrooms, and the food courts. New shoes, dresses, and denim purchases might not be worth the risk of infection, at least for the time being.
That would be a blow to the shopping season. In just one area, industry experts were expecting back-to-school spending for children in grades up to K-12 to reach $32.5 billion, which would average about $612 per student. But the Delta strain of Covid-19 is not the only risk facing retailers.
Labor shortages are a problem throughout the economy. The scarcity of sales clerks and cashiers, for example, could translate into long check-out lines, especially for those who worriy about safe-spacing within confined spaces. To make matters worse, there may also be a lack of popular merchandise due to supply-chain bottlenecks.
The novel coronavirus Delta case surge throughout Asia has caused shipping bottlenecks. COVID-19 cases have created labor shortages in the main export ports, and in the apparel trade. That could be a problem for U.S. retailers. Just a few countries in Asia supply most of the apparel consumed by the U.S. fashion industry. China, Vietnam, India, and Bangladesh account for more than 40 percent of U.S. apparel imports.
It is still too early to predict whether consumers' desire to outfit their kids and themselves will win over the continued presence of the coronavirus. The verdict, like so many outcomes today, will depend on how bad the health issue becomes in the next few weeks.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
The Retired Investor: Buy Now, Pay Later
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When does a loan, not feel like a loan? That is the idea behind one of the more exciting new concepts being floated by the financial technology community. It is an idea that is just catching on here in the U.S., but it could challenge traditional credit cards overtime.
Are you really going into debt when you buy something and pay it off in a set number of installments? Technically, yes, but it doesn't feel that way, especially if you are paying 0 percent interest on the installments. That's evidently what Square, a leading financial service, digital payments company believes when it announced this week it was acquiring Afterpay, an Australian-based Buy Now Pay Later (BNPL) company in a $32 billion all-stock deal.
So why all the fuss over BNPL?
E-commerce companies are betting that younger Americans, who do most of their shopping on line, are not as excited as their parents and grandparents were with the benefits of credit cards. They may be unwilling, or unable to open credit card accounts. Instead, many millennials are following the example of Europeans, who have traditionally avoided credit cards and the debt that comes with them.
In Europe, where BNPL accounted for 7.4 percent of e-commerce payment methods last year, consumers are more willing to buy an item online, even though they may not have the full amount of the purchase available in their bank accounts. As long as they honor the terms of the installment agreement, everything turns out roses.
Here in the U.S., the idea is catching on. This holiday season, for example, I purchased a new Apple iPad for a loved one through PayPal Holding Inc. The company was offering a BNPL scheme called "Pay In 4" (installments) with no fees.
After reading the fine print, I realized that like so many of these offerings, if I missed a payment, I would be hit with penalties and fees and possibly damage my credit score. After researching the issue, I found out that nearly 40 percent of U.S. consumers who used BNPL have missed more than one payment, and 72 percent of those saw their credit score decline.
I am one of those people who pay off their credit card debt in full each month. I confess that I was so worried I would forget a payment, and incur a fee, that I ended up paying off the charge in two, rather than four, installments.
More and more retail websites, however, are now offering these services. The leading providers are Affirm Holdings, Inc., which just joined Apple in a BNPL deal in Canada, PayPal Holdings, Inc, Swedish-based Klarna and Afterpay/Twitter. It is estimated that in 2020, BNPL companies facilitated between $20 billion and $25 billion in U.S. transactions, but that only accounts for 1.6 percent of U.S. digital payments. The bet is that BNPL will grow as a result of online shopping and the culture clash around credit cards.
Let's face it, credit card debt in America has a bad reputation. Almost half of all Americans are carrying credit card debt. The average household credit card debt is $5,315. And while the percentage of revolvers (those who carry a debt balance on their cards) declined a bit during the pandemic, it still comprises 40.1 percent of all credit card holders.
But that has not stopped us from accumulating more and more credit card debt. Credit card balances increased by $17 billion in the second quarter 2021 (to $787 billion), according to the New York Federal Reserve's Household Debt and Credit report. While that is still below the $927 billion amassed prior to the onset of the pandemic, it continues to grow.
The optimists argue that younger American millennials don't want to be saddled with this kind of debt and fall in the trap of only paying down monthly charges forever and ever. Yes, BNPL is still debt, but only deferred and not forever, so there is little temptation to roll it over. The critics say that more than 40 percent of those using BNPL can't get access to traditional credit, either because their credit limit is maxed out, or they have poor or non-existent credit history.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
The Retired Investor: Olympic Price Tag Breaks Records
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After the Olympic Games conclude on Aug. 8, Japan will still be tallying the final cost of hosting the games. Indications are that the final price tag could be more than $20 billion.
Was it worth it?
The most recent polling data suggest the answer is a resounding "no," at least as far as the Japanese are concerned. Over 83 percent of the people polled, who live in Japan, believe the Olympics should not have taken place this week. To the Japanese, it is not just the expense of the games, but the holding of this event while the country is in the midst of a resurgence in the Delta variant of the coronavirus. Many fear the games will cause a "super spreader" within the country and possibly the world.
In an effort to reduce those risks, the Japanese government banned spectators from the games in Tokyo, while announcing a state of emergency to combat the latest surge of COVID-19 cases. The nation has reported more than 118,000 cases and 14,800 deaths so far, which is not much compared to other countries, and they want to keep it that way. However, this week, the government announced the third day of record-breaking coronavirus cases. But the rate of vaccinations has also been hampered by Japanese government requirements that vaccines must be vetted through the Japanese medical regulatory system before being administered. As a result, only a quarter of the population has had at least one shot thus far.
As for the cost of hosting, it is well known that hosting Olympic games is one of the most expensive events a nation can organize. The average cost of hosting such an event is about $12 billion. Construction costs of an Olympic Village plus various arenas is the biggest single item. In Japan's case, construction will total about $3 billion. In addition, non-sports related costs can be several times the construction costs, if history is any guide.
The forecast when Japan originally bid for the games was $7.4 billion. Since then, however, the games were postponed for a year due to the pandemic. That added another $2.8 billion to the price tag.
Cost overruns have always been an issue in budgeting for the Olympic games. Tokyo was no exception. The question will be just how much over budget the costs turn out to be. Estimates range from 25 percent to 50 percent of the original estimate. The most recent official budget released by Japanese auditors set the price at $15.4 billion, but analysts believe that is way too optimistic.
Given the costs and problems involved, you might wonder why countries still compete to host the games? Many countries believe it offers a chance to show off their nation, while creating a sense of national pride. There is also an assumption that the Olympics can improve the host nation's global trade and stature, while also increasing tourism (therefore boosting local economies).
Unfortunately, the historical facts do not necessarily back up those claims. The 2008 Beijing Olympics, for example, generated $3.6 billion in revenues, but cost the host city much more. London generated $5.2 billion in sales back in 2012, but faced $18 billion in costs. Most host countries had similar economic experiences. Measuring other benefits has been difficult to quantify.
The financial impact of cost overruns and accumulated debt can also be far-reaching. It took Montreal 30 years to pay off the debt it incurred after the 1976 Summer Games. The 2004 Games in Athens were so costly that it contributed to the financial and economic debt crisis of Greece for a 10-year period between 2007-2017.
Unfortunately, this time around, thanks to the pandemic, the benefits to Japanese tourism will be far less than expected. Empty stadiums will cost the Organizing Committee of the Olympic Games more than $800 million in lost ticket sales. Advertising revenues will likely be lower. An estimated $2 billion in hotel rooms, meals, transportation, and merchandise will fail to materialize as well.
While a $20 billion hit to the Japanese economy is sustainable (less than 1 percent of Japan's Gross Domestic Product), it hurts nonetheless. The ruling Liberal Democratic Party government is already attempting damage control in the face of the voting public's unhappiness with holding the event.
At the same time, organizers are holding their breath as the number of new coronavirus cases increase. More than a dozen new cases were reported this week among Olympics personnel, bringing the total thus far to more than 150. A U.S. pole vaulter, Sam Kendricks, a world champion tipped for a medal at the Olympics, tested positive for COVID-19 and was forced to drop out of the games. Organizers had hoped to contain the spread of cases, but have been less than successful thus far.
You would think that with all of the above problems in Tokyo, the Olympic Winter Games might be in jeopardy, or possibly postponed. No such luck. China, the cradle of the coronavirus, is scheduled to host the winter games on Feb. 4, 2022, less than seven months away. Go figure.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
The Retired Investor: What's That Smell?
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Imagine opening your laptop or cell phone and catching a whiff of your favorite perfume. Scroll back to last summer's Maine vacation photos and smell the pine forest at your campsite. Digital scent technology can make that happen sooner than you think.
Digital scent technology, also called olfactory technology, is an engineering discipline that enables media, such as video games, movies, music and Web pages, to sense, transmit, and receive scent-enabled content. Simply put, the day when you can smell through the internet is almost upon us.
The market is tiny right now, with less than $20 million in sales, but it is expected to grow substantially by the end of the decade. Surveys conducting by research firms such as Ericsson ConsumerLab, indicate that consumers are expecting that by 2030, internet devices will be able to interact with their sense of smell.
One big reason for the growth of digital scent is the fact that retailers, manufacturers, and advertisers already know that smell sells. That knowledge dates back centuries. Street peddlers in bazaars all over the world have used open-air grills to arouse hunger and entice consumers to sample their wares.
Today, companies as diverse as Burger King, Disney, Rolls Royce, and Nike have successfully used various scents and aromas in their brick-and-mortar stores and restaurants to improve traffic and generate additional sales. We remember that new car smell, for example, but may fail to realize how central that smell was in our decision to purchase a new car. But auto dealers understand that, as do supermarkets that spread the aroma of freshly baked bread through its aisles every day.
Credit for marrying our sense of smell to entertainment goes to a system called Smell-O-Vision back in the late 1950s. Aromas were released through hissing tanks or air condition vents in the movie theater. It quickly flopped quickly due to technology failures, but entrepreneurs kept trying and some were successful.
"Electronic noses," developed in 1982, could detect and recognize odors and flavors. In 2013, a wireless system was developed with the object of incorporating scents into movies, as well as other audiovisual experiences, but rarely used. Digital technology borrowed from these wireless systems. Over the last decade, two branches of digital technology, one focused on the digital detection and analysis of different odors, and the other on the digital transmission and re-creation of smells, have melded together. We were now ready to begin interacting between our human senses and the internet.
How does it work? The technology uses hardware devices consisting of gas sensors, which aid in sensing and generating different types of smells. That in turn enables the transmission of odor over the internet. There are other technologies that are pursuing touch, sight, taste and sound. It has been dubbed the Internet of Senses. To me, it's just more examples of how new data applications are changing our lives, now and in the future.
For now, sectors such as health care and military/defense are on the cutting edge of the digital scent scene. Clinical diagnosis, aromatherapy, and even the ability to detect cancer, are all areas where this technology is being employed by the medical community. The military and defense sectors are also using digital scent to detect and identify explosives in public areas, as well as in combat areas.
There are a number of innovative startup companies worldwide that are using a variety of scientific disciplines to mimic, recreate and/or identify smells and scents. Organic chemistry, silicon engineering, machine learning, photonics, as well as data science and software engineering, are creating ever more sophisticated ways to interact with this internet of the senses. Imagine, for example, if food companies could detect pathogens in their food supply networks before they could endanger human health, or lead to food spoilage. Some of this technology is already being used, for example, to screen for salmonella in packaged meat products.
Smell is important. It shapes many of our physical sensations that impact us deeply and directly. Companies are working diligently to further your sense of smell directly to the internet. And while your online experience today does not involve digital scents, it will in the next few years. You can bank on it.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
