Oakley sold to Luxottica for $2 billion

Bloomberg, reported in Dealbreaker's Opening Bell

June 21 (Bloomberg) -- Luxottica Group SpA, the world's biggest maker of eyeglasses, agreed to buy Oakley Inc. for $2.03 billion to add sports sunglasses to the Italian company's Ray-Ban and Ralph Lauren brands.
Shares of both companies surged. Foothill Ranch, California- based Oakley's investors will receive $29.30 a share, 16 percent above yesterday's closing price, according to a statement.
The U.S. company, whose shades are endorsed by cyclist Lance Armstrong and golfer Annika Sorenstam, will lower Milan-based Luxottica's annual costs by 100 million euros ($134 million) by 2010. The bid follows PPR SA's offer for Puma AG this year as premium sports brands command higher prices. Oakley's newest Nanowire styles sell for $300.
``Nobody can touch Luxottica now,'' said Gianluca Pacini, an analyst with Caboto Equity Research in Milan, who has a ``buy'' rating on the shares. ``If you calculate the synergies they expect to exploit, the acquisition adds value. It's the industry's No. 1 player, with the sports brands, luxury brands and optical retailers.''

Luxottica has pretty much mastered the vertical integration game, by owning both the manufacturing side and their own bevy of retail optical stores across several banners, plus having their wares available for sale at fine specialty retailers pretty much everywhere.

There is, it seems, no stopping them.

Did I mention that retail margins on optical apparel are absolutely huge? Discounting and price slashing don't rule the roost in the sunglasses business; it's all about upselling, appealing to the customer's emotional needs, and the add-on sale.

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Eastman Kodak Continues To Dissapoint

CNBC: Eastman Kodak Loss Narrows Helped By On-Going Cost Cutting
The photographic equipment maker reported a loss of $151 million, or 53 cents a share, for the first quarter, up from a loss of $2.98 million, or $1.04 a share, in the same quarter a year ago. Revenue fell 7.5% to $2.12 billion from $2.29 billion in the year-ago period.

So far, Kodak has failed, by any metric you choose, to parlay their dominance in the film business and their branding into anything resembling success in the digital imaging realm.

Especially damning is this passage:

Looking ahead, the world's top maker of photographic film said it expects full-year revenue to be down between 4% and 7%, with digital revenue growth down between 3% and 5%.

This is the year 2007, and not only are they are still being referred to as "the world's top maker of photographic film" but their digital business is in reverse.

At this point, you have to wonder if it's too late to turn Kodak around. Since about 1980, business consultants and people who like sounding smart have made references to the demise of the Buggy Whip business at the start of the 20th century. One hundred years from now, will Kodak be the butt of cautionary tales about failing to evolve your business?

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Follow Up To Circuit City's Q1 Earnings: Is There Potential For A Private Equity Play?

Once is short-sightedness, twice is incompetence, three times is sabotage.

Given the absolutely appalling performance that Circuit City has turned in since the turn of the century it's time to ask, are they doing this on purpose? And is the struggling retailer ready to be taken private?

Left to their own devices, the company is in the weeds. Could it be time for private equity to make a takeover bid, right-size the management team, do a top to bottom analysis of the entire company, and actually come up with a winning plan?

Seems like a good idea to me. The best and brightest minds in business don't tend to be in retail. At least, if they started there, they tend to move on. A wholesale leadership change and housecleaning is what it's going to take to put Circuit City back on it's feet because, frankly the current management team isn't up to the job.

On a related note, urged on by one of my correspondents, I have the following open-ended offer to make to Circuit City's Board of Directors.

Last year you gave Phil Schoonover US$6.95 million to ruin your company. I promise you that I can destroy Circuit City for less than half that. For a $2mm salary, and a $1mm bonus upon completion (salary up front, please, and put my bonus in an escrow account before the fat lady sings, if you would be so kind) and I can sail you onto the rocks before Christmas.

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Wal-mart going into India? Who should we feel sorry for?

Journalist Gary Weiss has a new article in Forbes about Wal-mart's proposed venture into India.

Sorry, but I've never been a big fan of Wal-Mart's business practices. I love the stores--they're the first place I go when I run out of glue and kitty litter--and I even owned the stock some years ago. But Wal-Mart's aggressive attitude toward suppliers and its impact on small business give me an uneasy feeling in the pit of my stomach.
It's a bit how I feel when I see a Rottweiler sniff a kitten. Is it going to lick the kitty, or turn it into lunch?
Wal-Mart's (nyse: WMT - news - people ) plans to invade India give me just that kind of lump-in-the-gut feeling.

I'm not a fan of Wal-mart, though not in the same league as the leftie chest-thumpers.
My question is not can India survive Wal-mart, but can Wal-mart survive India?

Wal-mart is very good at what it does, but by nature of its mass, it is hidebound and rigid, and not especially good at adapting to conditions and situations that are off its planogram.

Wal-mart's entrance into Canada was checkered by gaffs and blunders caused by their master plan hitting the iceberg of the reality of a different retail market and a different culture. The most colorful were the english language-only Grand Opening flyers circulated in french speaking Quebec. It took time and millions of dollars to turn the boat around and get Wal-mart in synch with Canadian consumers.

India is a very different place from the US or Canada. Wal-mart's corporate myopia may not recognize that initially.

Don't expect Wal-mart to be able to barge into India without hemmoraging a lot of cash. I think that in the long term, they will be able to adapt, but they will learn some painfully expensive lessons before they gain anything like market dominance.

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Why Market Share is an even more worthless metric than you think

Great article on Roughly Drafted.com about how "Market Share" gets distorted to make brands look good, rather than getting used as any sort of meaningful yardstick. In this case, how it is used by Microsoft to massage it's numbers, rather than identify real opportunities or problems:

Analysts and reporters like to talk about market share statistics, but the conclusions they draw are often misleading. Here's a look at how those numbers are used to paint grossly inaccurate portrayals of the market share of the Zune among iPods, and alternatively the Mac among PCs.

Market share simply refers to the portion of a vendor’s unit sales compared to the overall market. However, most large markets include specialized niches that each act as a market. For example, within the overall market for vehicles are passenger cars, and buried within that major segment is the small but profitable luxury car market.

BMW doesn't compete against ship and plane builders, nor even the entire line of cars built by GM. It would therefore be absurd to talk about BMW's small share of the "vehicle market," or even to compare its market share among other car makers. It's simply pointless and irrelevant.


Why is market share so important in the PC world, particularly for Apple?

The Slippery Numbers of Market Share
Microsoft-enamored analysts have long been titillated to report Apple's small Mac market share in comparison to all PCs sold worldwide.

They are not as quick to mention that the definition of “the PC market” ballooned as PCs makers pushed into markets unrelated to Apple's business, resulting in a commensurate decrease of Apple's share as the overall PC market rapidly expanded into unrelated directions.

By referring to Apple at every opportunity as having "less than a 3% share of the market," it enables them to casually suggest that a $77 billion company with the world's hottest consumer brand is really just of little consequence.

Just read the whole thing!

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Monster's accessories for AppleTV get to market before AppleTV did

TWICE: Monster’s Accessory Cables Beat AppleTV To Market
Monster has begun shipping a line of high-performance cables designed specifically for Apple TV, the forthcoming device that streams movies and other media to a TV from a Mac or PC.
The iTV cable line is shipping in advance of the Apple TV, which was originally slated for a February release but has since been delayed until “mid-March” according to Apple.


Love Monster or hate them, you have to give them their props for being on the ball. There's something oddly pleasing about the peripherals hitting the store shelves before the actual product does.

Besides, this blog has been dominated by real-estate talk for the past week, since not much had happened in the CE world to stir my interest.

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Does the current CE service model really benefit anybody

Oddly enough, this post was inspired by a dream. Saturday afternoon during a brief nap, I dreamt that I was rousted out of bed by some old guy who had a complaint about his Hitachi television. In my dream I interupted his tirade about a flicker on the screen with "Two things, sir. First, I'm a Hitachi dealer, and not a service center. Since you didn't get the tv here, I'm not sure why you decided to call me. Secondly, what are you doing in my house!?"

Consumer Electronics seems to be a rare marketplace where if you have a technical problem, you go back to the store where you got it from. Everybody knows that if you have a problem with your car, you call the dealership's service center, you don't call the salesman. Yet, if somebody's television or other electronic device is acting funny, most people go back to the shop.

This paradigm has altered somewhat in the past couple of years. Some manufacturers, such as Apple and Bose, want to be solely responsible for customer satisfaction with warranty work. In fact, on some boxes of portable audio/video product that I've seen, the manufacturer has a big sticker that says "IS THERE A PROBLEM? PLEASE DON'T RETURN THIS PRODUCT TO THE STORE. CALL 1-800-[customer service hotline number]"

This is due to recognition that retailers are in the business of selling product, and are ill-equiped to process customer warranty issues in a reasonable manner. You have only to peruse some of the horror stories on customer complaint websites like http://www.bestbuysux.org/ to realize that the retailer is probably not the best choice for looking after problems. It's sad, but it's reality.

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HBC's new ownership, one year later. Do the details tell a story?

Last year I penned an opinion piece about what I thought the new private ownership of venerable Canadian retailer HBC needed to do in order to stem the bleeding and revive the brand.

Well, after almost a year, what positive changes have they wrought?

Not too many, as far as I can see.

I'd like to say that I shop at The Bay and Zellers, HBC's two primary banners. Sadly, a more accurate statement is that I try to shop there, but HBC is not going out of their way to encourage me.

The Bay's stores remain, for the most part, vibrant looking, clean, and well stocked. Unfortunately, they never seem to be well stocked with things that I would like to buy. Expeditions in the past year for menswear, clothing for my infant child, kitchen gadgets and furniture have been disappointing, to say the least.

Zellers, on the other hand, doesn't seem to be trying any more. Pressured by both Wal-mart and Superstore, as well as newer entrants into the general merchandise game like London Drugs, Zellers' decline in store appeal has been dramatic. With a retailer's eye, I see unstocked shelves, messy displays, and apathetic employees with dead eyes who wear their red jerseys like an albatross around their necks.

Do you know what strikes me the most, and I consider to be a bellweather of the state of HBC?

The shopping carts.

Shopping carts are expensive. They cost at least two hundred dollars each, sometimes a lot more. And every outlet of your chain needs dozens, sometimes hundreds, of them. And they have hard lives being banged around the store and the parking lot, and often need replacing.

What does this have to do with the price of tea in China? Well, shopping carts are a link in the chain that creates the shopping experience. They are the basket that your shoppers put their goods in. Do the wheels jam? Is the strap for the child seat broken? Has the cart been dinged in the parking lot too many times and now steers to the left? Are there any in the corrals by the doors for shoppers to use? All of those little irritations are black marks that customers will strike against you, subconsciously or otherwise.

Zeller's fleet of shopping carts gets more sad and dilapidated every time I try to shop there. Seriously, go to the Zellers near you and try to find a cart that a homeless person would actually want to lay claim to. I'm embarrased on behalf of store management at the state of their carts.

And The Bay? Where are their carts? I worked for HBC in 2000 when they rolled out a fleet of shiny, black, artsy-looking carts, aimed at the hip, with-it soccer moms that The Bay caters to. At the doors and beside the cash desks are lonely corrals where the carts used to be. But they're all gone. Whether they were all annexed by hip, with-it homeless people, or quietly eliminated because a focus group led by a consulting company told HBC senior management that their customers don't want shopping carts is a mystery that has yet to be answered.

Just like how salesmen of a certain age tell you that you can tell a lot about your customer by their shoes, so too as a retail expert can you tell a lot about a retailer by their shopping carts. In the case of HBC, the prognosis is not good.

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Apple and Cisco agree to "share" the iPhone name

NY Times: Cisco, Apple Settle 'iPhone' Dispute
SAN JOSE, Calif. (AP) -- Cisco Systems Inc. and Apple Inc. have agreed to share the ''iPhone'' name, but both companies are staying tightlipped about what future products might come from the resulting deal to collaborate on ''interoperability'' between the companies' products.
Analysts said the settlement announced late Wednesday in Cisco's trademark-infringement lawsuit could help both companies strengthen their positions in the increasingly fierce battle to deliver video and other applications directly to consumers' homes.

It appears that all the posturing and chest-thumping on both sides has paid off. I think that a collaborative parntership between the two will benefit both parties better than a simple settlement would have. This also allows Cisco to save face, since really, Apple handed them a fait à compli, and frankly, everybody knew it.

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An odd tidbit: where is all the marketing for PS3?

One of the little chores that goes along with my role as both a retail and CE industry analyst/pundit is reading the mountains of flyers and ROP (run of print) that get dumped in my mailbox three or more times a week. If you want to know what’s going on in retail, read the ads and the retailers will tell you what trends you should be watching.

Well, I haven’t seen any advertising for Playstation 3 since Christmas. The weekly multi-page ads from Best Buy, Future Shop, Toys ‘R Us, and all the other usual suspects have been completely silent on the PS3.
If retail support for promoting the PS3 is this light, what does this mean for Sony’s giant gamble? Tell me what you think in the comments section below.

Incidentally, at the beginning of the month Dealbreaker covered a report that superstar video game maker Electronic Arts bet on Playstation 3 was not paying off, and they are furiously retrenching to capitalize on the surprise success of the Nintendo Wii. It's well worth reading.

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The Power of Brand

An article in The Economist that was reported by Vinography.com concerns a study conducted on wine lovers.

Not only have these folks figured out that THE most important thing in determining the value of a wine at auction is its label (i.e. the name, brand, reputation, region and vintage) but they've done one better. They've actually proven that when people tasted the wine before they bid on it, no matter what the label said, they paid less for it! Let me repeat that for full effect. The power of the label is so strong we actually pay more for wines that we know only by reputation, rather than having tasted the wine to know whether it's any good.
Apparently they did this study on a bunch of Champagne auctions where they had some people taste wines blind, some people taste the wines and see the label after, some people tasted the wines while looking at the label, and some didn't taste at all. Those who didn't taste at all paid the highest prices, those who tasted while seeing the label paid the next highest, and those who tasted blind paid the least for the wine.

This, like all good studies, confirms what we already knew, or at least suspected. It also ties in nicely to a fluffy piece done by CBS before Christmas last month:




My question is, does our ability to percieve Brand count as one of our senses?

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Playstation3 launches in Canada Friday November 17: and it's not gonna be pretty

To the hardcore gamers who will be camping out in the cold this week for their shot at a PS3, you all have my best wishes.

Now, let's pan upwards from the ground level and take a higher, more global view:

Fact: Sony's global rollout is ~400,000 units, down from an initial target of 2 million.

Fact: ~100,000 have sold in Japan by now, leaving maybe <300,000 href="http://www.census.gov/industry/1/ma334m05.pdf">U.S. Census: Americans spent US$ $84.6 billion on Consumer Electronics alone in 2005

Statistics Canada: in 2005 Canadians spent CAN$33.35 billion on "furniture, home furnishings and electronics" as a lump category

Now that we've established the battleground, I'll let you in on a retail dirty trick: Strategic Purchasing.

Imagine that you are a buyer for a really big, strong U.S. retailer. Your company has deep pockets, and lots of clout in the marketplace. The name isn't important, so let's call you "Best Buy", or "Wal-mart". When the national account office for a manufacturer (let's call them "Sony") first asked you how many PS3s you would commit to, you ran the numbers, consulted with your management team, and came back to Sony with a commitment to buy half a million units.

You and Sony both know that there won't even be that many units available come launch time. However, you've thrown your weight around, and that number goes on the books. Every other retailer's initial order will be measured against that yardstick. Then the national account office for Sony goes into a mode known as "On Allocation:" the actual number of PS3s get divided up amongst the dealers based on the size of their orders. If your company's order is 26% of the total dealer commitment, your share of the stock that is available will be commensurate with the commitment you made to buy what they offer to ship you.

Okay, every retailer has placed their bets. The big national chains, the regional specialty dealers, and the small one-off shops that still struggle to play ball in the video game business (poor bastards). Sony has confirmed with you that of the 300,000 units that will ship, you're getting 84,000.

Then, at the last possible minute, you call your Sony rep and freak out on him. You tell him that you absolutely, positively need another 84,000 on opening day, or else. Then you slam the phone down.

So the Sony USA national accounts office sits down, and methodically decides whose orders they are going to short ship, or backorder indefinetely. Put simply, in order to keep their #1 customer happy, they have to decide who gets screwed. And who gets screwed are (in order of most to least):

Sony of Canada, and all their customers, including the Sony Store
small regional chains, and the independants
major dealers who placed more timid orders than you did

after a harried meeting, your rep calls you back, and offers you another 24,000 units, which you weasel him up to 36,000 or so.

Congratulations: you have just frozen out the competition. The really unlucky competitors took prepaid backorders from customers based on the quantity of units they thought were confirmed to ship, and each pre-order they took is one more unhappy customer for them, and one less for you. Ka-ching!

The moral of this story? If you're going to stand in line this week for a PS3, I hope you picked the right retailer.

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TiVo trying not to be a one-trick pony

CE Pro: TiVo Enhances Broadband Delivery

TiVo.com

Hot on the heels of my commentary last week about TiVo facing grave challenges in a market that they once completely dominated, the pioneers of personal content management have announced five new features that will keep their service and hardware relevant.


Unified Search -- TiVo unveiled "unified search," launching next year, whereby consumers can search across broadcast, cable and broadband content sources through an approach that seamlessly integrates all video for easy access, menuing, searching, recording, and viewing. Consumers want content from many different sources and with unified search they won't need to visit multiple devices to view that content — it can all be easily accessed in one place from the TiVo "Now Playing" list.

Translation: surfing forty-six million channels is now a lot easier.

Home Movies Service -- Working in partnership with One True Media, TiVo is offering a breakthrough new service feature which will provide friends and families scattered across the country with an easy way to share their home videos, by sending them directly to the television set. Rather than burning and mailing DVDs, friends and family will now be able to set-up their own private channel to send home videos directly to a TiVo subscriber's TV set.

Translation: YouTube is a good idea. Let's make our own!

Autotranscode -- TiVo subscribers who upgrade to this new PC software will be able to easily browse, transfer, and watch a vast amount of Web video, right on their TV sets, using the Emmy Award-winning TiVo service, even if the content is not originally in a format that televisions can display, by autotranscoding that video through their PCs.

Translation: now you can watch YouTube on your television. Practical and ironic, I like it!

New TiVoCast Service Programming Partners -- A fresh group of media companies, including CBS Interactive, Forbes and specialized health content, will deliver broadband programming directly to the television through TiVo's revolutionary TiVoCast service. Launched earlier this year, the TiVoCast service delivers broadband video directly to the television sets of TiVo subscribers, turning Web video into television by bringing powerful broadband content previously available only on the PC.

Translation: with all the talk of Web 2.0, it was only a matter of time before someone took a stab at WebTV 2.0 *cough*

ICM -- With broadband video choices, the number of TV options available became overwhelming, and celebrity talent became critical "key words" for viewers finding what they want. TiVo and International Creative Management (ICM) have teamed up to provide TiVo subscribers with TV show and film recommendations personally selected by some of the most well-known Hollywood actors and directors. These celebrity Guru Guides will offer subscribers the ability to have this content automatically recorded on their TiVo boxes.

Translation: Jerry MacGuire's real-life counterparts have followed the smell of money:

• Saving Private Ryan downloads automatically to five million TiVos
• residual cheque written to Mr. Hanks
• ICM gets 30% (or whatever). Clever.
  
  So, with TiVo hemmed in by smart PC media centers cropping up like mushrooms, the rise of YouTube as the new Prime Time, and network TV falling all over themselves to get on board the IPTV train, will these initiatives keep TiVo in the race? We'll have to wait and see.

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Who here is leaving money on the table?

NYT Dealbook: The Spending Habits of Hedgies

A new survey of hedge fund professionals, who are a generally secretive group, suggests they are juicing not just the art market, but those for other goods as well. For his book Fortune’s Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals, Russ Alan Prince of the consulting firm Prince & Associates, working in conjunction with trade publisher MARHedge, polled the buying habits of 294 managers with a median net worth of $61.7 million.

Given the reputation of many hedge-fund professionals as big technology fans, it may be suprising that electronics were so low on the hedgie shopping list. In fact, facials seem to have outranked plasma TV’s, as average spending on “traditional spa services” was higher than the “electronics” category.

The survey’s findings for their 2005 personal average spending:
Fine art: $3.99 million
Yacht charters: $429,700
Jewelry: $376,400
Hotels & resorts: $304,900
Watches: $271,300
Fashion and accessories: $204,200
Traditional spa services: $124,000
Electronics: $99,300
Entertaining friends: $76,700
Wine & spirits for the home: $48,900

If I had to make an educated guess why a sample of affluent, technologically savy, testosterone fuelled men spent less than $100K each in "electronics" in a year, I would lay the blame at the feet of our own industry's failure to promote value, performance, and quality, choosing instead to go for the easy sale, and the cheap, commoditized, disposable product.

Really, you can spend $271,300 on a single wrist watch. In comparison, the $99,300 number can easily encapsulate a large quantity of individual low-ticket items: a Motorola RAZR, and iPod, a laptop, a Plasma TV, etc. Sure, the potential is there for more high roller luxury electronics in that figure, but it seems less likely.

Ask yourself, what kind of car does a man with a $61.7 million net worth drive? Is it nice? If he spends $48K a year on booze, do you think he's buying a thousand flats of Molson Canadian and two thousand forties of Medallion Rye, or does he drink the good stuff?

Now that we've determined in Socratic fashion that we have a consumer who values quality, why would you show him a $499 surround-sound-in-a-box or a $1000 42-inch plasma that was made in China by some brand you've never heard of?

Dealers are the first to start moaning about low margins, eroding price points, and competitive pressure, but all these woes are self inflicted. By trumpeting low, low prices in advertising, consumers are programmed to believe that's all that matters, even the ones who, if shown a more upscale, higher quality option, would choose it. Honestly, if your store's staff present the same big-screen tv and sound system to the kid with his first job as well as the guy in the two thousand dollar suit, then there's your problem. If you treat every customer the same, and present the same options every time, then you're throwing money out the window.

Believe me, there are firms out there that get it. Dealers who take the time to get to know their consumers, and who work to turn customers into clients. Those dealers know how to determine if they really do have an easy XM Radio sale on their hands, or if they have a greater opportunity in front of them.

If you need a reminder that opportunity is always there waiting for you, go read Russell Conwell's classic Acres of Diamonds, one of the greatest motivational lectures of all time.

Now go take care of business!

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Long or Short Capital

http://longorshortcapital.com/

Honestly, I regret not linking to these guys earlier. They are geniuses (genii?). They know how to get it done.

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