The Business Strategies Behind Trader Joe’s, Primark, Chipotle and More | WSJ The Economics Of

businesses find all sorts of ways to stand apart from their competition from cutting out the middleman to bucking the e-commerce Trend we explore the strategies behind some of the biggest names in business to see what makes them profitable unique and able to survive or even thrive in an economic downturn first we dive into how Trader Joe's threatened conventional supermarkets with its limited options and cult favorite products these are bananas obviously they're from Trader Joe's today they cost 19 cents each and about 25 years ago bananas at Trader Joe's cost 19 as of 2020 Trader Joe's gross average sales per square foot was more than double those of other major grocery store chains and it's been ranked the highest rated grocery store for customer satisfaction so how does Trader Joe's manage to keep prices low while outc competing traditional grocery stores by selling fewer products this is the economics of Trader Joe's Trader Joe stores are smaller and they tend to carry fewer items and the vast majority of what they sell is private label when the store first opened in 1967 Trader Joe's founder Joe colom emphasized stocking products that were unconventional to Shoppers at the time like Dijon mustard and granola in 1979 Trader Joe's was bought by the German discount grocery store chain Al Nord and today Trader Joe's has built its image around selling trendy quirky and seasonal items orange chicken K pasta sauce from Trader Joe's it helps with fueling the experience for customers people can go and kind of feel like they're discovering something new and these products have created a large and loyal customer fan base I went to Trader Joe's and I accidentally got I got way too much stuff of course I love Trader Joe's it's popularity on social media is helpful for the company because Trader Joe's doesn't do a lot of advertising actually the grocery store doesn't do a lot of things that other grocery stores do there's no loyalty program no online shopping platform and no Deli counter still the Trader Joe's fan base is strong and they are dedicated they are Mega fans people will sell Trader Joe's products on places like eBay for a much higher price tag than what you would find at the stores Trader Joe's smaller selection can make the inore shopping experience more efficient for customers according to psychologist and Professor Barry Schwarz for example instead of having to pick between many different brands of tomato sauce at a conventional grocery store customers at Trader Joe's can quickly select one from its more limited options by selling a small selection of house Brands Trader Joe's can control its own supply chain which it says brings down prices Trader Joe's items tend to be cheaper because they buy directly from producers and manufacturers whenever they can so this Cuts costs that would typically go to the middleman and the company says they are able to pass that along to Shoppers Trader Joe's says it buys in bulk and often pays for items up front whenever possible from suppliers this all helps lower prices the grocery store chain also says it pays for some products like Dijon mustard in local currency so if the currency fluctuates Trader Joe's takes on the risk not the supplier and by assuming the risk Trader Joe's says it can negotiate better prices with suppliers this control over its products and supply chain means Trader Joe's can easily add and remove items from its shelves one of the unique things about Trader Joe's is they're constantly changing their shelves if products aren't selling as well as they thought they would they remove them from their shelves to make room for something better some grocery stores charge Brands various marketing fees to stock products but Trader Joe's says it only makes money when customers make a purchase so according to Trader Joe's this incentivizes it to only stock product that customers like from JoJo's sandwich cookies to kungpow chicken there isn't really another chain that does what they do there are other Discounters that sell for cheaper but you're not going to find the Innovation and and the fun products there the traditional grocery stores have tried to go that route but Trader Joe's is Traer Joe's let's say you wanted to buy this Primark t-shirt if you're shopping on primark's website you'll quick discover that you can't over the past 10 years e-commerce sales have more than doubled but last year European fast fashion retailer Primark made 9.5 billion in sales revenue without a single penny from online shopping we made a very clear choice and our Clear Choice is bricks and mortar this comes at an uncertain time for struggling clothing retailers retailers like Forever 21 JC Penney and Neiman Marcus have closed stores and filed for bankruptcy and while a UBS report shows up to 880,000 retail stores will close in the next 5 years Primark plans to expand to 60 stores in the same time frame is driving 2 hours from Toronto to Buffalo to shop at Primark worth it heck yes I used to fly 6 hours to do so so how is primar expanding without online shopping this is the economics of Primark fashion retailer is is incredibly competitive more so than ever there's not many players especially in fast fashion that are making fat margins pretty much the thinking everywhere is that you have to have this online presence but online shopping is actually incredibly expensive for retailers you have to have a logistical hub from which you would dispatch the goods and then You' probably have a local distribution center from which you have to do last mile delivery each step of that just is an extra layer of cost that just eats away at the margin which in fashion is very very slim anyway but the real killer for e-commerce is that somebody who buys something on the Internet is far more likely to return that product than somebody who goes into a store returns are one of the biggest profit losses for online retailers on average processing a return for $100 worth of merchandise bought online costs a company $ 2650 for years online retailers just ate these expenses only now are more of them deciding to pass the cost back to the consumer Primark have just said right from the beginning we don't think we can make money out of e-commerce we're not even going to going to try we're going to focus all our resources on the physical store and protect our margins and that wasn't an issue for the retailer until now Primark is expected to close all 189 of its UK stores tonight and it doesn't have an online offering to fall back on e-commerce was a Lifeline for a lot of retailers during the pandemic they couldn't open their stores but they were still able to make some sales on the internet but Primark didn't budge even as consumers urged for it to offer online shopping and even after its Revenue dropped by almost 22 billion and I think their confidence in this model of having no digital sales and only using stores I think was probably shaken by the pandemic who knows what would have happened if it had gone on for longer I think the closures weren't quite long enough to really tip the scales and force them to fundamentally rethink the model instead of traditional online shopping in 2022 Primark launched a trial service called click and collect in select UK stores customers can select certain products online then pick up their orders in store so Primark still has some cost to maintain its website but it's cheaper than running a true online shop so Primark makes a sale but they don't have any of the logistical costs that would be involved in packing it up and then shipping it out to your home and there's another bonus for Primark since the customer has to go inside to collect their purchase they're likely to browse around and maybe even buy more they make the sale online but then they have a good chance of making some extra sales when that person visits them consumer psychologists call this shopping momentum essentially once you've already decided to make a purchase it's easier to justify adding more to your cart it always feels just overwhelmingly busy with people who are in there looking for bargains and it's not just clothing Primark lures consumers with beauty home and travel products similar to a department store what we like to say about primar here in the US is that you know we're all treasure without the hunt so customers may go in for a new t-shirt and leave with a suitcase but a Primark that I can drive to and don't have to fly to is a dream because that means there's no limit to what I can buy and bring home to carry this vast selection of items Primark finds large retail spaces because it relies on selling a lot it's one of the largest retailers in the UK by volume and one of the largest across all of Europe last year Primark made about 9.5 billion in sales revenue in part by selling a lot of things at low profit margins and it does this by sourcing a lot of its clothing from Asia combined with not offering online shopping this enables primar to sell its merchandise at lower prices even lower than many other fast fashioned retailers where they do have serious rivals on Price is with the digital only players like shien for example they are often even cheaper than Primark but according to the National Retail Federation 80% of shopping still happens in store giving Primark an edge over its digital only competitors even so its instore shopping model got off to a rocky start in the US Primark opened its first Us store in Boston back in 2015 although it was already popular in the UK its us expansion started slowly over 4 years it opened nine stores after years of experimentation primar learned it would have to change to succeed in the us when we first opened we took a similar store size that we would have had in Europe but when Primark opened its stores across the Northeast it struggled to find the right store density what they found in the US is that retail is so much more competitive there's a lot more retail in downtown areas in the US and than there is in the UK for example so you just can't support a massive store it's just not possible to get enough revenue for the size to support its large stor sizes it needed a lot of foot traffic but unlike the UK stores which were located in constantly busy areas Us stores were mostly in malls where during the week foot traffic dwindled we learned that actually 35,000 ft of retail selling space is is actually the The Sweet Spot for us they didn't face the commercial pressure that a a publicly owned company might have faced to suddenly open a 100 stores and and get really big ready quickly and then possibly risk disaster because they hadn't thought it through the culture of primarch has always been to take our time and and to test and learn and we've done that in every country where we've introduced the brand this wasn't about you know growing market share at all costs and the overall retail Market is Shifting online shopping hit a peak during Co but now growth is beginning to slow as people return to stores and I think that's never been so important as it is since we came out of Co I think there has been a massive rediscovery of being in malls being together physical shopping and I think as a business that took the decision a long time ago to to have that as our core strategy um you know has continued to allow us to be successful it's that time of year when vacant storefronts temporarily transform into Spirit Halloween that spooky seasonal retailer that's seemingly everywhere overnight for Spirit Halloween a pop-up lease is ideal because then they're only paying for space when they truly need it guess what's finally open the spirit store happy day happy day and with consumers expected to spend a record amount for the holiday spirit Halloween has opened more stores than ever this year so how does Spirit Halloween capitalize on abandoned spaces in local markets and how does it manage to transform those vacant storefronts so quickly this is the economics of Spirit Halloween the first Spirit Halloween popped up in 1983 in Castro Valley California it was an extension of founder Joe marver women's clothing store traditionally October is a very slow month for for retail General and there was a Halloween store in the Strip Center that he operated and he saw that there were lines coming out store I said that might be a good idea and so with that he turned his Boutique into a Halloween store and uh kind of the rest is history in 1999 marver sold the company to Spencer Gifts that mall store known for gag gifts and it's built a reputation among those who love Halloween so much so that more than 2,000 fans showed up to the July grand opening of the flagship store in New Jersey but the retailer is hoping last minute Shoppers come through the door too one of the advantages is that they're everywhere so if someone has forgotten about Halloween and needs to get a last minute costume and can't wait for it to be delivered after it was bought online then they can just pop into a Spirit Halloween while Shoppers can buy Halloween fair on the company's website at any time none of its physical locations operate year round Spirit Halloween prefers a temporary lease because it is not a year round business so for them they want to save as much money as possible on real estate and so it makes much more sense for them to take space temporarily spirit Halloween says convincing landlords wasn't easy at first years ago when we sat down with landlords and said hey we've got this idea we got a popup Halloween store or we're going to come for two months we get the look of uh you know really what you know why why would I bother with that though landlords tend to prefer long-term leases popups can be an alternative to empty space in the Years following the Great Recession as retail vacancies increased landlords found that pop-ups were effective way of filling space that had been vacant for a long time because of course some revenue is better than no revenue and to make temporary leases more attractive to landlords the company adds kickout Clauses if they find a space where they want to open but the landlord finds another tenant who's willing to sign a long-term lease before a certain day maybe it's middle of June for example then Spirit Halloween loses that space for Spirit Halloween finding real estate is a year-round business business when stores shut down for one season the company is already talking to landlords about the next big spaces are key up to 50,000 Square ft often where big box retailers used to live those storefronts are often in shopping centers or strip malls but can also be Standalone and signing the lease is just the beginning the retailer says setting up the stores is another logistical challenge I mean literally we are starting from scratch in every single store we inherit an empty location and we have to bring in not only all the merchandise but all the fixturing we have to hire the entire staff according to the National Retail Federation spending on Halloween is expected to hit a record $10.6 billion in 2022 on average customers are planning to spend $100 each on costumes Decor candy and cards this year and 36% of customers plan to shop at specialty stores like Spirit Halloween and with 1,450 stores across across the US and Canada it's one of the most ubiquitous it's a sign of fall it's kind of like you get your pumpkin spice latte you're back to school you see Spirit Halloween open up in shopping centers on your drive to work one of its biggest competitors Party City's popup Ranch Halloween City operated 275 stores in 2019 and scaled back during the pandemic Spirit Halloween's popup model has become such a fixture of the Season that it's inspired a new movie popup Halloween store in creepy lot aome and countless internet memes people joke about how quickly the company moves in after something else shuts down we kind of enjoy the meme value of of spirit we bring life and we bring joy we bring energy we bring a whole you know new reason and so uh the mean value of spirit is recognition of of of that value that's part of the reason Spirit Halloween decided to open all of its planned 14400 stores in 2020 while comp competitors opened fewer during the covid-19 pandemic in 2021 the company said it experienced product delays and increased shipping costs last year we didn't realize the the magnitude of the issue with the Spy chain until April and when suddenly everything dried up by the end of the season we had received all of our merchandise but it was through it was through some really difficult cartwheels and somersaults the retailer says all of its locations are fully stocked this year I just mov with Halloween for fans of Halloween the company wants to be the beginning of the holiday coming to a Spirit Halloween is an event it's something that the fans really look forward to it's almost like the new season and when we come that's when Halloween starts and for landlords with empty storefronts Spirit Halloween continues to temporarily bring life back to those abandoned spaces Chipotle's menu only has a few items but it's highly customizable born in 1993 that's what's made Chipotle one of the most successful fast casual restaurant chains in the US but in recent years Chipotle's faced many challenges between 2015 to 2018 Chipotle dealt with five foodborn illness outbreaks like most of the restaurant industry Chipotle's Revenue took a big hit during the beginning of the coron virus pandemic and today it's dealing with inflation that's increased labor transportation and food costs yet despite these setbacks Chipotle sales are actually growing here's how Chipotle's focus on efficiency and Innovation helped it bounce back and become one of the country's most valuable Quick Service chains this is the economics of Chipotle Chipotle's Revenue has increased by more than 200% over the past decade its stock price has increased about 400% in The Last 5 Years much of Chipotle's success comes from its efficient and what it calls transparent instore experience Chipotle has really in a lot of ways made the whole fast casual category for restaurants it's not fast food it's not full service they've generated a lot of sales from people who want this alternative that's seems fresher and faster than fast food but it's not a full service experience fast casual design can help them reduce some of their labor expenses which helps with profits Chipotle's menu is relatively small but it's easy to customize there's tons of stuff you can put on your meal that's proteins that's cheeses that's vegetables that's all the salsas and sauces and for customer that makes it exciting you know they get lots of different things they can customize their meal with the more limited menu in general is better for restaurants and their profits it's less things to train the restaurant workers on it's less waste Chipotle's founder Steve ell emphasized having an open kitchen he wanted customers to be able to see the ingredients and preparation in front of them today employees work at individual stations to serve already prepared ingredients making the ordering process more efficient for customers we can serve as many as 100 customers within a 15-minute period what's a better way than telling people that it's fresh showing them let them come in and discover for themselves this transparency has been very important for Chipotle especially after its food safety issues after several outbreaks of eoli salmonella and norovirus in Chipotle restaurants the company implemented several changes like improving food preparation and storage procedures encouraging sick employees to stay at home and bringing on a new CEO Brian nickel he really did emphasize that they cleaned up their procedures didn't happen immediately but with time people start to forget things too there hasn't been the big high-profile scares that there were previously after several outbreaks between 2015 and 2018 Chipotle's stock price took a hit however its focus on its digital ordering platforms helped Drive drive up revenue and stock prices started to climb back in 2008 Chipotle became one of the first fast casual chains to create an online store pickup model in its first year Chipotle's digital sales accounted for $13 million or just 1% of its total sales in 2022 digital sales grew to $3.4 billion that's now nearly 40% of Chipotle's food and beverage Revenue if you're ordering online digitally that is made for you at a whole separate part of the kitchen which is just dedicated to online orders Chipotle's app and online ordering systems were also vital during the pandemic the pandemic obviously was terrible for all restaurants but Chipotle did have some advantages there in that they had this whole digital ordering platform really set up and scaled beforehand when the pandemic first hit we saw that people stopped going to restaurants for some period of time so we saw our sales drop uh pretty significantly but it only took like a week or two before we started to see that while they first stopped visiting restaurants the adoption of the digital ordering really picked up very very quickly and so I would say within the first four weeks we had our digital uh uh ordering soore from about 18% to it at one point hit 70% Chipotle also designed its stores to have two separate prep stations called make lines one make line is just for inore orders and the other is for digital and Catering orders this made food pickups quicker for customers who didn't want to spend time indoors this idea that we had the digital make line so that as people were ordering we could make food on the digital make line and also serve customers that were choosing to come in so it was a seamless experience like most stocks during 2020 they were still lower than they were before the pandemic but by the end of the first year into the second year most stocks had you know fully recovered we had our all-time high in 2021 recently Chipotle has continued to expand its digital ordering services with a new pickup option for customers called chipot Lanes let's go ahead and take offer all the convenience of the drivethru but when you order ahead of time you know exactly what time to come and so there's no ly you drive up and you pull to our window you get your food and off you go the first chipot Lane opened in 2018 and there are already nearly 600 across the US Chipotle says at least 80% of new restaurant locations opening in 20123 will have chipot Lanes but that's just one example of how Chipotle has continued to innovate to attract customers social media has been great for us because in addition to making sure we're serving you know the meals that that customers come to expect at Chipotle we also want to be part of culture Chipotle frequently uses social media to attract younger consumers by releasing recipe videos animated short films Roblox games and social media campaigns like the lid flip challenge with major influencers Chipotle has also used social media to drum up excitement about new menu items and innovate its menu options to keep up with consumer Trends adding new things for customers is very important to Chipotle and they have a whole process for this where they try and try these items in house really test and learn before they test in stores they like menu news whether it's you know a steak item or a chicken item alpastor quesadillas they want to keep customers interested even if most of their menu is staying the same so what's next for Chipotle in general the online ordering even when you pick it up in the restaurant is just much more efficient the company says it wants to open more locations that are only used for online pickup orders they won't have any seating for customers this will also cut down on labor costs since workers won't need to clean seating areas and bathrooms as often we think the idea is let the customers choose which channel they want now our job is to make sure every channel is convenient it's easy it's fast so that we don't give any friction whatsoever but make sure every experience that you can provide on every channel is a great one a puma cotton blend t-shirt on Vince's site cost $85 but the same shirt sells for $29.99 at TJ Maxx so why does it cost less over 10 years the off-price retailer has opened 263 more stores in 2022 TJX which owns TJ Maxx Marshalls and Homegoods brought in almost $50 billion in sales revenue more than Nordstrom's and Macy's combined and the secret to its success the company isn't shifting most of its business online or using big data to figure out what Shoppers want instead it's sticking to a decades old Playbook get the max for minimim [Music] it's this is the economics of TJ Maxx there are really two components to TJ Maxx's strategy the bargain and the hunt One Way TJ Maxx gets discounted Goods is by buying excess merchandise and cancel orders from other brands and retailers essentially it takes advantage of surplus and waste in the retail system this allows the company to sell its merchandise generally around 20 to 60% below regular retail prices but there's a catch just the fact that the price is low is not enough what you need is also a reference price because people don't know how much things cost that's where Alex says something known as the anchoring effect comes in at TJ Maxx most items have two prices the T J Maxx price and a comparison price people anchor the the regular price and then they see exactly how much of a deal they're getting and this way they really understand what the value is that DJ Maxx provides to them take these Rag and Bone shorts a TJ Maxx in Manhattan sold them for about $40 with a comparison price of $50 that's a 20% discount but the original price tag happened to be on these shorts and it lists the price as $195 that would be around 80% discount and that comparison price is really just an estimate on TJ Maxx's website there's a message next to the comparison price that says these prices are references to regular retail prices where identical items are not available we compare to products of a similar type quality and style these price tags aren't the only way TJ Max helps customers feel like they're getting a bargain the whole positioning of of TJ Maxx is U if we give you brand names for Less and the reason why it's important is because very often when you see low price uh you think it's low price because the quality of the product is low but if the customer knows and trusts the brand then they won't assume the price is low because it's a bad product instead Alex says they'll attribute it to TJ Maxx's ability to get discounted goods and because people often expect name brand items to be more expensive the brand itself acts as an anchor emphasizing the fact that as a customer you're getting a deal uh makes people feel good it's not only I'm getting a low price but I'm actually getting a deal uh which makes people feel good about themselves that they're smart Shoppers TJ Maxx says it gets its goods from about 21,000 vendors and the inventory in its stores is constantly turning so as a result people tend to go more often to this type of stores and also spend a little bit more time in the store in search of something across its companies TJX employs more than 1200 buyers that each control millions of dollars and has authority to cut deals on the spot as a buyer for TJ Maxx I'm always on the hunt let's say you have a bathing suit brand and it's the right before Memorial Day weekend and they're stuck with extra bathing suits that's when TJ Maxx buyers show up at the showroom you know they can cut a deal right on the spot and they can get it to their stores within a week department stores on the other hand can take weeks to review and approve orders from their buyers so TJ MOX buys the merchandise quickly and gets it into the store just as fast they have a saying internally door to floor in 24 meaning that any merchandise that shows up at a store in the morning has to be on the sales floor by the end of that day to ensure speed merchandise often arrives at stores already on racks that employees wheel off trucks and move straight onto the sales floor and once it's there all the merchandise is laid out differently than other retailers too helping to create that treasure hunt experience while most department stores group items by brand TJ Maxx organizes its inventory by type this means that different brands can end up next to each other on the same racks and since TJ Maxx doesn't have walls dividing sections of the stores or Brands it can easily reconfigure the layout based on changing inventory seeing all the products and changing layout can encourage impulse buying Shoppers know that if they see something they like they need to buy it now if they wait it may be sold out or hard to find when they come back once you take it home things are changing dramatically because now you're not buying something you you are giving up something lots of research has shown that giving up something is more difficult than acquiring you're willing to uh pay more uh not to give up something than to buy something retailers struggled through the rise of e-commerce in the pandemic and while TJ X's off-price retailers still took a hit they have bounced back in 2021 TJX had the highest sales in the company's history a record it then beat the following year and it's not because TJ Maxx and the other off-price retailers adapted but rather because they never drifted away from their core strategy TJ Maxx tends to perform pretty well in an economic downturn because that's when customers tend to be bargain conscious and you know they offer really good value for the money let's say you wanted to buy a popular Rolex Daytona watch a new one would cost you $14,800 but if you wanted to buy a used version of the same watch you might need to pay over $38,000 so why people spending more money to get a used Rolex if you use your watch primarily for 10 in the time then we're not of the same mindset here's why the used watch Market is booming and what Rolex is doing to get in on the action this is the economics of used [Music] Rolexes experts suggest that it takes about a year to make a Rolex and weight list for new watches can last months to years and because of that these days you can't walk into any Rolex store any Rolex dealer and just get any watch that you want for the past few years as demand has increased Rolex has not been able to keep up with that demand their production just can't match the number of people that want a Rolex if you've got 10 $220,000 to burn you really want a watch you're probably going to go to the resale Market because the watch that you want is going to be available there and so the prices on the resale Market have then gone up because there's more people going to that market 29% of collectors reported paying more than retail price for their most recent pre-owned watch according to a report from Boston Consulting Group and 40% said that one of their top reasons was that they were able to avoid long waiting lists in the firsthand Market this has created a boom in the secondary Market pre-owned watch sales reached 22 billion in 2021 the used sector is actually growing faster than the primary market and for some people used watches are worth more than new ones that's because some rare styles are more desirable or because Rolex has discontinued certain models and colors in in older model Rolex can have a patina it can have some wear marks and so those kind of personal details those kind of personal age marks those are things that collectors might want there is also a bragging rights thing where if you have a Rolex from the 70s or the 80s you're able to say it's from this era it's you know 20 30 years older than I am and that is just kind of cool to collectors in a way the market about a decade ago was softer than it is right now back then you could sell a watch and get a return on it but you could also sell a Rolex and it could have depreciated value when you could lose money on it these days you now will likely make more money off of it if you sell it on the resale Market much of the success of the used watch Market is due to the rise of online watch resale marketplaces over the past decade that's where people like Paul and Carol come in can yell at get over there buddy the husband and wife Duo run Bob's watches an online Marketplace for buying selling and trading luxury watches they say that they currently have one of the largest selections of used Rolex watches in the world I started out in the watch business because I could see that there was no real safe transparent honest place for people to buy and sell pre-owned watches it's been an upward Trend since 2010 we've been growing consistently about 30 to 40% year-over-year two years ago we did uh $100 million in sales there's so much more for us to tap into that we haven't had the bandwidth to get to because the growth has been so so fast and furious and Paul and Carol love Rolexes sales of used watches online already exceed auction and store sales and one report predicts they're going to reach close to 60% of the secondhand luxury Market by 2026 during the pandemic the stock market goes crazy you have the kind of crypto phenomenon you have meme stocks happening and people have a lot of extra capital and they're taking that in many cases and they're putting it toward assets um luxury goods and in a lot of cases watches starting in 2020 used luxury watches sold for 1.5 to three times their retail prices Rolex is a brand that's really recognizable in its design it's you know easy to spot on the street and a lot of people they'll see that their friend has a given Rolex and they think I want that too but Rolex the company only sold new watches which meant that the brand wasn't involved with used watch sales that is until late 2022 Rolex opened a certified pre-owned program for its used watches retailers can send used Rolexes that are at least 3 years old back to the watch maker the certified pre-own program verifies that a watch is an authentic Rolex and works properly then retailers can sell the watch with an official Rolex certificate the program is already active in one retail chain in six different countries another chain of official Rolex retailers in the US will enter the program this may buying a watch with Rolex certification could be a draw for firsttime buyers you're buying a watch on the internet it can be a little bit of a daunting experience of all the watches on our website today almost 50% of them already have the original box and papers from Rolex we've offered a CPO program a certified pre-owned program now for almost 5 years the only thing really new about it is that Rolex is certifying and doing the paperwork behind it so I don't feel that there's any increased competition but I do feel that the market is big enough for everybody to participate today people buy Rolexes online the way that they might buy toilet paper so it's really not a premium or specialized experience there's still that consumer that wants to have that experience of going into a store of being waited on of kind of being shown watches from a glass display case and making it feel more special because they're buying something of such a high value this certified pre-owned program means that Rolex can take a cut out of a market that it previously left untapped but things might continue to shift for the luxury watch Market the used watch Market is cooling down as sellers eager to make a profit have flooded the market with inventory recent data shows the number of Rolex watches available to buy second in hand roughly doubled from the beginning of 2022 to September of the same year on those really coveted kind of brand name watches so to speak the ones that collectors talk about the resale value has gone down a little bit resellers people that watch that market they do say that the prices have come back down to earth a little bit but the volume of sales the amount of sales happening that Still Remains pretty high we're seeing still a large number of transactions in the resale Market your day and day out Rolex is still retaining a lot of value on the resale Market you can still get a pretty good return turn for it as with any resale Market there is a risk that the Rolex Market can fall out at any time 5 years ago we might not have been talking about how crazy this Market is and 5 years from now we might not be talking about how crazy this Market is the market is so large that to a certain extent both things can be true you know people that watch this Market will say that that's just actually a reflection of how big the market is now where it can behave in many different ways just because it is this kind of really large transactional Marketplace this is what Nintendo originally was yes it was a playing card company and this is Nintendo today me Mario consoles theme parks even movies so what has driven the $44 billion Empire this is the economics of Nintendo Nintendo is different from its competitors Sony and Microsoft thanks in part to its lowcost Hardware Microsoft's Xbox makes no profit on its Hardware consoles are actually sold at a loss in the market so when somebody goes and they buy an Xbox at their local retailer uh we're subsidizing that purchase somewhere between $1 and $200 with the expectation that we will recoup that investment over time through accessory sales and storefront and Sony only recently began to make a profit on the PlayStation 5 then there's Nintendo their technology is usually five or six years behind in terms of state-of-the-art but that means that they're cheaper to produce and that means Nintendo is much much more profitable on their Hardware business about half of Nintendo's profit in 2022 came from Hardware Sales they've dominated the market when it comes to handheld consoles one of its big successes the Game Boy launched in 1989 Nintendo was really early to the party uh with handheld they're kind of credited with inventing the console although they were probably third or fourth the game boy had a longer battery life compared to some of its competitors for four Shades of Gray nuanced gameplay and had Tetris one of the top selling video games of all time eventually Nintendo's Game Boy became the third most sold console in the company's history selling 119 million units to date the company continued to innovate releasing new hardware for its games from the GameCube Nintendo DS the wiii and to its most recent success the switch with more than 122 million units sold you can play it at home like a console on your big screen TV but you could pick it up and take it on the go and it becomes a handheld device and that's pretty novel we haven't really seen anything that's a hybrid like that before sales of the switch device and its games accounted for about 94% of Nintendo sales revenue in its 2021 fiscal year and today it's the second bestselling game console in Nintendo's history and continues to be a driving factor of its Revenue the success of Nintendo's consoles is also due to its software in other words its games in 2022 Nintendo had had 19 first party titles that sold over a million units each exclusive to its consoles the difference between the others and Nintendo is that Nintendo historically has produced about 50% of all the games sold on its Hardware system and the other guys are typically under 10% of the game sold on their systems so they make a small fraction of the software that's played on PlayStation and Xbox Nintendo makes more than half recent Point Animal Crossing New Horizon's release in April 2020 created higher demand for the only console carrying it the switch Nintendo makes games exclusively for the most part for its own devices if you want to play a Nintendo game like Legend of Zelda you need Nintendo Hardware in fact Nintendo's first party games generate over 70% of its sales its best sellers in 2022 were all Nintendo first party games and the type of content Nintendo makes is also different than its competitors let's keep in mind Nintendo's characters are very cute Mario Nintendo is known for making familyfriendly games for the most part so it appeals to a different crowd than some of the other Publishers you won't see blood or Gore or foul language but even Nintendo couple years ago dabbled into the shooter genre when we think of Shooters right we think of Call of Duty fortnite uh they take a very familyfriendly approach with Splatoon it's a shooter but you're shooting paintballs the company's next iteration bringing these familyfriendly characters to a larger Arena and building another generation of fans in February 2023 Nintendo opened its first theme park outside of Japan and in April it's releasing a Super Mario Brothers movie starring Chris Pratt it's a me a Mario that's smart because that's going to expose the Nintendo brand to hundreds of millions of people who haven't ever owned a switch I don't think that Nintendo is necessarily worried about whether somebody who goes to the theme park will buy buy a Nintendo console or buy a game but they want those people to be aware of the Nintendo Brands and they want them to know who Mario is and who Zelda is and who Yoshi is and who Pikman is it is risky to start a new franchise and sometimes new properties just don't resonate um but they have plenty a very deep library and they've stuck with that for the most part and iterated on it and modernized it we'll probably be playing Legends of Zelda for another 20 30 years Mario is probably not going anywhere you now he's just going to live forever and keep that mustache and keep everyone happy for many years to come this Barnes & Noble in Pikesville Maryland used to be in a 24,000 ft space in this building now it's moved across the street to a space that's less than half the size and with the downsizing came a new look and new books chosen specifically for this store's customers it's all part of Barnes & Noble strategy to tailor each of the company's more than 600 location to local tastes Barnes & Noble is adopting the strategy of independent bookstores that it once put out of business here's how the book seller is implementing its new approach and why it thinks this new strategy will sell more books this is the economics of Barnes and [Music] Noble Barnes & Noble was first founded in 1873 in 1971 Leonard Rio acquired the company which set off a period of growth the retailer went public in 1993 in an era when it was opening Superstores across the country in the 1990s and 2000s Barnes & Noble bookstores really looked like large supermarkets filled with books usually anchoring strip centers in the suburbs or rural areas and whether in Phoenix or Maryland or Ohio the stores had the same books with the same furniture and the same layout it either had one floor or it had two if had two it had enormous escalators going out with this huge sort of open space in the middle to an upper floor that model happened to be extremely scalable they were trying to fill their stores with books and infrastructure at the lowest cost possible so they wanted to order all the same types of bookshelves the same type of furnishings and decorations and other autra mths so the company grew and fast those huge stores carried more books at lower prices than independent book stores we all remember the romcom new got mail Joe Fox I'm in the book business I am in the book business so many closed when Barnes & Noble came to town they weren't able to compete with the title selection or prices that Barnes Noble offered but big stores and large inventories weren't enough to save Barnes & Noble from a digital threat Amazon was able to offer kind of like Barnes & Noble had in the past a huge selection of titles at lower prices than Barnes & Noble could because it didn't have the cost of real estate and other uh costs that Barnes & Noble was shouldering and it sunk a lot of money trying to keep Pace particularly in Nook it's e-reader business take your story wherever you want it to go but nothing helped stop the bleeding the company's Revenue has declined since 2012 then in 2019 hedge fund Elliot Management Corporation acquired the chain and installed James da who led British retailer waterstones and founded his own independent bookstore da books as CEO it felt entirely intuitive to me that you allow each bookstore to run as an independent bookstore they will create much more interesting much more Dynamic much more engaging bookstores and that meant reminding people about the appeal of inperson versus online shopping what you're missing is the opportunity to kind of read the book flaps of all the other books that are there and maybe get recommendations from the local book seller who's working there the company says it wanted to emphasize the experience of visiting a physical bookstore so its new strategy strips stores of the cookie cutter look and feel that had helped the change grow its revenue and store count some locations have moved on from The Big Box model to smaller stores and in these smaller spaces they are reconfiguring the stores so that they're more of a maze and less of a supermarket aisle plus the company says each individual store has more autonomy over what books to order and how to display them here at the Pikesville Maryland location the store manager says that customers like romance books from Black authors and lots of fiction so the large romance section is at the front of the store and there's a huge display right in the center celebrating Black History Month store managers can also choose how to run promotions like this buy one get one 50% off deal on specific fiction books chosen by the team here Brooklyn has a very different demographic very different set of customers a very different set of book interests to let's say somebody in Alabama in Georgia who is the best person to judge what those particular communities want to by it the book sellers in those communities the company has also been listening to its store managers on wider Trends manga was a small part of our assortment we had maybe five six Bays of books on manga And yet when these book sellers were reorganizing their stores they were coming back to us saying we want to do 38 you know we want to do 42 which was just almost sort of incomprehensible except that's what they said their customers would respond to D also used this localizing strategy to turn around British books store chain water stones which reported a 42.9 million pound loss across 268 stores in 2012 compared to a 16.32 million pound profit across 278 stores 6 years later the two businesses are on paper identical it had had identical histories um and had reached an identical point of failure that's why Barnes & Noble relinquished some control to individual stores but that comes with its own set of of challenges for the company you could walk into a bookstore and find out that it's really not doing well the manager's choices aren't appealing to customers and books aren't selling still Barnes & Noble says the strategy is promising for the first time in more than a decade the company is planning on opening more stores than it closes in 2023 we've seen a balancing in which much higher percentage of our sales are coming from books and books are growing really very dramatically if you run better bookstores you sell more books this is what Lego products looked like in the 1980s and this is a Lego Product now that's because the company has become more than just blocks they have video games movies theme parks all these activities which ultimately reinforce the core which is the sale of Lego sets all that content helped it become the world's largest toy maker breaking in billions of dollars every year here's how the company uses licensing deals in media to expand it its customer base and build its content Empire this is the economics of Lego Lego is 90 years old it was founded in Denmark in 1932 and initially it was a company that made wooden toys but then in the 1950s it launched its trademark product the one we all know now the the plastic Lego brick since then Lego has beat out Hasbro and metel to become the biggest toy brand worldwide in the first 6 months of 2022 the company's Revenue h 27 billion Danish croner or about $ 3.47 billion up 177% from 2021 and it's anticipating growing demand so much so that the company is building two new factories in the US and Vietnam Lego has made the bricks the building blocks of its business Lego is still essentially a toy company what what they always say is their core is still to make the plastic bricks for kids but of course they do now do a lot more than that some of LEGO's first moves into content started in the 199 90s Island behind us when the company's sales slumped it was trying everything from new toys to electronics to theme parks can you find the power Bionicle Bionicle came along in the early 2000s and that was a time when the LEGO brand was actually in danger of becoming a little bit stale the bionical franchise featured buildable action figures and multiplatform storytelling agile determined Unstoppable the franchise built a Content Universe through Comics books movies and video games the BET proved successful in 2003 when the toy maker saw a 26% loss in net sales Bionicle was its bestselling line and it really revitalized the brand and and showed them a way that they could engage audiences with different types of content with cartoons movies comics and it wasn't just Original Stories Lego released its first sets based off of licensed material in 1999 Star Wars in 2005 it it brought that into content with a 5-minute short called revenge of the brick that aired on Cartoon Network it was a Twist of course on the Revenge of the Sith which was the the Star Wars movie which came out at the time that really paved the way for the for the content Partnerships which we've seen in subsequent years that Lego twist has since been put to use on all sorts of franchises like Batman Marvel and Jurassic world really we're now used to seeing not just the basic Lego kits but Lego Star Wars kits and and so on that's really an integral part of what Lego does now so it's really the content has has changed Lego's identity we think of it as part of these popular franchises which we all know like Marvel and licensed material was on full display on the company's Smash Hit 2014's The Lego Movie which grossed over $450 million worldwide it held the top spot in the US box office for 3 weeks after its release Superman Wonder Woman the mermaid Michelangelo and the 2002 NBA allar the goal of the Lego movie was to Market Lego to a wider audience I think it was a lot more successful than anyone imagined it was a very successful movie in its own right a big hit at the box office that laid the template for for a lot of the content creation that Lego has done since then Lego and Warner Brothers released three more feature films the latest in 2019 none earned as much as the first of course there is a risk of oversaturation Lego doesn't want to do too much but but I think think they're still very much at the stage of growing in a lot of markets content has helped the toy maker break into new places like China where Lego is growing its presence of the 66 new stores it opened in the first half of 2022 46 of those were in China almost 42% of the company's 833 locations are there movies and games assist in raising awareness of the brand the main challenge Lego faced in in New Markets like China is that the grown-ups the parents just don't really know about Lego they don't have Lego in their in their own backgrounds like a lot of grown-ups in in the US and Europe do and using licensed material in that content also helps reach more audiences being part of these popular franchises like The Avengers for example is a great way for Lego to to reach out to all kinds of different Generations people across the world people who don't necessarily even know Lego content is also a way for it to appeal to its adult fans as the brand has been trying to do in recent years find your flow build with Lego bricks reality TV show Lego Masters for example features adults building extreme Creations out of the titular plastic bricks the original Lego fans took to Lego as kids and they're now grown up and and a lot of those people are still very keen on Lego and I think Lego very smartly realized that a lot of those people would be willing to to buy kits that are are pretty complex pretty expensive and are designed specifically for for grown-ups the company has its eyes set Beyond just the $2 dimensional screen last April Lego and epic games announced a partnership to build a digital experience in the metaverse all of this content certainly in the company's current thinking the movies the games that all is there to support the core product which is the same as it has been for decades the plastic brick your last pizza probably came in a box like this it's cardboard stur and most importantly keeps your cheese from getting stuck to the lid and that's thanks to Domino's whose founder is widely credited with creating the corrugated pizza box it's just one of the company's Innovations not in pizza but in delivery in 2022 more than 40% of online delivery orders for major pizza chains were from dominoes here's how the company made its name in the pizza delivery market and why this foundational piece of its business is facing new challenges this is the economics of Domino's Domino's it's a Del dominoes originally called Dominics acquired its first restaurant in 1960 in ipsilanti Michigan and jumped into the delivery business the same year something very few restaurants were doing at the time you're now we think of delivery as being so ubiquitous I mean so many types of restaurants have delivery But Domino's was there very early at scale one reason it's become so well known for its delivery is a campaign the company started in the 80s PR ing delivery in less than 30 minutes within 30 minutes only Domino's Pizza delivers in 30 minutes or less people really did have the sense that once they ordered that pizza they were going to get it to their homes quickly and I think that really helped for marketing Domino's ended that guarantee in 1993 after a delivery driver struck another vehicle resulting in a lawsuit but by then the company had cemented its place in delivery and in the half century since Domino's was founded it's paid off it took the biggest slice of pizza chain sales in 2022 Domino's success is due in part to creativity and every step of its delivery process starting with stores many are small and often with little or no dining space a model the company has said allowed for lower rents and reduced store expenses over the years Domino's has also focused on establishing more than 6,500 locations in the US and has worked with franchisees to extend their reach so one part of Domino's strategy is what's called Fortress which is making sure there's enough pizza shops in a certain mile radius that wherever your order goes one of those pizza shops can handle it and it can help get it to your house quickly the company's supply line is also structured to make the pizza creation process as quick and uniform as possible Domino's has 25 supply chain centers in the US where dough is mixed and toppings are prepared before being sold to to franchise stores where pizzas are assembled and baked the more pizzas that are sold the more money Domino's makes from its supply chain it made up 59% of Domino's Revenue in 2021 the next part of the process is ordering in 2008 the company rolled out its Advanced online ordering system which included a customized Pizza Builder and the Pizza Tracker so the Pizza Tracker is something that Domino's invented they will let you know where it is in the process it's whether it's being cooked whether it's out for delivery where they're approaching Domino's has continued to introduce new ordering options Pizza Emoji sent Domino's ordered smiley face then there's the last step of the process getting the pizza from the kitchen to your home from working with special kinds of insulated bags to creating 3D car top signs Domino's has been a big innovator in this step the company has experimented with several methods of delivery vehicles helicopters electric bikes self-driving cars even cars with a heated Pizza Oven it's really putting the whole brand behind delivery in a lot of ways but after years at the top of delivery Domino's is facing new challenges companies like Uber Eats GrubHub and door Dash are eating at Domino's business in the US as drivers leave pizza for apps with more flexible hours it's contributed to an industrywide delivery driver shortage other chains like Papa John's and Pizza Hut have both started working with some of these apps but Domino's has resisted they argue that that makes it more profitable because you're not having to pay an outside service to deliver that pizza and to Market that pizza on their app and it keeps them closer to their customers as the company has faced these issues its shares have slumped from a high at the end of 2021 now Domino's is exploring new options the company is building out a fleet of electric delivery vehicles to recruit new drivers ERS and it's now offering customers what it calls a $3 tip to pick up their own pie we see you carry out Heroes you know it's much cheaper for them if their customers pick up their own pizza and so they are getting in the pickup game in a big way as Domino's continues to Grapple with these issues investors and customers will be watching for future [Music] Innovations

Channel: The Wall Street Journal

Views: 126,549

Keywords: trader joes, primark, chipotle, spirit halloween, dominos, barnes and noble, lego, nintendo, rolex, used rolex, used rolex prices, wsj, economics of, economics of marathon, wsj marathon, supercut, tj maxx, e commerce, business, business documentary, business strategy, business economics, successful businesses, recessions, company strategy, markets, CEO, major brands, develop business strategy, business strategy and tactics, retail business, wsj the economics of, business news, bnss

Id: 3JKWmWAlMD4

Length: 60min 4sec (3604 seconds)

Published: Fri Dec 01 2023