"Life moves pretty fast. If you don't stop and look around once in a while, you could miss it." These words from the fictional sage, Ferris Bueller, certainly ring true in terms of today's rapidly changing consumer trends. Here, we examine some of the companies thriving and surviving in the face of shifting consumer behaviour and the danger of ignoring it.
The comfort of nostalgia
Not that long ago, life perhaps seemed simpler but lacked convenience. To buy food we went to the supermarket; to make sure we didn't miss out on the latest 'must see' video we gathered around the television on a Sunday evening; to keep up with friends and family we used the landline telephone – and sparingly due to the cost of calling.
How times have changed. Now, Saturday mornings need not be spent on the weekly shop – rather we wait on it being delivered to our door. Entire box sets can be watched in one day (by the very dedicated). Friends and family around the world can be contacted at any time by voice or video.
Clearly, these changing consumer trends have implications for companies and, in turn, for investors. The most nimble firms are adapting to their customers' evolving needs – indeed some are influencing their behaviour.
It probably goes without saying that Amazon, the global online behemoth, is one such company. It recently completed the takeover of Whole Foods Market, cementing its US expansion into food retail. Its aspirations in this space had long been known but Amazon's approach to Whole Foods probably came as something of a surprise. Whole Foods specialises in organic food sales in inner suburban locations, which is a quite a niche area – not quite 'the infinite shelf' of ecommerce in which you might expect Amazon to be interested.
But this is a smart move by Amazon as it further entrenches itself into the lives of its users. There is also significant overlap between Amazon Prime members and Whole Foods' customers, giving Amazon direct access to locations for 'click & collect' deliveries and thereby reducing its reliance on other retailers.
Amazon was founded by Jeff Bezos as a "regret minimization (sic) framework", to ensure he didn't miss out on important internet trends. The company has certainly stayed true to this ethos.
Straight to video
Amazon is not alone in this approach. Its Silicon Valley peers are similarly expanding into their users' activities, most notably in video. Netflix has long attempted to disintermediate the traditional broadcast network. Initially, it did this by allowing users access to all the previously shown television they could consume. For some years now though, Netflix has been producing its own critically acclaimed series. Amazon too has invested in original programming, while Facebook recently bid for the digital rights to Indian Premier League cricket.
Short-term profit does not particularly matter for these new entrants to consumer media; Netflix is highly indebted and Amazon Prime Video is assumed to be heavily loss making. Of more importance is that their offering resonates with consumers. Amazon uses Prime Video to ensure that its service is embedded in the daily lives of its subscribers, driving further use of its general retail services.
Not so picture perfect
On the flip-side, companies like Kodak have paid the price for failing to innovate. In 1984, Kodak Eastman was the tenth-largest company by market capitalisation in the S&P 500 Index and reached a peak market cap of approximately US$30 billion in the late 1990s. Its ubiquitous photographic film was used to record births, marriages, Hollywood blockbusters and everything in between.
Surprisingly, Kodak was also a pioneer in digital photographic technology, incorporating it into traditional cameras at the turn of the millennium. It also amassed a sizeable portfolio of patents, some of which were the building blocks of today's phone-based cameras. However, Kodak didn't embrace a fully digital future, leading to its downfall. Sales began declining in the early 2000s with the advent of wholly digital cameras, and Kodak failed in arbitration with Samsung (among others) over some elements of its patent portfolio. As a result, it filed for bankruptcy in 2013. Kodak now has a market capitalisation of just US$342 million and sees its future in digital-printing technology.
Consumer is king
Clearly, companies ignore the implications of 'shifting consumption' trends at their peril. Our global investment framework – which also considers other themes such as 'population dynamics', 'smart generation' and 'policy influence' – helps us to focus on how the world is changing and the impact that change has on economies, industries, companies and people.
Our research-intensive investment process, augmented by the extensive resources that we can leverage from our parent, Standard Life Investments, helps keep us at the forefront of these fluid trends. This enables us to identify those firms we believe are best placed to benefit in an ever-changing environment and, in turn, will reward our clients.
In-depth analysis ultimately allows us to more fully understand the fundamentals of the companies in which we invest and their direction of travel. In this regard, Kodak is a salutary lesson – you can be holding a great company but if it is looking in the wrong direction, it could prove to be a ticking time bomb.
To find out more, please contact our Channel Islands Senior Business Development Manager, Mark Rondel at firstname.lastname@example.org