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Wednesday, July 08, 2020
An Analysis on Fast-Moving Consumer Goods and Sunset Industries
ANBOUND

The Covid-19 pandemic has hit the retail and consumer sectors hard, and many well-known companies have been impacted worse than ever. Macy's has been closing down its stores, while Zara is said to be closing as many as 2,000 stores. There are also a large number of well-known companies closed their stores, such as J. Crew, a clothing retailer, which has filed for bankruptcy. J. C. Penney, GNC, and others are also facing bankruptcy risks. Nordstrom also announced that it will permanently close 16 stores nationwide. Neiman Marcus is a 113-year-old chain known for its high-end department stores. Before the Covid-19 outbreak, the company had been hit by online competitors, which put pressure on its cash flow. The Covid-19 outbreak in the U.S. exacerbated Neiman Marcus's problems, forcing it to lay off 14,000 employees and close 43 stores.

More than a dozen major retail companies in the U.S. have filed for bankruptcy, according to incomplete statistics by NBC. These retail companies are among the leading companies in the department store, entertainment, and clothing industries. Among them, there are two stores that had been in existence for two centuries filing for bankruptcy, shocking the industry as they survived two World Wars and several financial crises, but not Covid-19.

In fact, Covid-19 only provides a starting point. The real problem is that these companies and industries were struggling even before the pandemic. The enormous challenges they face, like mounting inventories, debts, difficulties in financing, and high cost of capital, have sealed their fate. The reason is that, geopolitics have revealed the risks to these firms are not just the relocation of industries, but also the overproduction caused by globalization, which is the biggest challenge facing companies and industries. Industries such as fast-moving consumer goods (FMCG) are obviously oversupplied and can be produced everywhere in the world. There is nothing special about those products that can be produced anywhere. Capital markets do not pay any attention to such products and the industries, so they will naturally face difficulties and high costs in raising funds.

The point is that today's markets, especially the capital markets, focus on entrepreneurs like Steve Jobs and Elon Musk, rather than century-old businesses in conventional industries. Those century-old stores, even if run with painstaking care like Japanese businesses, their growth and vitality still can't compare with that of Elon Musk. Coupled with global overproduction, it makes sense that the capital markets are more reluctant to pay attention to these industries. Under this trend, it can be judged that in the future, enterprises not favored by the capital is bound to be more turbulent, the wave of enterprise failure will be even higher. This is due to globalization and overproduction, regardless of the efforts pour in by the enterprise owners.

Does this spell the end of such enterprises? Not at all.

There are still opportunities for these enterprises and industries. The overproduction caused by globalization makes production not a problem at all, but what should be produced is the issue of concern. Steve Jobs grasped his chance and made a difference in a crowded and seemingly competitive mobile phone market. The extraordinary prosperity of the Huaqiangbei market in Shenzhen in those days could fully prove the mushrooming condition of the mobile phone market. This was bad, yet it actually created and opened up opportunities for people like Steve Jobs, because he could solve the "what to produce" problem by designing. In fact, Apple Inc. did not use a lot of new technology. Steve Jobs simply used and integrated existing technology to achieve his goal. Although Steve Jobs was no designer, his taste was rather different from ordinary people. With that, he encouraged his designers to engage in design and innovation, and successfully built the Apple Inc we see today.

In the same way, FMCG and clothing stores do have ways to be out of such predicament, but they have to change their business owners and ways of thinking. The business owners have to be shifted from being investors and operators to designers. Under the condition of continuous overproduction, the era of designers and intellectuals has finally come. It should not be the business people who run the enterprises, but the artist, designer, and engineer. Of course, they must be real designers and intellectuals. Those pseudo-designers and pseudo-intellectuals cannot bring about the "solution" to the conventional industries and enterprises. There is no future for those imitations of design. In China's coastal regions, the collapse and recession of a large number of FMCG enterprises have proven this point. Soon enough, enterprises will have to compete to get the best product designers, otherwise they will fail to create achievements and become sought after by the capital markets.

Final analysis conclusion:

The fast-moving consumer goods industry, as well as many conventional industries, are under multiple pressures in the context of overproduction and geopolitics. Many of them are regarded as sunset industries devoid of vitality and expectation. But if these industries can change their thinking and design, it is possible for them to rise and gain new development space.

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