Overseas expansion worries the crap out of me. There are dozens of Australian companies that have gone overseas and blown up a lot of shareholder money. A good recent example is Boral with its Headwater purchase in the US.
It is also very difficult to see how Adairs could do it given the travel restrictions in and out of Australia.
I think the Adairs management team is capable but to do it means stretching them when there is still so much more to do in A+NZ. My preference would be to acquire an adjacent on-line offering in Australia. Adairs will likely be debt free even after paying out the considerable performance related acquisition adjustment for Mocka.
Personally I would like a big fat fully franked special dividend as a one off.
Set out below is a previous post dated Jan'21. The article discusses potentail Covid winners one of which is the United States based RH ( Restoration Hardware). RH is a bit like Adairs in that it supplies luxury homewares items which well appointed retail outlets set up for customers to be able to experience the items before buying.
In the last 6 months the RH share price has increased 40.5%
posted 5th Jan'21
Adairs is a great business. The market thinks the SP got ahead of itself. I reckon fair value is $4.20 per share. As at today's close of $3.58 we are back up 16% from your post above.
The Mocka business is doing extremely well along with the Adairs brand especially on-line.
I have set out below an article published in the AFR yesterday and quotes Professor of Marketing Scott Galloway from the Stern Business School in New York.
Galloway is looking at the potential positive and negative Covid impacts for 2021.
Among the predictions from Galloway is a potential uplift in 2021 for a high end home furnishing business in the US called Restoration Hardware. Galloway says the RH share price could more than double due to the corona virus impact of spending more at home on furnishings and home offices.
Why investors need to consider The Great Dispersion
US marketing guru Scott Galloway argues the shift towards brands and companies selling directly to consumers created by the pandemic isn't going away.
Updated Jan 4, 2021 – 12.40pm,first published at 11.56am
There’s something disheartening about starting 2021 in the same way you spent much of 2020 – waiting impatiently for the daily COVID-19 case numbers, remembering to take a mask everywhere, and scrolling through Twitter, shaking your head.
But perhaps this isn’t such a bad thing. The idea that the turn of the calendar would suddenly bring a bright new world was unrealistic, to say the least.
The COVID-19 outbreaks in Sydney and Melbourne are a (hopefully small and brief) reminder that the pandemic will leave permanent scars on society, business and markets.
This message is neatly encapsulated in the latest set of annual predictions published in video form by Scott Galloway, professor of marketing from New York University’s Stern Business School.
To Galloway’s eternal credit, he starts his 2021 predictions by reviewing his calls on 2020.
Some were way off the mark – understandable given the disruption caused by the pandemic – and some were bang on.
But Galloway’s point is that it’s not so much the predictions themselves that matter, but the process of thinking and talking about big trends that is most illuminating.
In this way, investors can learn a lot by looking past some of Galloway’s punchier predictions – Apple to buy the high-tech exercise bike maker Peleton, or Airbnb shares to leap by a third, for example – and start to think about the big theme that underpins many of his forecasts this year.
Galloway calls it The Great Dispersion and in an accompanying blog describes it as “the distribution of products and services over a wider area where and when they’re needed most, bypassing gatekeepers and removing unnecessary friction and cost”.
The pandemic started this shift in some industries and accelerated it in others, as companies were forced to find ways to get their products into the hands of consumers directly.
“The core value company offers is being dispersed to the end consumer and skipping the traditional channels of distribution, be they stores, be they movie theatres, be they gyms,” Galloway explains.
He believes this trend will continue and argues the paradigm shift is on a par with globalisation and digitisation. “I think this is arguably the biggest trend in business and will create the most shareholder value.”
What’s particularly startling about this idea is its application in so many parts of society and business. From commercial property to residential
Consider the property sector. Galloway predicts that the “dispersion of headquarters” we saw during the pandemic – with remote working from home – will continue, as employees embrace and then demand flexibility.
Galloway expects this will hit demand for traditional office leases but lead to a resurgence in demand for co-working spaces, as businesses look for flexible ways to cater for the times workers are required, or do want to come into the office. Google searches for co-working spaces are already surging, he says.
Further, he expects a 10 per cent destruction in demand for commercial property in the US in the wake of the pandemic will result in a $US10 trillion to $US12 trillion shift into the place where workers are spending most of their time – their homes.
This shift, combined with the spare money workers have from lower transport costs, is already pushing prices of houses and plywood. Galloway's bold prediction is that the share price of upmarket furnishings chain Restoration Hardware could more than double, as could stock in wireless audio products maker Sonos. Bad news for gyms
The dispersion of health and wellness provides fertile ground for more predictions.
Galloway argues that the size of the US gym market – or the Sweat Industrial Complex, as he calls it – fell 13 per cent in 2020 and could fall between 10 per cent and 30 per cent in 2021.
This value will also be dispersed to the home, as people work out in home gyms or on their Peleton bikes; hence why Galloway says Apple would be smart to grab even more of consumer attention spans by buying Peleton.
In healthcare, he expects retail giants such as Amazon and particularly Walmart will continue to look for ways to go around the traditional channels of medical clinics and hospitals.
Galloway says for most Americans the local Walmart is closer than the local hospital, giving the retail giant the ability to expand the rollout of clinics at its retail sites and expand through acquisition. Walmart’s 2.2 million employees provide a great test bed for health services, too. Opportunities in education, media
There are numerous other sectors where The Great Dispersion will have an impact.
In higher education, Galloway says the cash cow of most major universities – international students – will dry up, slowing what he describes as the transfer of wealth from middle class households to universities and allowing the creation of an army of ed-tech unicorns who take their products and services directly to students.
In media, the shift towards subscription products – particularly streaming services but even traditional media products such as newspapers – will continue apace, as even giants such as Apple and Disney cash in on the market’s infatuation with recurring revenue.
Galloway says Disney’s success with the Disney+ streaming site will see it double down on a bundle of services that deliver recurring revenue – or a “rundle”, as he calls it – that would see customers subscribe for the streaming service , other exclusive content, access to Disney’s parks, and other offers.
He says Apple could expand its bundle of Apple TV, Apple Music and Apple Arcade to include early access to hardware such as the new iPhone; enticing its richest customers to pay a few hundred dollars a month for this privilege could be a huge revenue driver, he says. What about the downside?
There are some downsides from The Great Dispersion worth thinking about too. Galloway says one is that it “risks isolating us and in turn, suppressing our empathy, which could have profound negative consequences”.
But another is that dispersion that isn’t checked by the friction created by regulation is a concern.
He provides as an example the red-hot US share trading platform Robinhood, which is helping to replace the traditional broker model with a direct-to-consumer model.
Galloway labels Robinhood a menace and puts it in the same basket as tech giants that he says have been prepared to aggressively push the boundaries of regulation by treating fines and penalties as a cost of doing business.
Galloway says the gamification of trading – not investing – that Robinhood has used to increase its user base and revenue is particularly dangerous in risky areas such as options trading, where Robinhood users trade 88 times more options than establishment platforms such as Charles Schwab and E-Trade, relatively to account size.
"That makes no sense for the young, non-wealthy, and inexperienced traders flocking to the platform. But it makes great sense for Robinhood, which makes more money selling those orders than it could educating people [about] the wisdom of low-cost index funds, and occasional buy-and-hold company stocks," he says.
"That is, it makes sense for the collision of idolatry of money, weakened regulatory institutions, and young-adult depression that is Robinhood."
There are other broad societal impacts of The Great Dispersion that are also worth considering.
One that springs to Chanticleer’s mind is that there are often a lot of jobs involved in the middle of a supply chain – in retail, or higher education or healthcare, for example – and many of these could change dramatically or be eliminated completely. What does that mean for communities and economies?
The future of cities is another consideration, although we probably need to know more about the path of the pandemic before we can plan for this.
In any event, it does feel like Galloway has hit on a neat way of summarising the big change that will be left after the pandemic is a distant memory.
Apple might not buy Peleton this year, and Robinhood might not be restrained by regulation, but it’s hard to imagine consumers giving up the direct relationships they’ve formed with big companies and brands.
James Thomson is a Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine.
ADH Price at posting:
$4.37 Sentiment: Buy Disclosure: Held
(20min delay)