The English football season has started, and the players and coaches are as usual competing to intimidate the referees, and blame them for their own inadequacies. Ferguson seems to have a complete hold on the administrators and is able to bully anyone and get away with it, and Mancini and Wenger occasionally sulk about this state of affairs, while trying to play the same game themselves. Who would be a referee?
Meanwhile, a wonderful experiment is taking place on my side of the Atlantic. I love NFL, and am in awe at the quality of the refereeing of the game compared with English soccer. But this season there has been a dispute between the referees and the owners/administrators, with the result that the regular officials are not available, and have been replaced by refs from lower tiers of the game.
The result has been chaos. The replacement refs are not bad, and they do their best, which arguably is a good as a premier league soccer ref does. But the sport is so intense and has so many marginal calls that the replacement refs cannot quite do the job required.
This weekend many of the results were plainly influenced by bad calls from officials. On Monday night, with half of the USA watching, the very last play of the game led to a terrible call which reversed the result of the game. A Seattle receiver was judged to have caught the ball when plainly he had pushed his opponent cynically, and still it was a Green Bay defender who had really secured the catch. First, two officials on the field made opposite rulings. Then, after a debate, the wrong one was sustained. Then the main ref reviewed the decision again using TV replay and still got it wrong. Pandemonium ensued, including loss of discipline by coaches and commentators.
We had been building up to this moment. Because the refs were not quite up to the task, players had started taking chances with the rules. The normal dialogue and balance of decisions was never established, and cheating became rife while decisions became random. After three weeks, we now have some games where almost every play seems to result in a penalty, yet where other blatant infractions are missed.
The corrosive effect is stunning to witness. Games are lasting up to half an hour longer (for all the penalties and reviews) which ruins TV schedules and entertainment. Clubs have started coaching their players to cheat, and coaches have started to vocally bully refs too. It is noticeable that results are more random than usual – after three weeks only three teams are unbeaten and only two have failed to win. The game is rapidly losing its integrity, week by week.
Does this matter? Well, once you accept that any sport matters, it does. Careers are made and broken by marginal decisions. And the whole edifice of the game requires a contented, credulous audience.
It is pretty clear who the winners are in all of this, and that is the regular officials, watching it all from their sofas at home. For the first time, their true value is being seen, by players, coaches, pundits and fans alike. People used to being derided are now seen for the wonderful professionals that they are. The league is suddenly very keen to resolve the dispute, and no doubt the referees will gain respect and fairer rewards as a result. Good for them.
It is a shame that it takes a strike and disintegration of the game for us to appreciate the most important and possibly most skilful people on the field. Perhaps premier league refs should take a leaf out of the book of their colleagues in the USA and get tougher.
Here are some thoughts for a manifesto for refs to present to the premier league (and/or UEFA).
Point One. A professional body and career ladder for referees, backed up by good pay (a fixed fraction of TV rights?), schools, and training.
Point Two. The professional body sets the rules, not the league, coaches or pundits. Too often we have seen ill-thought out changes leading to chaos. The offside law about interfering with play, the advantage law, and accidental hand ball are examples. Leave it to the pros.
Point Three. More refs per match, and maximal use of technology. Why not have five officials on and around the pitch, communicating with each other? Why not have refs in the booth judging calls in real time based on TV instant replay? I don’t buy the argument that play is continuous and could not apply technology without interrupting the flow. It takes a couple of seconds to view a replay. If the ref on the field is unsure, he can play a sort of advantage until he is sure. Cards can also be awarded (or rescinded) minutes after an offence.
Point Four. Post-match reviews and sanctions. Dissent, diving and other cheating should result in long bans, including for coaches, escalating for repeat offenders. Yellow and red cards should all be reviewed after the game and given a point value, leading to possible future suspensions. I don’t buy the argument that punters want to see stars perform. It is true, and, after a few weeks adjusting to the new realities, stars (and their coaches) will make sure that they comply to stay on the pitch. Coach bans are from their work, not just touchline bans.
In return for the above, refs agree to be judged and rewarded on their performance, which is openly published.
I believe this would take away a lot of the inconsistency, bullying, cheating and bad refereeing and improve the game for all. Soccer has all the money, but other sports (rugby, cricket, tennis) are far ahead in how they set and apply the rules. If the league disagree, then let the refs walk out for a few weeks, and see what happens then. Just like in the USA, everyone will be eating out of the hands of the refs after a few weeks of chaos.
There is also a wider lesson here beyond sports. Every part of life needs clear rules policed by good officials. If officials lose integrity, the whole activity suffers.
So, should we value the police more than we do? Tax officials? What about business regulators? Schumpeter argues (rather sadly) that all business leaders will cheat to the extent they can get away with it. So let us use technology, training, and sanctions to enforce a fair game. A fair game creates integrity, and, ultimately, competitive advantage. It is worth investing in.
In the meantime, the circus of the NFL moves forwards. I wonder what this weekend will bring. And meanwhile, in Chicago, the role model for all other sports as far as self-compliance is concerned will provide the wonderful entertainment that is golf’s Ryder Cup. I envisage having the TV on for quite a few hours this weekend.
Thursday, September 27, 2012
Friday, September 14, 2012
Get in Line
Over the years, I have noticed some expectations others have of me once they learn that I am British. They don’t always conform to what British people think is their reputation.
One thing I find consistently funny is about taking tea with milk. Actually, I do take tea with milk, though I am happy to go without. But somehow whenever I order tea from someone who knows I am British, they make a point about the milk.
I wonder how this particular reputation became so strong. Once I developed a theory. Perhaps there is a standard textbook for learning English, used in many countries. Perhaps, in a very early chapter, a British person orders tea, and asks for milk in it. Perhaps the textbook makes some general remark about Brits preferring tea with milk.
I suppose it is possible. There has to be something powerful to have created this reputation. I can almost guarantee a knowing smile and short conversation, anywhere in the world. Probably that is how the French got the reputation for striped shirts, garlic and bicycles.
More recently, people like John Cleese or Ricky Gervais have a lot to answer for. Another thing Brits are known for is a dark humour, cleverness or wit. At least this one is positive. Luckily I fit the stereotype again, or at least I think I do.
In my experience, the people typically having the most wit are the Irish. Many times I have been in Irish company, from all walks of life, and been astonished at the pace and ingenuity of the wit, of almost everyone. I wonder where that comes from. They certainly have a very social culture, which must help.
Other British things are bad (or at least careless) dress sense and bad food – despite the plethora of British chefs (many of whom I can confirm are picking up good royalties from US TV). Once again, as a lazy dresser and hopeless cook, I can count myself typical.
Maybe the most common impression of the Brits is about our reserve. We are seen as formal, snobbish, awkward in discussing emotions, and to use language to avoid plain speaking. We are also sometimes suspected of deviousness.
The deviousness completely contradicts the self-image of the Brits, who talk a lot of the British sense of fair play. I must admit that I am with the foreigners on this one, and have often been embarrassed by British sportspeople and politicians.
I just finished a great book, Jerusalem by Simon Sebag Montefiore. It is a history of that city, and the overwhelming impression is embarrassment for the human race. Before reading this I thought the bible story of Salome putting John the Baptist’s head on a plate was either false or extreme. Now I learn that this has been the norm for human behaviour, for three thousand years and pretty well up to the present. No wonder the politics there is so fraught.
The British come out no better than anyone else. British efforts in Jerusalem have been devious and naïve. Being an island and relatively ethnically homogenous group, I think Brits underestimate the historical complexity of other lands – that would also explain some of the British history in Ireland. But Brits also seem to listen badly, to believe in their superiority, and to be willing to cheat to impose their ideas. The empire might have a lot to do with that. At least the French come out even worse! To be fair, no-one comes out very well.
On this group of traits, I find I am often accused of being counter to the stereotype, though I recently learned that I am seen as formal and uptight on first impression. But I do speak my mind plainly, and that often surprised my European colleagues in Shell. “Very Dutch for a Brit” was something I heard many times – and took as a compliment.
Which brings me to the last trait, the inspiration for this blog in the first place. Queuing. Or as the Americans term it, standing in line.
I’ve never really discerned much difference in national attitudes to queuing. No-one likes it very much, why should they? Perhaps the Southern races queue with less discipline than the protestant North. That would be consistent with other parts of their character. But I don’t see the British as particularly attracted to queues, as the folklore seems to imply.
I can claim some new expertise though. My own attitude to queues has been tested to its limits in New York. Wow, I have spent more time in line here than ever in my life. I think it is just due to the scale of the place, combined with the normal chores of starting out in a country. Wow, it starts at the immigration lines at the airports.
Being on the roads involves some amazing queues. I am generally impressed with how things move here, and take my hat off to the traffic planners. Under huge pressure, they have really put effort into details like the phasing of traffic lights, and it pays off. But the system is still fragile, and if there is an accident or bad weather or some other disruption, the consequences are predictably huge. Hence the queues.
Then there is anything popular. In our first weeks we discovered free summer concerts in Central Park. What we didn’t realise was that everyone else discovered them as well, leading to crazy queues, and most of us ending up listening from the park outside rather than inside the venue. It was still fun, despite the well-known disrespect of New Yorkers – chatting loudly the whole time. We have also discovered a van that comes to Forest Hills on a Sunday to sell Belgian waffles. But so has the rest of Forest Hills. The lines are as legendary as the waffles.
Sometimes it is just the distances. Coney Island on the subway is a direct train for us, at an amazing price of $2,25. The only problem – it is forty stops! Can you recall a time you sat on any train while it stopped forty times? Maybe it is not a queue, but by the end it sure feels like one. (By the way, there was nothing there once we made it).
We hired a car for one day. Shame we chose Labor day weekend. Budget, in their wisdom, seems to have forgotten that fact, even though their computers probably told them they had a lot of orders, just like always on a holiday. We stood in line in the sun for an hour and three quarters. Many people in the line had things like weddings to get to, and I was impressed that there was no riot, and the staff were brilliant – perhaps that is why there was no riot.
The Budget experience gave another hint about American lines. Occasionally some posh bastard would show up and jump the queue, on the flimsy grounds that they had paid a bit more or had a loyalty card. New York has many lines, but I suspect some people spend more time in lines than others.
Which brings me to the Department of Motor Vehicles. So far I have made three visits. You queue (out of the door, almost into the elevator) for an initial assessment, which qualifies you (perhaps) to join a range of other queues. Many of the staff seem to have role models in the military. I think I will have to visit three more times to be become a fully qualified driver in the USA, despite my almost unblemished and lengthy international driving record. I now psyche myself up, forcing myself into a good and fatalistic mood before entering. Wow, you see a lot of angry, almost desperate people at the DMV.
Add in the experience that Time Warner Cable needed me to stay at home four whole days to succeed in giving us TV and internet (how do people cope with that if they have jobs?), and you get a picture of someone getting used to lines.
Actually, I think I am rare good Brit in this respect, as I am quite good in a line. I am usually patient, happy in my own company, and generally remember to bring a book or newspaper. And I enjoy observing the people. In New York, someone will always cause a scene, New Yorkers are rarely shy and retiring sorts. So perhaps, after all, there is something about the Brits and queues, our reputation might be justified.
Now, can I spend less of the next ten weeks in lines please?
One thing I find consistently funny is about taking tea with milk. Actually, I do take tea with milk, though I am happy to go without. But somehow whenever I order tea from someone who knows I am British, they make a point about the milk.
I wonder how this particular reputation became so strong. Once I developed a theory. Perhaps there is a standard textbook for learning English, used in many countries. Perhaps, in a very early chapter, a British person orders tea, and asks for milk in it. Perhaps the textbook makes some general remark about Brits preferring tea with milk.
I suppose it is possible. There has to be something powerful to have created this reputation. I can almost guarantee a knowing smile and short conversation, anywhere in the world. Probably that is how the French got the reputation for striped shirts, garlic and bicycles.
More recently, people like John Cleese or Ricky Gervais have a lot to answer for. Another thing Brits are known for is a dark humour, cleverness or wit. At least this one is positive. Luckily I fit the stereotype again, or at least I think I do.
In my experience, the people typically having the most wit are the Irish. Many times I have been in Irish company, from all walks of life, and been astonished at the pace and ingenuity of the wit, of almost everyone. I wonder where that comes from. They certainly have a very social culture, which must help.
Other British things are bad (or at least careless) dress sense and bad food – despite the plethora of British chefs (many of whom I can confirm are picking up good royalties from US TV). Once again, as a lazy dresser and hopeless cook, I can count myself typical.
Maybe the most common impression of the Brits is about our reserve. We are seen as formal, snobbish, awkward in discussing emotions, and to use language to avoid plain speaking. We are also sometimes suspected of deviousness.
The deviousness completely contradicts the self-image of the Brits, who talk a lot of the British sense of fair play. I must admit that I am with the foreigners on this one, and have often been embarrassed by British sportspeople and politicians.
I just finished a great book, Jerusalem by Simon Sebag Montefiore. It is a history of that city, and the overwhelming impression is embarrassment for the human race. Before reading this I thought the bible story of Salome putting John the Baptist’s head on a plate was either false or extreme. Now I learn that this has been the norm for human behaviour, for three thousand years and pretty well up to the present. No wonder the politics there is so fraught.
The British come out no better than anyone else. British efforts in Jerusalem have been devious and naïve. Being an island and relatively ethnically homogenous group, I think Brits underestimate the historical complexity of other lands – that would also explain some of the British history in Ireland. But Brits also seem to listen badly, to believe in their superiority, and to be willing to cheat to impose their ideas. The empire might have a lot to do with that. At least the French come out even worse! To be fair, no-one comes out very well.
On this group of traits, I find I am often accused of being counter to the stereotype, though I recently learned that I am seen as formal and uptight on first impression. But I do speak my mind plainly, and that often surprised my European colleagues in Shell. “Very Dutch for a Brit” was something I heard many times – and took as a compliment.
Which brings me to the last trait, the inspiration for this blog in the first place. Queuing. Or as the Americans term it, standing in line.
I’ve never really discerned much difference in national attitudes to queuing. No-one likes it very much, why should they? Perhaps the Southern races queue with less discipline than the protestant North. That would be consistent with other parts of their character. But I don’t see the British as particularly attracted to queues, as the folklore seems to imply.
I can claim some new expertise though. My own attitude to queues has been tested to its limits in New York. Wow, I have spent more time in line here than ever in my life. I think it is just due to the scale of the place, combined with the normal chores of starting out in a country. Wow, it starts at the immigration lines at the airports.
Being on the roads involves some amazing queues. I am generally impressed with how things move here, and take my hat off to the traffic planners. Under huge pressure, they have really put effort into details like the phasing of traffic lights, and it pays off. But the system is still fragile, and if there is an accident or bad weather or some other disruption, the consequences are predictably huge. Hence the queues.
Then there is anything popular. In our first weeks we discovered free summer concerts in Central Park. What we didn’t realise was that everyone else discovered them as well, leading to crazy queues, and most of us ending up listening from the park outside rather than inside the venue. It was still fun, despite the well-known disrespect of New Yorkers – chatting loudly the whole time. We have also discovered a van that comes to Forest Hills on a Sunday to sell Belgian waffles. But so has the rest of Forest Hills. The lines are as legendary as the waffles.
Sometimes it is just the distances. Coney Island on the subway is a direct train for us, at an amazing price of $2,25. The only problem – it is forty stops! Can you recall a time you sat on any train while it stopped forty times? Maybe it is not a queue, but by the end it sure feels like one. (By the way, there was nothing there once we made it).
We hired a car for one day. Shame we chose Labor day weekend. Budget, in their wisdom, seems to have forgotten that fact, even though their computers probably told them they had a lot of orders, just like always on a holiday. We stood in line in the sun for an hour and three quarters. Many people in the line had things like weddings to get to, and I was impressed that there was no riot, and the staff were brilliant – perhaps that is why there was no riot.
The Budget experience gave another hint about American lines. Occasionally some posh bastard would show up and jump the queue, on the flimsy grounds that they had paid a bit more or had a loyalty card. New York has many lines, but I suspect some people spend more time in lines than others.
Which brings me to the Department of Motor Vehicles. So far I have made three visits. You queue (out of the door, almost into the elevator) for an initial assessment, which qualifies you (perhaps) to join a range of other queues. Many of the staff seem to have role models in the military. I think I will have to visit three more times to be become a fully qualified driver in the USA, despite my almost unblemished and lengthy international driving record. I now psyche myself up, forcing myself into a good and fatalistic mood before entering. Wow, you see a lot of angry, almost desperate people at the DMV.
Add in the experience that Time Warner Cable needed me to stay at home four whole days to succeed in giving us TV and internet (how do people cope with that if they have jobs?), and you get a picture of someone getting used to lines.
Actually, I think I am rare good Brit in this respect, as I am quite good in a line. I am usually patient, happy in my own company, and generally remember to bring a book or newspaper. And I enjoy observing the people. In New York, someone will always cause a scene, New Yorkers are rarely shy and retiring sorts. So perhaps, after all, there is something about the Brits and queues, our reputation might be justified.
Now, can I spend less of the next ten weeks in lines please?
Wednesday, September 5, 2012
A Sleepy at the Wheel?
It is fascinating to see how retail has evolved differently in the USA compared with Europe, both by looking at outlets and at advertising.
In New York, medical advertising is a lot more prominent, and so are specialist medical practices and pharmacies. I expected this, as a consequence of how the US health market is lucrative for providers. There are also quite a few adverts suggesting you start a lawsuit for medical malpractice. Perhaps as a consequence, ads for drugs are very funny, since they spend as much commentary telling you why NOT to take the product as they do promoting it.
Outside, there are many more banks, with big branches, and many more petrol stations, usually nasty little dealer-owned outlets with service bays attached.
In both Europe and the US, mobile telecoms has become a huge category, both in store space and in advertising. I can be bemused just as easily by Verizon here as I was by Vodafone there!
One category much more developed in the USA is personal grooming, specifically nails and massage type places. They are everywhere, and either people must be buying these services week after week or most of them must be losing money.
What are there less of? Shoe shops is one category. Shoes are traditionally a high margin line in Europe, with many outlets on every high street. Here, shoe shops seem to have retreated into malls.
In the Netherlands, high streets are still very buoyant, due to various factors such as cycling, kitchen sizes and government policy. In the UK, high streets nowadays are bleak places, filled with cheap eateries and charity shops. Everything else has been killed by major supermarkets and malls. These abominations exist in the US as well, but, at least in New York City, small shopping areas have survived, though with many categories missing. Apart from the grooming shops, launderettes (many homes do not have washing machines), small general stores and eateries, you see a lot of small places catering to minorities, such as kosher bakeries. Whole districts have become clusters for particular immigrant groups, from Greeks to Koreans. There is even a Philippine quarter in Queens!
But some differences defy logic, or at least my logic. My favourite is a company called Sleepy’s, who sell mattresses in New York and other North east states. I don’t recall watching any advert for mattresses in the UK recently, nor to my knowledge are there many shops left specialising in mattresses. Like in many categories, IKEA has killed most competition that is not online. And surely this is a good category to go online, as retail stores need spacious inventory while the customer still has to get the product home from there. Furthermore a mattress seems the very opposite of an impulse purchase.
Not here. Sleepy’s are everywhere. Watch a TV show, and there may be a Sleepy’s ad in most advert breaks. Ride on the subway or bus, and you’ll see outside advertising. And you’ll also see quite a few physical stores, even in super-expensive Manhattan. My wife and I are laughing about it now, playing a game of spot the Sleepy’s.
So how can this be? An invisible category in Europe, with seeming good reason to be invisible, is ubiquitous here. I did a little research.
First, to Google. Sleepy’s is privately owned, by a single family who are now in third or fourth generation. Profit figures are therefore not available, but I did discover that sales in one recent year were $790 million, and they had 800 stores, a growing number.
$790m made sense. I guessed that people would buy maybe 3 to 5 new mattresses in a lifetime, and, extrapolating to the market of North East US, that implies a category of $2-3bn annual sales, so these busy retailers might have 30-40% of that. Reasonable.
But then work it out per store. $1m annual turnover might equate to weekly sales of 30 mattresses. That is one every two hours, from these huge stores with high inventory costs.
To check, I visited one near me. It was indeed a huge store filled with mattresses (at least on the second floor so slightly cheaper rental), and with long opening hours. I was not entirely surprised to see just one forlorn salesman, and not a single potential customer. I felt very sorry for the guy as I was making my excuses to leave without so much as a sniff of purchase!
Now some more maths. Sleepy’s is just a retailer not a manufacturer, and discounts a lot, so let us assume a 20% gross margin. Each store must have 8-10 full time staff equivalents, costing say $150,000, and the same costs in rent, utilities and so on. So a store has $200,000 of gross margin and $300,000 of costs. And then, there is the huge advertising budget to fund.
I am defeated. Either my assumptions are way out, or I just don’t understand the category, or the poor Acker family are pouring a small fortune into a business that can’t make money. Possibly all of the above are true. Any other ideas?
What lessons can we learn from comparing the markets? There are several.
First, regulation is always critical. Sectors like banks will evolve very much depending on their regulatory environment and the degree of cut-throat competition, itself heavily influenced by regulation. By that reckoning, regulators here have generally done a bad job, at least in banking, petrol retailing and medical supplies. Each of these sectors looks incredibly fat here.
Next, look at demographics. New York will be more densely populated than most of the USA, with lower dependence on cars. That will explain that Houston to my eyes was one enormous ugly retail parking lot, whereas New York has so far avoided that fate. Add in the diversity of residents, and typical home sizes (kitchens, fridges, washing machines) and you can find reasons for many other differences.
Another lesson is that habits die hard. Things are partly as they are in the USA because that is the way they always have been. Change happens (look at mobile phones) but always more slowly than pure logic would suggest, so differences also perpetuate even if not strictly logical. If you doubt that, just look at the notes and coins. How come Americans still have paper dollars and all notes look the same? Answer – because that it the way it has always been, people resist change, and politicians don’t like annoying core voters.
But my favourite lesson is the one from Sleepy’s. You can explain many things, but some defy explanation. Entrepreneurs and customers have many motives you don’t read about in economics text books, and strange outcomes can result, often for many years. Markets are far from perfect, and we should celebrate that, as it provides glorious diversity as customers and great opportunities as entrepreneurs and investors.
Nonetheless, if I were investing in a sector in Europe, I think I would plump for personal grooming rather than mattress retailing.
In New York, medical advertising is a lot more prominent, and so are specialist medical practices and pharmacies. I expected this, as a consequence of how the US health market is lucrative for providers. There are also quite a few adverts suggesting you start a lawsuit for medical malpractice. Perhaps as a consequence, ads for drugs are very funny, since they spend as much commentary telling you why NOT to take the product as they do promoting it.
Outside, there are many more banks, with big branches, and many more petrol stations, usually nasty little dealer-owned outlets with service bays attached.
In both Europe and the US, mobile telecoms has become a huge category, both in store space and in advertising. I can be bemused just as easily by Verizon here as I was by Vodafone there!
One category much more developed in the USA is personal grooming, specifically nails and massage type places. They are everywhere, and either people must be buying these services week after week or most of them must be losing money.
What are there less of? Shoe shops is one category. Shoes are traditionally a high margin line in Europe, with many outlets on every high street. Here, shoe shops seem to have retreated into malls.
In the Netherlands, high streets are still very buoyant, due to various factors such as cycling, kitchen sizes and government policy. In the UK, high streets nowadays are bleak places, filled with cheap eateries and charity shops. Everything else has been killed by major supermarkets and malls. These abominations exist in the US as well, but, at least in New York City, small shopping areas have survived, though with many categories missing. Apart from the grooming shops, launderettes (many homes do not have washing machines), small general stores and eateries, you see a lot of small places catering to minorities, such as kosher bakeries. Whole districts have become clusters for particular immigrant groups, from Greeks to Koreans. There is even a Philippine quarter in Queens!
But some differences defy logic, or at least my logic. My favourite is a company called Sleepy’s, who sell mattresses in New York and other North east states. I don’t recall watching any advert for mattresses in the UK recently, nor to my knowledge are there many shops left specialising in mattresses. Like in many categories, IKEA has killed most competition that is not online. And surely this is a good category to go online, as retail stores need spacious inventory while the customer still has to get the product home from there. Furthermore a mattress seems the very opposite of an impulse purchase.
Not here. Sleepy’s are everywhere. Watch a TV show, and there may be a Sleepy’s ad in most advert breaks. Ride on the subway or bus, and you’ll see outside advertising. And you’ll also see quite a few physical stores, even in super-expensive Manhattan. My wife and I are laughing about it now, playing a game of spot the Sleepy’s.
So how can this be? An invisible category in Europe, with seeming good reason to be invisible, is ubiquitous here. I did a little research.
First, to Google. Sleepy’s is privately owned, by a single family who are now in third or fourth generation. Profit figures are therefore not available, but I did discover that sales in one recent year were $790 million, and they had 800 stores, a growing number.
$790m made sense. I guessed that people would buy maybe 3 to 5 new mattresses in a lifetime, and, extrapolating to the market of North East US, that implies a category of $2-3bn annual sales, so these busy retailers might have 30-40% of that. Reasonable.
But then work it out per store. $1m annual turnover might equate to weekly sales of 30 mattresses. That is one every two hours, from these huge stores with high inventory costs.
To check, I visited one near me. It was indeed a huge store filled with mattresses (at least on the second floor so slightly cheaper rental), and with long opening hours. I was not entirely surprised to see just one forlorn salesman, and not a single potential customer. I felt very sorry for the guy as I was making my excuses to leave without so much as a sniff of purchase!
Now some more maths. Sleepy’s is just a retailer not a manufacturer, and discounts a lot, so let us assume a 20% gross margin. Each store must have 8-10 full time staff equivalents, costing say $150,000, and the same costs in rent, utilities and so on. So a store has $200,000 of gross margin and $300,000 of costs. And then, there is the huge advertising budget to fund.
I am defeated. Either my assumptions are way out, or I just don’t understand the category, or the poor Acker family are pouring a small fortune into a business that can’t make money. Possibly all of the above are true. Any other ideas?
What lessons can we learn from comparing the markets? There are several.
First, regulation is always critical. Sectors like banks will evolve very much depending on their regulatory environment and the degree of cut-throat competition, itself heavily influenced by regulation. By that reckoning, regulators here have generally done a bad job, at least in banking, petrol retailing and medical supplies. Each of these sectors looks incredibly fat here.
Next, look at demographics. New York will be more densely populated than most of the USA, with lower dependence on cars. That will explain that Houston to my eyes was one enormous ugly retail parking lot, whereas New York has so far avoided that fate. Add in the diversity of residents, and typical home sizes (kitchens, fridges, washing machines) and you can find reasons for many other differences.
Another lesson is that habits die hard. Things are partly as they are in the USA because that is the way they always have been. Change happens (look at mobile phones) but always more slowly than pure logic would suggest, so differences also perpetuate even if not strictly logical. If you doubt that, just look at the notes and coins. How come Americans still have paper dollars and all notes look the same? Answer – because that it the way it has always been, people resist change, and politicians don’t like annoying core voters.
But my favourite lesson is the one from Sleepy’s. You can explain many things, but some defy explanation. Entrepreneurs and customers have many motives you don’t read about in economics text books, and strange outcomes can result, often for many years. Markets are far from perfect, and we should celebrate that, as it provides glorious diversity as customers and great opportunities as entrepreneurs and investors.
Nonetheless, if I were investing in a sector in Europe, I think I would plump for personal grooming rather than mattress retailing.
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