Posts from musings

Flying in to LA

LA2I flew into LA and instead of reading or grabbing on to those few last seconds that I can still get wifi,  I stared out the window.  There is something magical about flying into a city.  To see how the city is built, the size, the land underneath it, the traffic patterns or just to stare at an insanely beautiful skyline.

LAWhat is absolutely mind-blowing about flying into LA is not only the immense size but the concrete sprawl.  In the distance you can see downtown LA.  The buildings shoot up on the horizon.  Then the mountains jut up behind the city and believe it or not over those mountains there is a bit more sprawl.

LA1There are some trees, some swatches of greenery, pools, tennis courts, stadiums and then on the other side is a beautiful long beach that appears to travel forever.

I really like this city.  I just wish I could get around it easier.

Ansel Adams at the Skirball

skirball-exhibition-overview-ansel-adamsI went to that Skirball museum to see Manzanar: The Wartime Photographs of Ansel Adams.   Could not be a more fitting time for this show.  As we sit in our living rooms watching the pictures of people pouring out of Syria or the hungry people trapped inside Syria wondering about each countries quasi-open arms to the immigrants and another countries shutting of their doors.

Ansel Adams documented the incarceration camp in Manzanar California from 1942 – 1946.  He protested the treatment of the American-Japanese citizens in their own country.  A forced exodus.  A piece of history that had been pushed under the rug until Jimmy Carter put together a commission to see if as a countries actions were justifiable.  They concluded that the internment was a product of racism and the government should pay for the retribution forced upon all of the people in the camps.   Ronald Reagan issued authorized $20K per person when he was in office putting out more than $1.6billion.

This past week Israel published a letter from  1962 by the Nazi criminal Adolf Eichmann pleading for clemency two days before he was hung.  His claim that he was merely following orders.  War is complicated.

I kept thinking about the Holocaust walking through the Skirball looking at the pictures of the camps.  We took people from their homes who did nothing.  We at least let them bring parts of their lives, fed them, created jobs, taught the kids school and essentially built a city over four years vs starving and torturing people to death or putting them in the gas chamber.  Regardless, it is a disturbing piece of history.  It was during WWII, a scary time.  People (and governments) made many mistakes.  History has proven that.

What is the rest of the world’s responsibility for saving people caught in the crossfires of war and conflict?  My ancestors survived WWII because of the kindness of others.  Are we just watching history repeat itself when we talk about rounding up muslims or taking in as few refugees as possible?  I think we might be.

Where is wholesale and retail going in soft goods?

imgresSoft goods is what people in the business use to describe garments or shoes.  Items that are manufactured and then worn.

Thirty years ago shoes were on consignment.  The store did not buy the shoes to sell to the consumer with the hopes that they chose the right inventory and were responsible for profit and loss.  Shoes were bought on consignment based on what the buyer believed was right for their customer. The store never had to put out cash, they just got a percentage of what was sold.  What did not sell was returned back to the vendor.  That is a tough way to run a business.  It is great for the store but is financially difficult to gauge for a shoe manufacturer.

In order for the shoe manufacturer to make it work, they calculated what they believed would sell that season because the goods were all made in advance.  The lead times were mostly months not days.  So if they did not sell their shoe inventory through the retailer (there wasn’t an ecommerce shop then) they had to figure out other ways to make back their cash.  They would discount them and sell them to discount retailers.  Sometimes they would just mark them to nothing and ship them overseas like Goodwill.  Bad long tail there for those countries but that is another post.

Consignment was tough, the model changed a few years later because some heavy in the shoe world decided this model wasn’t working and renegotiated the deal.  The shoe makers began to sell the products to the department stores and it was up to them to figure out their end of the business.  Let’s move thirty years in to the future. The consumer is smarter than everyone thinks.  We have also trained the consumer over the past 30 years to buy nothing at full price.

Ecommerce has allowed us to buy 8 sweaters 4 pair of shoes, a pair of pants shipped directly to our home with the hope the consumer keeps one thing.  How do you figure out your inventories when a customer does that and the store doesn’t get it back into their inventory for 15 days or maybe longer.  Good news is manufacturing has changed.  Now you can actually make a dress for a customer in a few days and eventually in one day.  You do not have to make 600 units to get the right margin.  You can just make one dress or 600 and it doesn’t change the cost.  So are department stores going to buy less inventory?  Are they going to change the way they service their customer?  What is the long tail for brands who manufacturer boat loads every season to sell to the retailers?

Discounters like Loehmann’s started out buying merchandise that had a late delivery to the department stores or the manufacturer made too many items and then they would buy them at a fraction of the cost and sell them as discounted clothing to their customer.  Such a deal!  Over time people got better at their inventories and Loehmann’s grew.  The manufacturers continued to sell to Loehmann’s but instead of selling them what was left in inventory they began to make the clothes for them.  They had to because everyone had to grow their business annually and there weren’t enough extras hanging around.  So the manufacturer would make the same clothes for Loehmann’s as they made for Saks but just in a lesser quality fabrics.  The customer figured it out.  That is why flash sales are only short term businesses and can’t really work at scale.  Where stores like Ross who sell moderate priced clothing all day work because they are true to their customer.

Bottom line is this industry is in the depths of how technology is forcing the change of business models.  This is happening in different ways but conceptually the same in grocery stores and eventually big box stores.   Where is this going?  There is an investment opportunity here….

Frustrations of early stage investing

imgresI had a moment this past week.  I got angry and frustrated at investors who seem to come together as a group. I only shared that with two people involved in this particular raise and then one who I have known forever who happened to be my next call.  The most difficult part of early stage investing is raising capital.  Certainly some companies get quick momentum and raise rounds quickly while others find it a real slog.

I have been at this for about 9 years.  Everyone has their own thesis and sweet spots.  Many (although early stage investors) have a hard time making leaps into the unknown but want to invest in companies that are using formulas that they have seen work in the past.  I have found that there are few who like what I like or see what I see.  As my father says, that is why they make vanilla ice cream.  He prefers chocolate.

Many of the companies I invested in 4 years ago who slogged it through are now raising solid Series A from great investors.  After each closing my conversations with the founders usually start the same way…remember when you couldn’t get anyone to believe in your vision and essentially believe in you.

Someone asked me why I get up and do this every day.  What is it that makes you feel like you are doing something worthwhile.  It is those founders who had different visions that nobody else saw but for some reason I did and was willing to throw our capital and my force behind it that have gone on to raise that big check and are growing significantly month after month.  That is insanely rewarding.

With that comes the growth of economies and jobs which I really believe in.  One of Fred’s first investments was in a Buffalo company.  They grew to be the second largest employer in Buffalo at that time.  Creating jobs is powerful.

I am over my temper tantrum but it part of the journey as an angel investor.  Onward.

is it time to bring back the ERA?

imgresRaise your hand if you remember when the ERA was not ratified in 1979 due to 5 states rescinding their ratification.  I do.  I remember how upset my Mom was and how it just seemed so impossible that in 1979 there were not equal rights.  It was Phyllis Schlafly, a highly educated (Washington University and Radcliffe) right wing conservative who mobilized other conservative women because she felt that by passing this law that it would disadvantage housewives.  Frightening is the only word that comes to mind.

I had the pleasure of sitting next to the Notorious RGB at a small dinner and this came up.  What is amazing about RGB is that she is not only is she all about the law but perhaps because she is older she has zero problems speaking her mind.  It was amazing just listening to her speak about how when the cases get to the Supreme Court that they have been vetted so intensely that the decisions by each judge are usually made prior to the actual case being heard.  I had no idea.

She talked about the ERA too.  130 out of 143 countries around the globe have gender equality laws in their constitution.  We do not.  We pretend to operate like we do but perhaps it is time to get a case up to the Supreme Court.  108 Women sat in the served in the 114th Congress (January 2015).  That is 20% of the total membership.  Why don’t these women get together and bring back the ERA?  I know the Notorious RGB would be routing for this.

The passing of the Lilly Ledbetter Fair Pay Act is a step but it is time to one step further.  I think it is time….and perhaps the ERA will force companies to close the pay gap and a variety of other inequalities.

Barbie evolves

Digital Studio - Tim Hout 12.17.15 (2015-12-17) 201603 > Barbie Selects Caption: Glamour March Barbie

If you missed it last week, Barbie has several new figures and faces.  She also has a host of new jobs from President to computer engineer. Certainly Barbie has evolved.  Bravo to Mattel.

Backlash around Barbie’s physique has amplified over the past few years.  That noise has also been about the media’s depiction of women from massive amount of photoshopping of photographs to sexual objects including gaunt runway models.

The voice from women is growing.  Women come in different shapes sizes and colors  Women deserve equal pay.  Women are growing companies and leading major companies at leaps and bounds.  This generation is demanding this and much more.

An interesting time of change.  This generation of young children playing these new set of Barbies validates the diversity in the world and that is a step in the right direction.

Women and Wall Street

imgresThere was an article this Sunday in the NYTimes about women and Wall Street titled A Woman Drank My Breast Milk and Other Wall Street Tales.  The author, Maureen Sherry, describes how when she was 7 months pregnant interviewed a young woman for a job at Bear Sterns.  The young woman wanted to know the reality of the environment of the company.  Sherry laughed it off about how women are treated but the reality of it was disturbing.

Most women don’t stay on Wall Street for long periods of time if any at all.  They are treated like shit.  When they get pregnant instead of their peers or superiors being happy for them they tend to increase their hours and put more demands on their time.  It as if they are saying to mothers let’s see if you can take it.  There have been countless law suits on harassment that are kept behind closed doors settling for big sums of cash.

I have met with a few women who were working on Wall Street who were making big bucks but so incredibly unhappy and at a loss on how to move forward or deal.

Years ago I was interviewed by Janet Hanson in front of 100 ladies at a luncheon.  I call these women “banker ladies”.  My career did not cross the path of most of them until recently as they have started to leave and figure out what’s next.

Janet and I talked about what I was doing in the investing world.  At one point we opened the floor to questions.  I will never forget this.  A woman stood up and started to harass me.  She said that she was at a big investment bank and in order for her to move up the ladder she literally had to leave the firm and move to the Middle East and work for the Saudis helping manage assets for them.  After I let her vent I said to her that I have zero idea what it was like for her at the bank.  It am not part of that world.  What I do know is that only one person gets to be the Chairman, only one person gets to be the President so there are probably more than a handful of men who vied for those jobs and did not get them either.  Essentially at one point the ladder to climb up becomes rungless.

I looked around the room and said I bet that of the 100 women here many of you have had better returns than your male counterparts.  You are never going to change these environments from within (although they are desperately trying to fix them now) so why don’t you start your own investment bank.  Change happens from outside not inside.

Afterwards a bunch of women came up to me to talk about that.  I happen to know one that took it to heart and started her own investment firm.  It is no different from the start-up world.  If you don’t like what you see, then forge a different path and build it yourself.

The article is worth reading.  The system is broken in the banking world.  It is 2016 and it is time to see women being treated with respect and as equals.

More on retail

imgresEven if you aren’t a shopper we all know that retail is changing.  Walmart is closing stores, Macy’s is laying off people, Gilt Groupe exited for less than it raised…need I go on?

This is a topic that fascinates me because I started my career in retail.  Those were the days that you had to go to a store to buy something.  Now you don’t have to leave your couch.  When I go into the stores I am not that excited.

There has to be a reason to want to go into a store.  Retailers need to be focused on what makes people want to come in.  The old ways do not work anymore.  Putting out new product on a t-stand isn’t that exciting.  It has to be about the overall experience.  Bryce Howard, the actress, went to Neiman-Marcus to buy her dress for the Golden Globes.  Any designer could have made a dress to fit her but perhaps she just enjoyed the experience of taking time out to shop for herself.

If customers are treated properly through a good experience they become loyal particularly women.  There is real data around it.  We are going to see massive change in how clothing is manufactured and what type of inventories are on the floor.  This generation is interested in sustainability and would rather spend excess cash on an experience or a trip vs more clothes or items.

Change the fitting rooms, change the experience, make the customer king/queen and most important make it enjoyable.  We will see in the next decade a major department store close shop based on lack of market share alone and if they can’t think out of the box there will be more than one that dies.

Shifts in the art world

imgresInvestors look at the size of markets.  The art market did almost $70B last year.  That is a big number yet the business is very fractured.  There are big auction houses, there are galleries across the globe, there are art fairs, there are online sites dedicated to editions and the primary and secondary market (resale) and more.

I have seen so many people in different businesses afraid to change because what they are doing works.  If they are doing really well I sometimes refer to that as the golden handcuffs.  Why change when the money is coming in.  What happens when one day the money trail shifts and profitability changes and market share shifts….you are screwed.  So in order to continue to be successful in a market you have to be see what’s coming down the pike and make the necessary changes.

A culmination of a variety of things are hitting the art world straight on and this year could be the time of change because it has to.  Selling to the collectors has changed.  The art world has become flat because of the internet.  We can see what just sold and for how much.  We can have images sent to us around the globe  People are buying what they want from who they want.  It isn’t necessarily a gallery or an auction house but directly from someone who wants to sell their work.  They no longer need to use an auction house or a gallery on either end.

Another big change is the explosion of shows such as Frieze, Basel and others.  Galleries pay a lot of money to have those booths.  You need a gallery to have a booth but that booth could cost as much as your rent that month.  So to be a cutting edge gallery hoping to bring really unique thoughtful art to the world doesn’t always sell.  How can a gallery rationalize an expensive booth for an up and coming artist pushing the edge that might not sell a piece.  They can’t.

Galleries need to change the 50/50 split that has been the standard for years among artists and galleries. Now it needs to be more like 70 for the gallery and 30 for the artist after the gallery has spent money on rent, marketing, shows, employees, etc.  The numbers just don’t add up anymore.

Sotheby’s just cut back the staff and then turned around to buy a blue chip advisory firm that helps bring together buyers and sellers and advises them on building out their collection.  Doesn’t seem like future thinking here but old school guns with major power.

Auction houses and galleries are not museums.  Museums are non-profit places that educate the public on art through collecting.

I just see a storm coming in this world and somehow or another we are going to see more galleries close, fairs rethink the rules of the game for galleries to show, auctions to think more like a company with powerful backend technology and then there is always the education component.  Should be an interesting year in the art world.

Los Angeles

imgresIt is official, we are in Los Angeles for the winter.  We landed yesterday with a short stop over in Utah to hit the slopes.

Excited to be here.  Posts will be later, life takes on a difference cadence, weather is a bit warmer, get to reconnect with friends and of course my brother and his family is here which is a big bonus.

New restaurant, new exhibits, new art museums and much more to explore.

Life goes on but through a different lens and that is always a really good thing.