Respect the Label!

March 11th, 2019

In a famous Seinfeld episode, George Costanaza bemoans his how his two worlds collide.  “Relationship George” and “Independent George” are two distinct personalities he uses based on the circumstances he is in.

I felt that way, albeit in a more positive manner than George, when an article about Tesla’s labeling issues made the rounds among label nerds last week.  (I don’t know what it says about me, but this article was forwarded to me by several people.)  What are the chances that these two distinct subjects, both of which I have a passion for, would be mentioned in the same story?  Below is an excerpt from the article.

The General Administration of Customs (GAC) reportedly accused Tesla of omitting Chinese labeling on components and mislabeling motor capacity. (Emphasis added) The GAC suspended sales of Tesla’s Model 3s. The stock price dropped as much as 5% on the news this week. But as of today (March 5), Reuters reports that Tesla has resolved the issue, allowing sales and imports of the Model 3 to resume.

I am fairly confident that my phone’s calculator is not set to enough decimal places to calculate the cost of the label(s) as a percentage of sell price that Tesla must apply to meet Chinese standards.  Saying it is a rounding error would be an overstatement.  Yet without those labels, 1,600 cars sat in limbo.  With a company needing cash, every day is critical.

It may be only a label, but without it products cannot be delivered.  In the aforementioned Seinfeld episode George Costanza famously quipped, “If Relationship George walks through this door, he will kill Independent George!  A George, divided against itself, cannot stand!” It may be only a label, but without it products cannot be delivered.  Respect the label!

Tesla’s Real Disruption: Upending the Sale Process

March 5th, 2019

Last week, Tesla announced it will offer a version of its Model 3 sedan for $35,000, a price the company believes will make it a mass market car.  The announcement also included the news that Tesla was switching to online sales only and will close numerous stores and eliminate several sales and marketing positions.  Shifting to an online-only sales model will allow the company to lower prices on all cars by 6% on average.

While much attention is given to the advances Tesla has made in its products, this change in its sales process might have a more lasting impact on the automotive industry and the economy in general than any of its technological advances.  Most states legally mandate automobile manufacturers use dealers to sell cars.  Tesla faced numerous legal challenges by states when it started selling cars through stores it owned; it has no dealer network.  If the elimination of stores and sales staffs gives Tesla a cost advantage, expect automobile makers and dealers to react.  Don’t be surprised if the manufacturers lobby to change the dealer network structure.

With information readily available on virtually all products, expect more companies and industries to follow Tesla’s lead.  If all you are is a glorified order taker, your job is in jeopardy.  Provide value or find something else to do.  There will always be a role for companies and people that add value.

Most of Academia Does Not Understand The Real World

February 26th, 2019

In January 2016, I attended an executive education program at a prestigious business school.  Early on in the program, the professor asked a question: “Do you favor free trade?”  Virtually everyone in that room said yes.  The professor replied, “Of course you do.  Because you all benefitted from an increase in trade.  Do you think the auto worker in Michigan or Ohio feels the same way you do?  If he still has a job, his pay has been stagnant over the last 30 years.  Again, that’s if his job hasn’t gone away.  Yes, he probably pays less for goods at Wal-Mart on a relative basis, but if you don’t have a job, does it matter what things cost?”

I thought about this exchange when Trump was elected.  I also thought about it yesterday when I read an interview with the past chairman of the Federal Reserve, Janet Yellen.  President Trump did not reappoint her to the Fed Chair position.   After months of silence, Yellen finally opened up about President Trump.  An excerpt is below.

When it comes to economics, she (Janet Yellen) said Monday that Trump misunderstands some fairly elementary concepts, citing his stance on reducing trade deficits with China and other global partners.

“And when I continually hear focus by the president and some of his advisers on remedying bilateral trade deficits with other trade partners, I think almost any economist would tell you that there’s no real meaning to bilateral trade deficits, and it’s not an appropriate objective of policy,” she said.

It never ceases to amaze me how little understanding academics and supposedly intelligent people actually possess of how the “real world” works.  While his tactics and communication style leave much to be desired, Trump at least understands that moving manufacturing offshore, while benefitting the country as a whole, did not benefit the people whose jobs went away.  They don’t care about bilateral trade deficits or any other ivory tower theory.  They care about their jobs and their families’ well-being.  Trump might not grasp macroeconomics but he certainly understands the American workers’ microeconomics.  If he can tell the American people he got the Chinese to buy more products from us, he can claim victory.  That’s what this trade war is all about.

“Free” Government Services = Value-Added Tax

February 19th, 2019

With the coming presidential primary, I watch with great interest as each potential candidate seemingly takes it as a challenge to one-up what a previous candidate promised.  The ante is now “free” healthcare, college, and economic security for those unable or unwilling to work.  (Emphasis added.)  I am aware that the two authors of the so called Green New Deal are not running for president, at least not yet, but several announced candidates have indicated support for this legislation.

Apparently all of the politicians supporting more socialistic programs are not paying attention to Venezuela.  Or maybe they are.  The politicians and their cronies did just fine.  The common people are the ones suffering and trying to flee the country.  They were promised all sorts of “free” things too.

As Margaret Thatcher said, “The trouble with socialism is you eventually run out of other people’s money.”  Talking about “free” goods and services makes for great sound bites and bumper stickers.  The reality is that a 70% income tax on the “tippy top” will not pay for all of the promised entitlements.  Every country with socialized medicine has a VAT tax (value-added tax).  There is no more regressive tax system than a VAT.  Unfortunately, politicians will not propose a federal VAT until they get the population addicted to “free” stuff.  Unless something changes, that is the path the US is headed down.


“You Can Do That, But You Should Probably Think About Doing This.”

February 11th, 2019

Like many industry colleagues, I attended Gary Cooper’s funeral last week.  “Coop” had been in the label industry for 30 years, most recently as CEO of Dot It.  He died suddenly and unexpectedly on Super Bowl Sunday.

There was not a dry eye in the house as Coop was eulogized by best friend, and his family, his son Truman, daughter Tory, and wife, Colleen.  Truman relayed stories of how his dad supported whatever he wanted to do.  He said that when he would go to Gary for advice and tell him what he wanted to do that, rather than say no, Gary would end the conversation with, “You can do that, but you should probably think about doing this.”  The conversation would end, Truman would think about his choices, and usually determined Gary was right.

I was fortunate to consider Gary a friend.  As I thought about Truman’s eulogy, I remembered conversations with Gary.  We had many business conversations and I would often solicit his input.  He had a way of guiding me to the right choice.  He was not dogmatic in his advice; he somehow was able to make you think the right choice was the decision you would have made all along.  Coop had a leadership gift we all can learn from: listen well and make people think before deciding.

If Coop were still with us, he probably would have said to a few of the attendees, “You can wear a sport coat to a funeral, but you should probably think about wearing a suit.”  (I know a few readers will understand that comment and that Coop is smiling down upon us.)

Do Not Forget the Fundamentals

February 5th, 2019

Having played defense a majority of my football career, I was one of the few people outside of New England that found the low scoring Super Bowl exciting.  Rule changes, along with offensive scheme changes, have led to an increase in scoring on all levels of football over the last several years.  Even I will admit that it does not hurt that high scoring games tend to be more exciting than defensive struggles.

Going into the Super Bowl, virtually every “expert” predicted a high-scoring affair.  The Rams feature a prolific young coach who structured a dynamic offense.  The Patriots have Tom Brady, arguably the greatest quarterback of all time.  Both teams’ defenses had struggled at times during the season and during the playoffs.  The conditions were ripe for a shootout.  ESPN’s “experts” predicted scores that ranged from 20-17 to 41-40, with an average final score of 31-27.  Oops. That’s a far cry from the 13-3 final.

Something happened on the way to the score everyone anticipated and hoped for: experience.  The Rams’ defensive coordinator, Wade Phillips, has been coaching in the NFL for over 40 years.  Bill Belichick, the Patriots mastermind, is the oldest coach ever to win a Super Bowl.  Both teams featured many experienced defensive players.  Give smart coaches and smart players a few weeks to prepare and good things will happen.  The bottom line is both defenses outplayed both offenses, with the Patriots playing a little better.

So what’s the lesson in all of this?  Bill Belichick is famous for telling everyone around him, “Do your job.”  Based on his demeanor, I imagine he might add a few words to that phrase every now and then.  It’s easy to get caught up in the hype of a shiny new object (product, service, etc.).  It’s easy to focus on a new marketing strategy.  It’s fun to chase new business.  Don’t forget the basics.  Growth is exciting.  New ideas are exciting.  But to win, you still have to execute the fundamentals.  The Patriots prove that time and time again.

It’s Time for a Serious Conversation about a Flat Tax

January 28th, 2019

Every now and then, I learn something that truly makes me wonder if there is any common sense left in the world.  A situation like that occurred last week.

Our auditors and tax accountants were in for field work.  They asked questions about our parking lots.  The latest tax changes make employee parking a non-deductible expense.  Translation: we have to allocate rent from our facilities to parking that we do not charge our employees for.  That is an expense we do not get to deduct anymore.  In other words, it is a stealth tax increase.  It is also a colossal waste of resources.  Our staff had to allocate time to figure out how many parking spots we have for employees, that I paid for.  Our accountants have another form to fill out, that I paid for.   The IRS has another form to process that we all pay for.  What it really demonstrates is that every tax bill offers permanent employment for attorneys, accountants, lobbyists, and government bureaucrats.

In the real world, simplification is rewarded.  Car companies became more profitable when they bundled popular option choices together instead of letting consumers choose options ala carte.  Retailers, both bricks and mortar and online, try to make transactions as frictionless as possible.  Only in the bizarre world of anything the government is involved with (taxes, healthcare, education) is obfuscation rewarded.  Let’s start with the tax system.  It is time to have a real discussion about a flat tax system.  Simplify, simplify, simplify.

If you have insomnia, click on the links below to read more about this ridiculousness.

You Have to Adapt to Your Conditions

January 21st, 2019

We recently experienced our first real winter storm this season.  I was driving my son, who recently turned thirteen and now officially knows everything, to one of his friend’s houses.  The roads were slick.  I was driving below the speed limit.  Of course, he had to question me for going slow.  I explained to him that the roads were slippery and the speed limit did not matter; I had to be safe.  He sighed and rolled his eyes.  As if on cue, a car coming the other way was going fast and was going to attempt a right turn.  I said, “Look at that idiot.  He’s going to go off the road.”  Sure enough, he skidded off the road.  Luckily, he did not hit anything.

I tried to use this example as a Ward Cleaver-esque moment.  I emphasized how a car is not a toy and a driver has to understand the condition of the road.  I think all he heard was, “Blah, blah, blah.”  Hopefully, I can get my message through to him before he actually drives.  He is counting the days and insists he already knows how to drive.  Every parent faces similar challenges…

After dropping him off, I thought about what I had said.  Most drivers do adapt to road conditions but, as I witnessed, it only takes one person who is not adjusting properly to potentially create a huge problem.  Is everyone on your team adapting to the changing business conditions?  Are you all on the same page for tactical and strategic adjustments?  If not, it might be time to sit down, discuss the current environment and what you see for the future.


The Government Shutdown: A Proposed Solution and is it Trump’s Waterloo?

January 15th, 2019

As I write, the longest government shutdown in history continues while the President and Congressional Democrats trade blame in the media.  Instead of focusing on issues and negotiating, both sides appear dug in trying to gain a political advantage.  I have a simple solution for ending the shutdown:  Let’s pass a law that any time there is a shutdown, all elected and appointed officials forego their salaries and benefits for the length of the shutdown.  Congress, the president, and cabinet officials should not get paid if they do not fund the government.  That might bring them to the table a little faster.

The shutdown is beginning to impact the economy.  The fact that hundreds of thousands of government workers is regularly mentioned in the media.  The other economic impacts of the shutdown are just beginning to get attention.  Cargo ships are unable to deliver to US ports because paperwork is not being processed.  Airline travel is starting to be disrupted because of a lack of TSA workers.  New products launches are being delayed because the FDA is not fully staffed.

The President has touted the strong economy as evidence his policies are working.  A prolonged shutdown will have a negative impact on an economy that is already showing signs of slowing.  Even if Trump wins the proverbial battle and gets funding for the wall, he might lose the war by inflicting harm on the economy.  Border security is important but as Bill Clinton famously quipped, “It’s the economy, stupid.”  If the Trump and the Republicans do not figure that out soon, 2020 will not work out too well for them.

Are You Ready for 2019?

January 8th, 2019

Just writing the year “2019” scares me.  It seems like only yesterday we were in 1999, preparing for the new millennium.  (I know our IT department can’t wait to correct me.  Technically, the new millennium began in 2000.)   I got really scared and felt really old when I learned Prince released the album “1999” in 1982.  Time marches on whether we like it or not.

I’ll start with a recap of my 2018 trends which were posted January 3, 2018, and conclude with 2019 predictions.

  1. The return of inflation. Yes, I’ve thought this would happen for a while.  It took six years for label prices to go up.  I don’t know if there will be more increases this year but the overall trend for commodity prices is up.  Pay attention to oil.  If the Russians and OPEC are finally convinced that fracking is here to stay, they will restrict output and let prices rise.  While US producers will fill some of the gap, they will like the higher prices as well.  Don’t discount politics either.  We have a president that loves debt.  Debtors benefit in times of inflation. 2019 Comment: Not bad. Missed on oil but got inflation right.
  2. More consolidation in every industry. Technology and customer demands create advantages for those that scale.  That will continue to accelerate in 2018 and beyond.  I say this every year and it’s the one thing that I’ve been consistently right about! 2019 comment: I didn’t go out on a limb for this one.  The consolidation trend will continue. 
  3. Environmental concerns start to impact the packaging industry, especially in the U.S. The dramatic growth in internet retail has led to an explosion in packaging consumption.  If I were a bricks and mortar retailer, I’d be screaming about how environmentally unfriendly this trend is.  Prior to the recession, environmentally friendly packaging was a hot topic.  Once the recession hit, companies wanted to be environmentally friendly as long as it did not cost more money.  Smart companies will figure out how to make being environmentally friendly a strategic advantage.  Expect Amazon to announce a major environmental initiative. 2019 comment:  Do straws count?  The environment will remain a hot topic.  If your neighborhood is anything like mine, you saw the amount of packaging associated with e-commerce at the curb after Christmas.

 2019 trends/predictions

  1. To state the obvious, after a relatively calm period, volatility returned to the financial markets in the last several weeks. It will continue and impact the economy.  Banks will begin to tighten credit standards.  Economic growth will surprise on the downside at some point during the year.  Overall, the US economy will grow but the growth rate will slow.  (This is a prediction I would love to be wrong about.)
  2. Expect volatility in your supply chain as shortages in raw material components (real or perceived) are possible. Top concerns are thermal transfer ribbons, release liners, and certain adhesive components.  As I’ve written in the past, price does not matter when you cannot get something.  Be prepared for longer lead times.
  3. The death of bricks and mortar retail continues to be greatly exaggerated. For environmental and cost reasons, direct to consumer shipping slows.  Merchants will encourage (translation: monetarily reward) consumers to pick up items ordered online at centralized locations.

The New Year is a great opportunity to reflect on what went right, what went wrong, and what you can do to change your future.  I hope you create the 2019 of your dreams.