Volume 1, Number 2 December 31,
2002
Recent Events:
Industry B isn’t heating up.
It’s HOT! Everyone is operating
three shifts, and companies are pouring money into advertising and sales reps
like crazy. But there is a clear
leader: Audacia’s stock price is a whopping $66.50 a share, and they are
rated AAA in the bond market. So what’s
their secret? They have neither the
highest nor lowest: prices, advertising budget, customer credit, or
quality/awareness. We all know
investors are fussy, but exactly what is it they are fussing over? Two other companies, Comma and BST
showed improvement, and this race is far from over.
BMF Inc.
continues to operate only the East, where demand continues to outpace supply…with
limitations on what customers are willing to spend. BMF Inc.
topped the Eastern market with not only price, but advertising and sales reps.
It paid off with top market share, but not enough to empty the warehouses, and BMF
Inc. was left with huge
inventories and an overdraft to match.
With three shifts running now, we are wondering how BMF Inc. plans to sell everything next year. The customers know them and like them, but
investors ran off at year’s end. Does BMF
Inc. have a borrowing
strategy?
Audacia is this year’s industry darling, and next year is going to have the industry’s highest capacity; she’s going to be a tough lady to catch. Audacia jumped into the West and took market share away from Sammy and Comma. In the East, Audacia pumped up advertising and sales and it paid off, especially in Product X, where they now own a third of the market. Finally, a solid borrowing strategy kept Audacia in the black through this year’s expansion, and investors, loving that bottom line, went bonkers. No doubt, the competition will be gunning for Audacia in the coming year. Can they keep it up?
Sammy remains one of three companies selling all products in all markets. The management team only tweaked numbers minimally, raising or lowering a price here, beefing up advertising there. In the end, Sammy was stuck with inventory, and their minimal borrowing was not enough to prevent a substantial overdraft. If they’re going to continue down this road, Sammy has a hard run to catch up with Audacia, who is now running in first place.
The Comma team racked up the second highest gain in the industry, more than doubling their stock price. Running with the highest prices on Product X didn’t seem to hurt them, especially in the West where they own more than half the market, small though it may be. Comma’s product X is well known and respected, and they are clearly withdrawing from the Product Y market. They seem to understand that you have to borrow money to grow your business. We expect bold moves from this company, now in a somewhat distant second place.
The HOSERS boosted advertising for Product Y in both markets and walked away with the market (60% in the West, 25% in the East). Even so, there weren’t enough buyers all around and HOSERS were left with the second highest inventories in the industry. Product X customers are wondering if they’re in or out of the Product X business, though analysts believe this new management team is still trying to figure out where it pays to spend your money. Impatient investors didn’t stick around for the answer, and the stock price dropped $1.20 a share.
BST and BMF Inc are now the only two companies selling only in the East. It looks BST has adopted the “more is better” strategy, as they raised prices, boosted advertising and sales. But their capacity next year will be lower than this year. Unlike their “twin,” however, BST finished the year with no inventories, no overdraft, and money in the bank. Lenders and investors like this company. Now that they’ve figured out how to run this company, we expect them to lean on the throttle.
BMF Inc. is clearly decided to focus on just one product in one market. They spent a huge amount on advertising Y, a set a price that is substantially higher than their competitors. Obviously they expected a much larger increase in sales, because they ended the year with a huge increase in inventory and a correspondingly huge overdraft. They are also making a small (but expensive) addition to next year’s capacity.