It's been a retail-heavy week of earnings, and if there's been a prevailing theme it's been the long overdue focus on merging the on- and offline shopping experiences. Obviously merchants have been talking about the move to so-called omni-channel sales for years but this was the quarter where shares really started moving based on how robust their non-brick and mortar efforts really are.
The turning point probably came at the end of last month when Amazon (AMZN) reported a surprise profit driven in large part by a surge in Prime customers. Don't underestimate the significance of that news, not just on Amazon's shares, which you can see ripping at the end of January, but in the mindset of other retailers. When the perception was that online sales meant nothing more than shipping headaches, the brick and mortar model still seemed ok. Once Wall Street and merchants a little slower on the uptake realized that Amazon was actually able to generate insanely high-margin revenues by improving incremental Prime offerings and charging more, lightbulbs started going off all over the place.
The theme got me thinking about companies that are somewhat reliant on physical locations where customers gather. We all know about the troubles at Herbalife (HLF), but take a look at what happened to Weight Watchers (WTW) today.
Down 30% after reporting a more than 13% drop in club memberships and warning on profits for the coming year. Even worse, Weight Watchers hasn't been able to recreate its group support vibe online. Membership numbers in the virtual world were off more than 16%.
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Another direct seller more at home on "Mad Men" than "House of Cards" is Avon Products (AVP). Those shares are off more than 60% in the last year. Avon was a takeover target in the mid-20s just a few years ago. Today it's struggling to stay out of hat-sized levels.
One other interesting point: look at the performance of these two companies since Weight Watchers went public in late 2001. Shares of both Avon and Weight Watchers both down by almost exactly 2/3rds over the last 13 plus years. You can see a lot of unique twist and turns along the way but the companies share two things in addition to more than 60% losses for investors: Each has an outdated direct selling business model and neither management team seems to have any earthly idea what to do about it.
About the only hope now is that Betty Draper will have gone back to Weight Watchers and taken up a make-up selling hobby next month when "Mad Men" kicks off its final batch of episodes.
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