Old Age Is No Place for Sissies

Newly uploaded business trend document.

#2 of 12 Business Trends for 2012
"Old Age is No Place for Sissies"

I've uploaded #2 of my series of 12 business trends { #bizTrend }  for 2012 entitled "Old Age is No Place for Sissies". 


Synopsis: 
Baby Boomers account for 40% of consumer demand in the U.S., and control 70% of the total net worth of American households ($7trillion). While the rest of us are saving for a retirement, the Boomers are spending their hard earned pensions, social security, IRAs, and 401Ks. While recent financial and housing market crashes have resulted in devastating losses to many, the amount of money set aside for the Golden Years of this ever increasing retired set is astronomical. 

This paper is a brief look at the enormous opportunity that Baby Boomers offer to : 
1. Durable and non-durable product retailers, manufactures and suppliers. (Automobile, travel, airline, furniture, home builder, hardware manufacturers, and more) 

2. Service providers including the airline industry and home builders. 

3. Municipalities and governments with respect to urban planning and infrastructure spending.

Download from Slideshare or Dropbox

In response to several comments from iDevice people that they could not view the Slideshare documents on their iPhones / iPads, I have set up Dropbox folders for easy downloading of the 2012 Trend PDF documents that I have shared publicly.  Please see this blog post on the topic.

Business: Bad Customer Service is Killing Us

In my previous Zappos post suggested that the airline industry get some immediate assistance from the Zappos Insights team on "How to Deliver Happiness".

source

I've just come across this funny YouTube video called "If Air Travel Worked Like Health Care".


It made me think, wow...if the service provided by the Health Care Industry is so bad that Air Travel is being used as an example of good customer service, than Health Care is more f*!#ed-up as I thought.


Delivering Happiness > Pretty Crappy > Really, utterly crap-tastic
Illustrated in Mathematical terms for more left brain readers, using the transitive relation theory of basic algebra which states:

whenever A > B and B > C, then also A > C

A = Zappos' customer service = the business model is called "Delivering Happiness"

B = Airline Industry customer service = pretty crappy customer service; ref prev blog post 

C = American Healthcare customer service = really, utterly crap-tastic

Conclusion
Aside from the politics, there is an subset of the the Service Design industry which focuses solely on delivering customer satisfaction and improving efficiencies through better design and innovation in Healthcare, and a byproduct of these changes has been reduced costs and improved patient care. Perhaps we should approach America's healthcare dilema with a "Delivering Happiness"  rather than a 6 Sigma Strategy? 




Q: What does this blog post have to do with the home furnishings industry?!


A: All businesses big and small, manufacturing in the US or importing from abroad, retailing product, or designing homes have employees. And, those businesses must consider the cost of healthcare for their employees and themselves. It is a big problem in the US economy and I've heard it called basically a tax on businesses or individuals or in most cases both. Not a tax levied by the government, but by the bloated healthcare industry which costs individuals, families, and businesses 10, 20, even 30% more in the US than it does in all other industrialized nations. 

Healthcare Expenditure as a share of GDP Among OECD Countries 2009 graph source, original data source

These additional costs increase the final product cost of our businesses and reduces our competitiveness in a global economy.


Whether those nations have nationalized heathcare, private, or a combination, they are still delivering better service at lower costs than the US system. 


Our businesses and therefore our economy is not going to be able to escape this economic quagmire without a massive fix to the healthcare industry. 


This is not a political issue, but an economic one. In the end, whether we take the red road, the blue road, or something in between, we need to end up with better and more efficient health service that will result in healthier people, businesses, and profits.  

Apple's Failure - Sacrificing Ergonomics for Aesthetics

Form follows function. Always!

So why are all the tablet computers ergonomic disasters?

I admit, I was a very late adopter of the iPhone, I thought it would anchor me to e-mails and communication 24/7. I finally submitted after my mum and dad each had one. 


Needless to say, I don't have a tablet yet. I know I would love the larger screen, because I prefer to read blogs, digital papers, and mags on my tiny iPhone screen but I also know that the current iPad, and all its competitor clones have the following limitations:

after market strap $49.94, seriously?!

1. You can, in fact be too thin!

The iPad shape is thin, sleek, and sexy. But it's a bitch to hold for a long time when you are reading an article. Not to mention, the cramp you get trying to hold it with one hand while using the touch screen to zoom, scroll, and type. 


Apple, please hire someone from Herman Miller, where they know how to study at work real work ergonomic needs and how to apply that knowledge to beautiful, minimal, and timeless product designs.

2. Remember the Gorilla & The Suitcase?
American tourister had it right when their ad campaign rolled out in 1970. Apple designers, please listen and learn. This IS the next innovation generation for tablets - real world use!

 3. I need something that is much sturdier, and water resistant wouldn't be bad either

I know I can't drop it a million times, but I also know I'd be using it outside most of the time so I would want to be able to nudge it a bit, clean off dirt and the occasional dew moisture. Toughbook has been designing laptop cases for use on construction sites, for the Air Force, and in hospital environments (think bacteria) why can't Apple hire some of Toughbook's  designers, or...better yet,  buy the freekin' company, Apple has a few billion dollars on their books in cash.

4. I want to be able to read in the sunlight

Seriously Apple, you are on the iPhone 5, that is a big problem that I have to angle my screen or go under a tree to be able to read my screen. If the Kindle can do it, why can't you? This is a serious no brainer. 

Tablet by Toughbook for Hospitals

5.Babies don't come with Handles but Tablets can

I want to be able to carry it easily not precariously. Again, aftermarket supplier has designed for industries to integrate additional functionality, including a nice sturdy, ergonomic handle.  


Imagine if briefcases didn't have handles. Or back packs didn't have straps. What if DB Cooper's parachute didn't have straps on the harness? Please, can we have an integrated handle of some sort so we can carry these things? There are some great 'innovations' in the good'ole clipboard. 

the clipboard was a good idea, but better when it had a handle!

  

6. Missed Product Development, Increased Sales, Increased Margin.... Opportunities really irk me! 

In addition to the annoyance of the overlooked functionality, it is equally frustrating that a company that should be a leader in brand innovation and capitalization has missed such a massive branding opportunity. Handbags, baby strollers, and cars are all consumer products that are purchased for their brand and what it says about the user as it's function. 

Any woman or stock analyst can attest that luxury fashion consumers pay exorbitant (in my opinion) prices for handbags from coveted brands. From Coach, to Louis Vuitton ($LVMUY.PK) After all, 94% of Toyko women in their 20s own a LV bag! these brands are ubiquitous across the globe. And Asia is soon to surpass all markets as the largest. (previous related blog posts here, here, here) What a missed opportunity to sport the fashion statement of the Apple brand while pairing the functionality of a handbag, or as is now popular in China a man-bag. Apple, I suggest you try to steal away Burberry's CEO Angela Ahrendts to lead up the non technical product development division of Apple. 

So, I'll be waiting Apple. 

Innovative Products + Customer Experience Focus Boost Profits for Mid-High Price Point Home Furnishings Companies

Following is an excerpt from today's impressive annual and quarterly earnings release from Herman Miller. 


My Take-Away

• In general the trend seems to be that mid to high price point products and retailers in the home furnishings and commercial furnishings (reference Bed Bath and Beyond (NYSE: BBBY) release yesterday) industry are fairing better than the lower or lower perceive price point and brand companies (reference La-z-Boy NYSE: LZB release yesterday).

• Creating a pleasing customer experience in a broad channel of connection points including interactive and in person sales and service opportunities. 

• Improved operating leverage including lower defect rates resulting in lower logistics costs Better inventory analysis and forecasting resulting in faster turns and lower inventory carry levels and fewer markdowns.  

• Adjusted product assortment with larger offering of lower margin, higher volume products.

• Fresh product introductions focusing on "innovation"

• Expanding customer retention through initiatives including the Bed, Bath, Beyond and BuyBuy Baby wedding and baby registry synergies.

• Taking advantage of down economy by improving market share through new customer aquisition; BBBY adding retail stores at lower leasing costs. MLHR increasing 

Web-Casts of Conference Calls

I am a big fan of listening to the quarterly conference calls. For some companies, including William Sonoma (Pottery Barn) I like to print out the transcript so I can highlight key points as I listen (they do great calls) (see my previous posts regarding William Sonoma here, here, here, here .) I glean all sorts of interesting information that is disclosed in the calls and through the Q&A following that isn't covered in the financials and listening I hear nuances that also speak volumes. 

You can listen to the Herman Miller MLRH webcast here . And the Bed, Bath, & Beyond web-cast here (the BBBY one is not so great because it wasn't very detailed and they took investor questions offline.)

Herman Miller, Inc. (NASDAQ: MLHR), today announced results for its fourth quarter ended May 28, 2011. The company reported net sales in the quarter of $441.5 million; an increase of 37.3% from the same quarter last fiscal year. Orders in the period of $448.5 million were 23.0% above the prior year level. Diluted earnings per share in the fourth quarter of fiscal 2011 were $0.30 compared to $0.00 in the prior year period.

For the full fiscal year, net sales were $1,649.2 million, reflecting a year-over-year increase of 25.1%. Adjusted diluted earnings per share, which excludes the impact of restructuring expenses, were $1.09 and $0.66, in 2011 and 2010, respectively. Diluted earnings per share in fiscal 2011 and 2010 were $1.06 and $0.43, respectively.

Brian Walker, Chief Executive Officer, stated, "We finished the fiscal year in strong fashion behind continued strength in customer demand and improved operating leverage. Net sales in the quarter marked our fourth consecutive period of double-digit percentage growth and capped the largest full-year sales increase in our company's history. This recovery complements a host of milestones we achieved this year; all of which provide momentum as we begin fiscal 2012."


Fourth quarter net sales within the company's North American segment totaled $344.3 million. This amount is 40.1% higher than the year ago period. The company's non-North American business segment reported fourth quarter sales of $83.1 million - a year-over-year improvement of 27.7% over the fourth quarter of last year.


Orders within Herman Miller's North American business segment were up 21.4% from the fourth quarter of last fiscal year, while the company's non-North American segment reported a year-over-year increase in orders of 31.9%.


Herman Miller's consolidated fourth quarter gross margin was 33.0%, 20 basis-points above the same quarter a year ago. This year-over-year improvement was driven by increased leverage from higher production levels, which was partially offset by the impact of higher price discounting, commodity costs, and employee bonus expenses. On a sequential-quarter comparison, gross margin in the fourth quarter increased 90 basis-points. Improved production efficiencies and comparatively lower levels of price discounting drove the majority of the sequential-quarter improvement. These factors outpaced the negative impact of higher incentive bonus expenses and commodity costs in the quarter.


Operating expenses in the fourth quarter totaled $114.1 million. This reflects an increase of approximately $23 million on a year-over-year basis after excluding adjustments related to Nemschoff purchase price contingencies and bad debt charges associated with the write-off of dealer receivables in Australia; both of which were recorded in the prior year fourth quarter. Higher variable costs associated with increased sales between periods and a return to full employee benefit levels drove the majority of the year-over-year increase in operating expenses. Relative to the third quarter of this fiscal year, operating expenses increased $12.2 million. Approximately $5 million of the increase relates to a favorable adjustment recognized during the third quarter in settling the remaining contingent components of the Nemschoff purchase price. The remaining sequential-period increase was driven by variable costs on higher sales volume and a seasonal ramp-up in marketing expenses in advance of the NeoCon tradeshow. 


Greg Bylsma, Chief Financial Officer, stated, "We continue to be encouraged by the growth of our business, which for the past several quarters has exceeded that of the broader industry in North America. Importantly, our results this quarter reflect a substantial improvement in operating leverage. We achieved an adjusted operating earnings contribution margin of 22% on our sequential quarter sales growth. This is especially encouraging given the relative impact this quarter of higher commodity costs and incremental employee incentive accruals." Herman Miller's effective income tax rate in the fourth quarter was 36.4%. This compares to 24.4% in the third quarter of this fiscal year. The higher rate in the current quarter resulted primarily from a true-up of the manufacturing deductions allowable against the company's full-year taxable income. In the fourth quarter of last fiscal year, the company recognized a consolidated income tax benefit of $2.3 million against a $0.2 million net loss before tax. 


This related principally to the release of income tax reserves triggered by the closure of an IRS audit and benefits from the manufacturer's deduction under the 2004 American Jobs Creation Act. 


For the full fiscal year, Herman Miller's effective income tax rate was 30.9% compared to 18.8% in fiscal year 2010. The company's cash position at the end of the fourth quarter was $148.6 million; a decrease of $16.1 million from the February ending balance. Net of new borrowings, Herman Miller paid $50 million in cash during the fourth quarter to reduce outstanding debt obligations. The company also made additional contributions to its employee pension plans in the period. Cash flow from operations in the quarter totaled $37.6 million. This compares to $36.3 million in the fourth quarter of last fiscal year. 


 Mr. Walker concluded, "There are many examples throughout our corporate history where innovative thinking and teamwork helped us weather times of challenge - only to emerge a stronger, more capable organization. I believe this is where we are today as a company. We accomplished a range of objectives in this year of economic recovery, from the launch of exciting new products to advances in how and where we do business. Importantly, all of this was achieved through the hard work and dedication of our employees, who understand the power of working together. I'm proud of these accomplishments, and look forward to seeing us reach even greater heights in the coming year." 

FINANCIAL HIGHLIGHTS (Dollars in millions, except per share data) Millions of $$
	Three Months Ended			Fiscal Year Ended
	5/28/11	5/29/10	% Chg.	5/28/11	5/29/10	% Chg.
Net Sales	$441.5	$321.5	37.3	$1,649.2	$1,318.8	25.1
Gross Margin %	33.0%	32.8%	N/A	32.6%	32.5%	N/A
Operating Expenses	$114.1	$91.7	24.4	$411.8	$358.2	15.0
Restructuring Expenses	—	$9.6	N/A	$3.0	$16.7	-82.0
Operating Earnings %	7.2%	1.3%	N/A	7.5%	4.1%	N/A
Adj. Operating Earnings %*	7.2%	3.1%	N/A	6.7%	5.2%	N/A
Net Earnings	$17.1	$2.1	714.3	$70.8	$28.3	150.2
Earnings per share—diluted	$0.30	$0.00	N/A	$1.06	$0.43	146.5
Adj. Earnings per share—diluted*	$0.30	$0.10	200.0	$1.09	$0.66	65.2
Orders	$448.5	$364.5	23.0	$1,672.3	$1,322.4	26.5
Backlog	$275.8	$243.6	13.2

	Fiscal Year Ended
	May 28, 2011		May 29, 2010
Net Sales	$1,649.2	100.0%	$1,318.8	100.0%
Cost of Sales	1,111.1	67.4%	890.3	67.5%
Gross Margin	538.1	32.6%	428.5	32.5%
Operating Expenses	411.8	25.0%	358.2	27.2%
Restructuring Expenses	3.0	0.2%	16.7	1.3%
Operating Earnings	123.3	7.5%	53.6	4.1%
Other Expense, net	20.8	1.3%	18.8	1.4%
Earnings before Income Taxes	102.5	6.2%	34.8	2.6%
Income Tax Expense	31.7	1.9%	6.5	0.5%
Net Earnings	$70.8	4.3%	$28.3	2.1%
Earnings Per Share—Basic	$1.24		$0.51
Weighted Average Basic Common Shares	57,118,777		55,997,781
Earnings Per Share—Diluted	$1.06		$0.43
Weighted Average Diluted Common Shares	57,675,120		57,490,368