What I Learned From Jack Ma of Alibaba

Alibaba recently hosted an event in Detroit called Gateway 17 which invited 3,000 small and medium size businesses across apparel, consumer goods, hard goods and food. Speakers included Martha Stewart, Charlie Rose, Dan Gilbert and Alibaba's founder Jack Ma himself. Given Jack's commitment to President Trump to provide the US with 1 million jobs, the event was also heavily attended and covered by the media. 

The overarching theme of the event was to convince US small and medium size businesses of the size and need of the Chinese market as the middle class grows and China shifts from a manufacturing economy to a consuming economy. Jack Ma was featured in a Charlie Rose interview on stage on the evening of day 1 and provided day 2's keynote. This was my first time seeing Jack Ma live and a few themes stuck with me:

1. China, China, China - Alibaba has tried to setup shop in the US, launched platforms like 11 Main in the US but recognizes these initiatives as mistakes. Jack realizes that using the US for product as opposed to selling product in the US is Alibaba's best route. Jack notes that the US drove the global economy for the last 30 years but China will likely drive the next 30. 
2. Alibaba Is Like No Other - Jack believes Alibaba and Amazon aren't competitors. Alibaba empowers small businesses to sell on the internet. Amazon is ecommerce retailer. You can argue that point but Jack says, "Alibaba is not a company. Alibaba is an economy. By 2036, we hope to be the 5th largest economy in the world." With ambitions like that, Alibaba stands alone.
3. Greater Purpose - Jack mentioned 100 days of flying in 2017. Is Jack running Alibaba day to day? No. Jack believes it is his civic duty to spread the word of Alibaba but even more so China. What helps China likely helps Alibaba. 

The scale of Alibaba and China is something the world has never seen. As economies like China and India become consumer economies, the opportunities for ANY market are endless. The internet makes each of those customer's accessible if done the right way.

Disclosure: At time of publishing, I was long Alibaba stock.

The "Add to Cart" War

Astute piece by Buzzfeed on the war happening behind the scenes of Amazon to keep prices ultra-competitive within the Amazon walls:

Behind the scenes on what may appear to be a simple product page on Amazon, a bustle of sellers are all scrambling to win your business. They're fighting over a small yellow box that is emerging as one of the most important battlegrounds in online shopping.

To the average user who lands on a product page it's all pretty straightforward. To the left are photos of the item — a cell phone charger, let's say. To the right, there's the "Add to Cart" button. Pretty simple, right?

But dozens of sellers may all be offering that same charger, and only one is chosen by Amazon's systems to get the sale when you hit Add to Cart. The others are relegated further down the page, and the vast majority of Amazon users never bother to look at them.

At any point in time, products can have 5-10 sellers competing to sell the exact same product. Although Amazon doesn't explicitly explain which seller earns the "buy box," it is known to be a combination of price and seller reviews. If a seller does not have the buy box, their product is still available for sale but highly unlikely to take place. Therefore, owning the buy box on the main product page is crucial to success for any 3rd party seller. 

What about when you are competing with Amazon themselves? How do you expect to beat Amazon on their own site when they have the most reputable account? Almost impossible. Amazon's pricing will continue to match or decrease price until a seller stops.

Note: I will be discussing this and other Amazon related topics at GrowCommerce on July 20 in NYC. 

Mobile Store That Comes to You

What do you get when you cross an autonomous bus with a brick & mortar store? 

Moby Mart is a mobile store on wheels. It’s about the size of a small bus, and the idea is that eventually it will use artificial intelligence and computer vision to navigate city streets. (The current prototype is controlled by humans.) It carries some basics, like fresh food, as well as things like sneakers and magazines. Like Amazon Go, the retail company’s recently announced autonomous store concept, there are no lines, no cashiers, and no cash. You just scan the items you’re taking, and the Moby Mart app automatically handles the transaction for you.

Why Amazon is Buying Whole Foods

About an hour ago, Amazon announced they will be buying Whole Foods for $42 a share, a 27% premium to the closing price on Thursday. Whole Foods is the 70th largest grocery chain in the world based on 2016 revenues and has over 430 locations. So why would Amazon go through an acquisition that is close to 14 times larger than any of their previous acquisitions?

1. Access to your grocery wallet - Sales of food and beverages is the #4 category consumers spend money on aside from housing, health and other services. Whilst that number has gone down over the years, consumers still spend 8% of their wallet on food and beverages.
2. Buy on Amazon.com, pick up in store - Amazon has dabbled in buying online picking up in lockers and just started Amazon Fresh pick-up but never had a physical presence allowing for customers to come to Amazon locations for pick-up and avoid their highest cost driver: shipping costs.
3. Physical flexibility - Amazon is a big believer in empowering sellers through their marketplace. With the additional brick & mortar space, I wouldn't be surprised to see Amazon lease or consign unit space to sellers looking to sell product both online and in-store. Sellers can use that shelf space for marketing a product to the Amazon customer beyond just the site and apps. 

Now, whilst this is game changing news, we must keep the size of the grocery market in perspective. Amazon currently owns about 0.9% of the total grocery market. Whole Foods currently owns 1.7% of the total grocery market. While this is a significant increase in market share for Amazon, it still pales in comparison to the top two. Walmart has 17.3% and Kroger has 8.9%. Amazon's combined market share will be 2.6%. 

Whilst we fantasize about a checkout free store visit, Whole Foods private label brands available on Amazon and buy on Amazon.com, pick-up at Whole Foods, we must remember that deals of this size take time. Deals of this visibility sometimes see other bidders. Deals of this size take a lot of work operationally. We won't see approval until the back half of this year and likely won't see any change in operations until at least next year. 

A Retail Headline That Hit Home: Hudson's Bay

With the revolving negative headlines surrounding retail each day, I had become desensitized. Until Thursday's BREAKING tweet from @BoF Business of Fashion: 

Hudson's Bay is a retail juggernaut owning Lord & Taylor, The Bay, Home Outfitters, Saks, Saks Off Fifth, Gilt and Kaufhof in Europe. My first role with the company took place in 2009 to 2011. At the time, I was a consultant working for Accenture when I was first introduced to Lord & Taylor as a client. Our mandate was to provide the brains behind the ideas for merging Lord & Taylor with Hudson's Bay. After the Hudson's Bay acquisition took place, we were focused on using our larger scale to drive cost efficiencies and savings from vendors through larger, more optimistic contracts. Eventually we would provide support to Hudson Bay's Zellers team to ready the stores for handover to the short lived Target Canada and determine the best way to position Canada's leading department store, The Bay.

At some point in 2012 after I had left for several months, I was approached by HBC Senior Leadership to leave the consulting lifestyle and officially join the front lines of the industry I was so passionate about. Over the course of the next two years, I provided strategy support to the President, fought vigorously for digital initiatives and even MC'd the company's annual leadership summit. Up through 2014, it was a fantastic four years that serves as the foundation for my retail knowledge and relationships I use each and every day. Working as both a consultant and leader within a company with goals of becoming the world's largest department store operator was a blessing.

Unfortunately that goal brought about Thursday's news. Did retail really change that quickly? No. Internal meeting topics back to 2013 included ideas and strategy questions that the media talks about today. Should we downsize as productivity declines? Should our stores shrink in size? Should we fulfill our internet orders from our top stores or our lower performing stores? Should we kill our print catalog and shift that money to digital ads? Should we open more stores to fuel sales growth? Will global brands like Zara and H&M continue to steal share? Is off price the new model?

In actuality, retail is quite healthy and continues to grow at a modest 2-3% each year. Retail spend isn't without it's issues as healthcare and housing expenses have grown but the customer expectations and shopping habits have changed. Pockets of healthy growth are clear in fast fashion, brands opening their own stores, off price stalwarts like TJX and the shift to online spending. 

So why do retailers continue to pick the option that is in the best interest of the short term? Growth drives the world. Without growth, investors become displeased and the stock trades down. Without growth, employee morale suffers and focus is lost. Investing in digital, closing stores and shrinking stores kills growth in the short term. This is why Nordstrom is interested in going private. Wouldn't it be great to not have investors from the outside questioning your investments into the business?

Legacy retail must be reminded that business is always tough and the next 5-10 years will be even tougher. Stores will continue to shrink, stores will continue to close, new entrants will continue to come knocking and shoppers will continue to shift online where less profit is made. The golden years of retail are long gone and disintermediation is here for the foreseeable future. Those legacy retailers making the difficult decisions to groom themselves for a smaller, more dynamic and leaner retail industry are the ones that will survive. 

Unconventional Retail At Restoration Hardware

Restoration Hardware dropped a bomb on last week's earnings call that led to a 25% drop in share price. Were the results bad? Yes. Was the guidance poor? Yes. But even more alarming were some of the statements in the press release:

We understand that many of the strategies we are pursuing - opening the largest specialty retail experiences in our industry while most are shrinking the size of their retail footprint and closing stores; expanding our Source Book mailings while many are eliminating catalogs; moving from a promotional to a membership model, while others are increasing promotions, positioning their brands around price versus product; and refusing to follow the herd in self-promotion on social media platforms, instead allowing our brand to be defined by the taste, style, design and quality of the products and experiences we are creating - are all in direct conflict with conventional wisdom and the strategies being pursued by many in our industry.

We believe when you step back and consider we are - one, building a brand with no peer; two, creating a customer experience that cannot be replicated online; and three, have total control of our content from concept to customer - you realize what we are building is extremely rare in contrast to today's retail landscape. Yet, our most valuable asset is not what we've done, but rather who we've become. We've become a team of people who don't know what can't be done. A team that is driven by our values and beliefs. A team that is willing to march into hell, as we did last year, for a heavenly cause. A team that has a bold vision for the future, and an organization that is demonstrating it can bring that vision to life.

Carpe Diem,

Gary

Gary Friedman
Chairman and Chief Executive Officer

New Age Brand: Canada Goose

Canada Goose, the Canadian manufacturer of winter wear announced their first earnings since going public earlier this year. The stock popped 15% on the earnings as investors appreciated the higher margins and improved guidance. So how is this Canadian brand successful as we witness historic bankruptcies and hear that retail is dead?

1. Transition away from wholesale to direct to consumer

Canada Goose is a high end brand that typically sells into higher end department and independent stores. As department stores struggle, Canada Goose has focused on their sales direct to the customer through their own website and new store openings. Canada Goose also recognizes the foreign website traffic and launches country specific offerings like those launched in Fall 2016 in UK and France. If Canada Goose was reliant on their wholesale business, revenues (in Canadian dollars) dropped 48% in the quarter. Instead, the direct to consumer business offset that drop helping overall revenues to increase 22%. Direct to consumer (stores and canadagoose.com) now exceeds wholesale and was up 174% in the quarter to $36.5 million.

2. Opening of brick & mortar

Wait, huh? Brands are actually opening stores right now? The first store was Toronto, the birth place of Canada Goose. Next up was NYC in Soho with London and Chicago coming in Fall 2017. Focus for new stores is on cornerstone global cities that provide brand awareness without boundaries. Most brands keep a domestic focus in early years but Canada Goose realizes the potential of the brand internationally. 

3. Authentic branding

Brand screams Canada, speaks to relentless cold punishment products are tested with and is manufactured in the high cost region of Canada. Can you get anymore credible branding?

So why all the excitement for the brand? I personally believe Canada Goose embodies the structure and mindset of new age apparel brands. New apparel brands start either with a small wholesale business or etail operation, eventually dip their toes into their own brick & mortar and fall in love with direct to consumer margins as their wholesale business limps along. This is not new but brands like Bonobos who are facing similar situations aren't public. With Canada Goose being public, we have front row seats to how brands play succesfully in the new age of retail. 

Disclosure: At the time of the time of publishing, I did not own Canada Goose stock but am a minority investor in Bonobos. 

Off Price Store Earnings Commentary: Nordstrom Rack, Ross, TJ Maxx

See also: Department Store Earnings: JC Penney, Kohl's, Macy's, Nordstrom

Off Price has been among the shining stars in retail for several quarters and the only shining star within the Apparel retailers for the past couple of quarters. All of that shining was questioned with the first wave of results from Nordstrom Rack, Ross and TJ Maxx. Each of the Off Price Retailers posted the lowest quarterly comp rate in years. Reasons for the drop included weather, merchandise mix and the shift to online. Is the point of Off Price store saturation? Is this the point at which the offline "treasure hunt" of Off Price is no longer preferred over the online "treasure hunt?"

Nordstrom Rack & Nordstrom

• Nordstrom Rack is still positive but came in light posting a 2.3% comp. Last time the business posted a comp below 3% was Q3 2015. Online business was only up 19% vs previous year quarterly growth of 42%.
• Full line store comp was down 6.4% with the total comp (includes online) down 2.8%.
• 100% of stores are still cash flow positive despite the continued weakness in same store sales.
• Management maintained guidance and maintains full year comps of flat.

Ross

• Total comp was up 3%, lowest increase since Q1 2016 which grew 2%. 
• Plan to open 90 stores this year. 
• Home continues to be strong point.
• Management maintained guidance and sees 2nd quarter comps of 1-2% growth. 

TJ Maxx (Marmaxx)

• The headline comp was up 1% but the underlying Marmaxx group comp was flat. This compares to an average comp that increased 4.5% over the last 6 quarters. In fact, all of the TJ Maxx businesses (Marmaxx, HomeGoods, TJX Canada, International) all posted slowing comp growth rates.
• Announced new brand HomeSense with first store opening end of Summer and carrying home furnishings completely different from HomeGoods but at a similar price point. The strategy is similar to their dual Apparel retail model with Marshalls and TJ Maxx.
• Plan to open 250 stores this year and inventories were 7% lighter than last year but last year inventories were quite heavy.
• Management lowered guidance but still believes a 1-2% comp increase will be realized for the full year. 

Department Store Earnings Commentary: JC Penney, Kohl's, Macy's, Nordstrom

See also: Off Price Store Earnings Commentary: Nordstrom Rack, Ross, TJ Maxx

Department Stores continue to struggle with consumer spend shifts. Each Department Store is using one of or all of the following strategies: 1) lower the number of stores; 2) shrink the size of go-forward stores; 3) invest in internet fulfillment; 4) brands vs. exclusive private labels as a differentiator. Here are some of the tidbits from last week's calls along with the results from the last 7 quarters comp sale results:

JC Penney

• Comp was down 3.5%, the worst drop in several years. 
• Big ticket items that were driving previous quarter comp sales are making incremental growth difficult.
• 75% of online orders touch a store.
• Management still believes the total year comps will be down 1% to up 1%.

Kohl's

• Comp was down 2.7%, the fifth consecutive quarter with a negative comp and second highest negative comp (Q1 2016 of -3.9%).
• 90% of stores are freestanding or in strip malls providing Kohl's more flexibility for fulfillment of online orders than mall based retailers
• Strong investments in logistics with a 5th internet distribution center opening
• Strong national brands are the merchandise focus.
• Management still believes the total year comps will be flat to down 2%.

Macy's

• Overall comp of owned and licensed was down 4.6% and on an owned basis down 5.2%. This is the second worst comp in last 7 quarters (Q1 2016 of -5.6%). 
• Bluemercury continues to be a strong point for Macy's posting double-digit comp growth.
• Believe that the 100 store closures is enough but open to offload real estate where value outweighs the business.
• Exclusive private label brands are the merchandise focus.
• Management still believes the total year comps will be down only 2-3%.

Nordstrom Rack & Nordstrom

• Nordstrom Rack is still positive but came in light posting a 2.3% comp. Last time the business posted a comp below 3% was Q3 2015. Online business was only up 19% vs previous year quarterly growth of 42%.
• Full line store comp was down 6.4% with the total comp (includes online) down 2.8%.
• 100% of stores are still cash flow positive despite the continued weakness in same store sales.

Privacy Is Overrated

Over the years, I have been part of many debates on panels and in living rooms on customer privacy. My stance has always been, "consumers don't care about privacy if the exchange benefits them."

.....in one study conducted across 372 cities and towns in Germany, we involved the collaboration of 3,544 retailers, stores, and merchants. Firms uploaded coupons onto a mobile app, and by enabling their GPS feature and sharing their real-time location information, consumers were able to receive these deals. Consumer engagement rate of these location-based coupons exceeded that of other, more traditional mobile ads by a magnitude of three to 10 times.

To find out whether consumers would be willing to give up their physical location in exchange for benefits, my co-authors and I conducted a set of elaborate studies at one of the largest shopping malls in China. The mall contains over 300 stores spanning 1.3 million square feet and attracts more than 100,000 visitors per day. At the entrance of the mall, customers were offered the option of accessing free wifi service in exchange for allowing the mall to monitor their shopping trajectories and send them personalized coupons and ads as they went about their shopping. My initial expectation was that a very small number of customers would opt in to this kind of explicit data-sharing relationship with the mall. But as it turned out, more than 75% of customers opted in, basically saying, “Take my data and give me an offer I can’t refuse.”

Is a model where consumers pay for privacy on the horizon?

As these opt-ins become more and more common—and harder and harder to avoid—I believe a model will soon emerge in which people will pay a premium for data privacy. Put another way, people are beginning to demand a fair exchange for their data and want to negotiate the terms with brands to mutual advantage.

For example, last year when AT&T deployed its high-speed fiber internet service to compete with Google Fiber, it had an interesting pricing model in Kansas that captured this concept of a “privacy premium.” The service was priced at $70 a month to match the price of Google Fiber—but if subscribers chose to opt out of AT&T’s “Internet Preferences” program, which recorded users’ browsing and search history, they would have to shell out an extra $29 a month. 

Only a matter of time.

Short & Sweet: Amazon Echo Look

Amazon announced the Echo Look, a device to provide selfies with fashion advice. Well...it's so much more than that. Amazon loves lobbing products and services to see where they may land.

The Amazon Echo Look is a peek into customer closets (after taking over the living room with Echo), a potential Nest (Google Company) competitor, a play on visual search and AI, a re-marketing tool for additional product sales, a social media sharing tool and a product review tool for posting on Amazon product pages. Don't listen to privacy issues. No one truly cares if an item benefits them. Customers will use it. And like it.

Starbucks: Mobile Payments and Ordering

Starbucks provided a few nuggets on mobile payments and ordering on their latest earnings call:

Mobile payment reached 29 percent of transactions in all U.S. stores, up 2 percent from last quarter. The Mobile Order & Pay smartphone app feature, grew to 8 percent of the quarter’s transactions, up from 7 percent in the first quarter.

Incredible how Starbucks has a 1 to 1 relationship with 29% of their customers. Instead of being customers hidden by cash or anonymized as credit cards, Starbucks is aware of 29% of the customers who transacted at their stores last quarter.

Mobile ordering definitely has considerable growth ahead of it. Although Starbucks blames weak comp sales on their inability to fulfill mobile orders, 8% of overall orders is tiny. Hardly a reason for lower than expected comp sales. 

Their fix? Tablets in the hands of baristas. Somehow I don't believe this will be the fix. Trick is in having right amount of labor at the peaks.

Amazon's Q1: Services Growing

Nothing to worry about with Amazon's latest quarterly numbers. Growth in sales and cloud revenue was slightly down from the previous quarter growth rates. One point to note is services as a percentage revenue. Previous quarter was approximately 30% given the holiday period. This quarter came in at 34% in a trend that will likely continue as Amazon focuses on the cloud via AWS and its marketplace selling platform. Again, growth story still intact, this behemoth isn't stopping anytime soon. Slideshow below:

Amazon Seller Survey: FBA is the Differentiator

Feedvisor recently polled 1,600 3rd party sellers. Amazon continues to provide the best platform to list, manage, communicate and ship across all marketplaces. Keep in mind that Amazon is the only marketplace providing a fulfillment option for sellers. All other marketplaces require the seller to ship the product direct to the consumer. Huge differentiator as to why Amazon continues to dominate the marketplaces for small and medium size 3rd party sellers.

Bottom line: Amazon FBA is a distribution center and customer loyalty program on-demand.

1. Most sellers are new to Amazon
2. Majority of seller sales are on Amazon
3. eBay is the top sales channel other than Amazon
4. Walmart is the next sales channel sellers plan to expand in 2017
5. 60% of sellers use Amazon Sponsored Products keyword buying

Q1 Retail Sales Recap: Internet Retailers & Building Material Stores Growth

With the latest March sales now in the books, I thought it would be worthwhile to compare January 2011 to March 2011 to January 2017 to March 2017. Some highlights:

• Internet Nonstore Retailers posted an astounding 60% growth rate for the top spot.
• Building Materials Retailers like Home Depot and Lowes posted a 45% growth rate.
• Lower gasoline prices led to a decline of 14%.
• Unsurprisingly, Department Stores posted a decline of 18%.

The trends are undeniable. The shift to the internet and categories like restaurants has been alive and well for years. All categories except gasoline and department stores were positive.

Ecommerce Isn't Cheap

Recently came across (h/t: @scotwingo) an AlixPartners study of 20 publicly traded retailers that publicly announce online sales separately from brick & mortar along with earnings. The findings are as you would expect. Ecommerce growth does not come cheap and has led to severe declines in profitability. The cost of shipping, the high return rates and additional labor in the chase for growth just isn't paying off in EBIT percentages.

Even worse is how much tougher the shift to online purchasing has become for battered department stores. It's no wonder off-price retailers like Burlington, TJX and Ross aren't in a rush to push into ecommerce as long as new store openings fuel growth. 

Auto Industry Expert Bob Lutz on Tesla & Autonomous Cars

Always interesting to hear Bob Lutz' take on current state of automobile industry. Can't disagree with his rational view on Tesla despite the feel of animosity. 

What’s your take on Elon Musk and Tesla?

I don’t know why it is that otherwise intelligent people can’t see what’s going on there. They lose money on every car, they have a constant cash drain, and yet everybody talks as if this is the most miraculous automobile company of all time.

What do you think will happen with Tesla down the line? Bought by a traditional auto company?

Maybe, but who needs it? [Musk] has no technology that’s not available to anybody else. It’s lithium-ion cobalt batteries. Every carmaker on the planet has electric vehicles in the works with a 200-300-mile range.

Raising capital is not going to help, because fundamentally the business equation on electric cars is wrong. They cost more to build than what the public is willing to pay. That’s the bottom line.

What about the design?

The one advantage [Musk] has is that the Model S is a gorgeous car. It’s one of the best-looking full-size sedans ever. The Model X? It looks like a loaf of bread. There’s no arguing the Model 3 is nice-looking but it doesn’t break any new ground aesthetically.

Don’t get me wrong, what Musk has achieved, whether it is profitable or not, is incredible. He’s created an automobile company based solely on electric vehicles, and they have pretty good, not yet completely reliable, autonomous capability.

For the guy who pushed the Volt, you seem pretty down on electric cars.

They are unarguably a ton of fun to drive. The Tesla Model S? The one with ‘ridiculous mode’? Zero to 60 in like 2.2 seconds? That’s got to be like a shot off an aircraft carrier.

But the mainstream still prefers gasoline. It’s more convenient. You don’t have the recharge time. It has unlimited range — you can refuel any time, any place.

The electric vehicle market is maybe 1%. It could go up to 4 or 5%. Surveys show maybe 4 or 5% of Americans feel so deeply about climate change and the environment that they’re willing to make a personal sacrifice to make their contribution. Most of them are called Prius owners.

You’re bullish on autonomous cars.

As much as one side of me deplores it because I love to drive, when you look at the skills of the average driver, and the reaction times, and the incidence of alcohol and drug use as a factor in accidents, and the amount of national productive time that’s wasted in traffic jams, it is time to find a different solution.

So what's a driving enthusiast to do?

They will have to go to private racetracks. They’re springing up like golf courses. Those will be nice because they’ll be unfettered by regulations, since they’re not on public highways, and they will be the equivalent of riding stables and dude ranches now.

Amazon Kills 3rd Party Seller Emails

A complaint I commonly hear from Amazon customers is the annoyance caused by emails. There are emails from Amazon with suggested products to purchase, new product announcements, delivery or shipping notifications from either 3rd party sellers or Amazon, 3rd party sellers requesting product feedback and 3rd party sellers requesting seller feedback. With 50%+ of products sold on Amazon now from 3rd party sellers, Amazon is now providing customers the ability to opt out of 3rd party seller emails. To do so, customers make there way to this page to edit there preferences. 

Once you are in edit mode, you will notice that Amazon has added a check box for Seller Communications and Seller Feedback (see below).

Overall this is a major plus for customers and will allow Amazon to disguise the number of products coming directly from 3rd party sellers to ensure it doesn't start to have the "eBay feel." With that said, it's safe to assume the number of product reviews and seller reviews will slow and building a winning product from scratch will become even harder. 

Have We Reached Peak Cash? Not Necessarily

Goldman recently outlined countries and their progress in eliminating cash transactions. It is often believed that technology is the driver for the demise of cash:

However, the availability of technology alone has not ensured the demise of cash. As the following chart shows, there are several advanced economies in which it is still the dominant mode of payment in volume terms (surprisingly quite a few European countries are in the bottom left quadrant).

Japan is a striking example of this; lots of tech and lots of cash.

The US also stands out, and this could at least partly be attributed to the fact that regulators in the US have explicitly stated that the market should manage the shift to digital payments by itself.

On the other hand, Scandinavian countries are on the cusp of becoming some of the first cashless societies, as a result of industry-co-ordinated steps and government initiatives. Swish, a payment app developed jointly by the major Swedish banks, has been adopted by nearly half the Swedish population, and is now used to make over nine million payments a month. About 900 of Sweden’s 1,600 bank branches no longer keep cash on hand or take cash deposits and many, especially in rural areas, no longer have ATMs. In conjunction with that, cash transactions were just c.2% of the value and 20% of the volume of all payments made last year (down from 40% five years ago).

Denmark’s move to a cashless society is a deliberate result of policy, with the government removing the obligation for some retailers to accept payment in cash.

Without this legislative push, we believe cash is very difficult to disrupt and substitute. After all, it is a free and convenient mode of transacting. So far, the selling point of the most broadly used alternatives to cash (cheques and cards) is greater convenience. But that hasn’t been sufficient to meaningfully reduce the market share of cash in countries outside Scandinavia and Canada.

Digital Ad Skepticism Inflection Point?

Bloomberg recently highlighted how skepticism is building for digital ads on platforms like Facebook and Google due to ad fraud, high costs and limited attention spans: 

Digital advertising's longstanding problems aren't improving. Newly published research by a group of marketing firms found nearly 20 percent of digital ads were bogus -- that is, not seen by humans, or deliberately invisible on websites and apps. That's a lot of wasted ad spending. Again, bogus ads are a perennial problem, but they've been tolerated for too long.

Marketing firm Adobe said this week that the costs of digital advertising were growing more quickly than the cost of TV ads and that the growth in spending on web search ads wasn't resulting in a commensurate increase in visits to the advertisers' websites. That echoes the disillusionment expressed by an executive at Procter & Gamble -- the world's biggest buyer of advertisements --who said big companies weren't seeing fast enough sales growth to justify the $500 billion spent annually on ads.