THE ENTERPRISE
It's time to open the year with some thoughts on what the future might hold...and some predictions (or educated guesses). Here's my version of how the New Year will open up and shape up.
Iraq and Politics
Iraq will continue to be messy, ugly and generally unsatisfying/expensive. Insurgents will disrupt some elections if the Sunni-Shiite dispute doesn't mess them up anyway. The US increasingly is the only force keeping order as the Iraqis learn, but oh so slowly, to do it themselves. US politics will be almost as ugly as Iraq. Bush and his administration will hold their (hard) line and opponents in Congress will block as much of it as they can. A lot will get done--programs and reforms that only a second term President dare to push forward. Bush supporters will call it persistence and consistency. Opponents will call it stubbornness and stupidity. What else is new? At least non-Iraq spending will get curtailed somewhat by the growing deficit concerns. (By the way, there will not be an "Arnold Amendment"... nor one on "Gay Marriage"...at least not any time soon.)
Business
Expect oil prices to stay up. That means oil-based commodities will stay up in cost. Steel has plateaued, but won't come down soon either. Neither will many commodities which are in high demand, short supply or both. Price increases are moving slowly through the supply chain, lagging cost increases by at least 1-2 quarters or more. This will hurt profits in many companies. Interest rates have to go up another 2 points or so to reach "neutral" levels vs. growth and inflation, which is where they historically have been...and belong. This will also eat into company profits. The Chinese Yuan won't move much vs. the US$, if at all. There is lots of pressure for some kind of move, so expect a token move at most, nothing at the least. The dollar will stay weak, but not go into meltdown. And one large airline will disappear and its name starts with a U.
Marketing, Selling & Christmas
Advertising is entering a new age--of rifle-shot and "non-mass" media. Internet, special cable channels, print, direct response/interactive and many other innovative media choices will overwhelm the old shotgun "Network-TV" ad strategy because of cost effectiveness and trackability. Expect much more direct selling, both the old-fashioned way and via the Internet--which had a "smokin'" Christmas season. This was a much stronger Christmas than the traditional metrics show, since many Christmas gift cards are just starting to be used now and these were a huge factor. MasterCard's Christmas Y/Y growth numbers were cited at 8% and are more like what really happened than the standard indicators at 3-4%. Consumer confidence metrics jumped recently, further confirming that the recovery is still going OK--for now at least. The stock market at (Dow) 10,750 will hang onto most of that gain, and maybe eke out a little more--barring some kind of disaster scenario in Iraq or with terrorism. But the gains will not be uniform. There will be notable winners and losers.
Retailing
Expect Wal*Mart to do fine, Target to do even better; Lowe's will do OK, and Home Depot even better. Kmart/Sears will continue to make waves, but adding together two large negative numbers yields an even larger negative number. The math doesn't lie. Kmart's better big store locations will become Sears Grand stores. Sears mall real estate locations will hit the market as soon as the stores serving those markets can be replaced by new "Grand" stores. Kmart's older, smaller and weaker stores will start to look like "deluxe dollar stores." And "dollar stores" growth will slow/shake-out as the market becomes overpopulated with some not-so-good competitors. Retail will start to feel pain as the prices and deals on "Tech Stuff" become hotter/cheaper. Retail margins will get squeezed and Y/Y comp sales gains will become tougher and tougher to make.
Mergers, Acquisitions and Equity Investing
There is still a lot of money looking for companies to invest in. That is keeping deal multiples high, and the market lively. The dampening factor on this is the lag in pricing vs. cost increases, which is depressing profits and making deals harder to price/value. The real money will be made by those who can sort the winners from the losers, and see the value beyond the short term cost/price pressures. There will be a rash of mergers and acquisitions, but most mergers destroy value in the long term, and only look good financially close in, while rationalization savings are propping up financial results, Then they tank. Watch it happen again. Exception: "Complimentary" companies in a consolidating industry--like cell phones (and maybe airlines)--where it is merge or die. Watch the move to drive out "complexity"...and it will yield results. (Even if I never get the book that explains how & why published!). The few companies that learn to "manage complexity wisely" may also craft a winning strategy--but it's hard to do.
Summary
Most of this you could get by reading the many year-end issues of leading magazines. I just digested it here for you and added some of my own opinions.
The major take-away is that the fundamentals still apply.
Contain costs, and when you cannot do so anymore, get out there and raise prices--but "carefully"--and above all, innovate.
The easiest way to get a price increase is to "hide it" in a hot new products.
Asia and China (especially) will continue to be a dominant global competitive force. Learn to use this fact to your advantage.
Don't expect magic from mergers. Putting together two big farms just means moving the fences. It doesn't mean the fields are more fertile. You just have more of them to till and take care of.
How you do it--EXECUTION--within the context of a good strategy, is the key to success.
One thing I am certain about--the future will be exciting and filled with opportunity for those who can capitalize on it. Whoever it was that said it, was right "The best way to predict the future is to create it."
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