Retailers appear to be facing a self-checkout reckoning

Self-checkout. That mysterious invention that has seen consumption of brown onions skyrocket and that of avocado plummet. The worst nightmare of the shopper that has filled their trolley with a big shop, only to see no staff on the main checkouts. This article from Business Insider suggests that many of the biggest retailers in the United States - Walmart, Kroger and Costco amongst them - are struggling with self-checkouts and are not seeing the cost savings that they hoped.

The reason of this reckoning with self-checkout is simple, theft. Estimates in this article suggest that inventory losses can rise between 31% to 60% depending on the number of self-checkouts used in store. Any cost savings start to be eroded by increased theft.

The experience has been similar in Australia, where the major supermarkets have recently reported a rise in shoplifting.

Retailers are trying all kinds of things to reduce this theft: from smart cameras to assisted scan technology and even redesigning entries and exits to stores. Walmart have also been experimenting with new ‘hybrid’ designs for self-checkouts, where shoppers can opt to scan and pay on their own or have the Walmart staff do it for them.

Walmart announced earlier this month that it would be pulling self-checkout from at least three stores in Albuquerque, New Mexico and replacing the lanes with traditional staffed registers. Similarly Costco has recently announced it will be putting more staff on self-checkouts to assist with scanning and to check Costco membership cards.

Compounding Heritage

This article take a look at the luxury market and tries to understand how we can approach these companies as investors. It unpacks the story of three well-known luxury goods makers - LVMH (Louis Vuitton Moet Hennessy), Hermes and Ferrari - and asks what has given them enduring staying power as luxury brands.

All three of these brands have incredible heritage, and that heritage is something that is hard to overcome and impossible to replicate. But that doesn’t mean their success is inevitable. The fashion world is filled with stories of luxury brands that couldn’t maintain their brand position. These companies must continue to straddle a tough line: be appealing to a modern audience while being true to their historic roots. It’s difficult, but when they do nail it, these luxury products are near timeless.

Overall, the luxury market has grown quickly since the turn of the century. And it isn’t slowing down, Bain & Company estimate it will reach a value of between €540 billion and €580 billion by 2030.

As the market has grown, many investors have done well in this space. And that doesn’t appear likely to slow down. The challenge is picking the luxury brands that will be the most appealing to the next generation of consumers. But if we can do that, we might just earn enough investing in these companies to afford some of their products.

The Value Investing Way: From Graham & Buffett, to Howard Marks, George Soros, Seth Klarman & Monish Pabrai

This was an interesting summary of some of the investing philosophies of the best investors in history: Benjamin Graham, Warren Buffett, Howard Marks, George Soros, Seth Klarman and Monish Pabrai. If you were drafting an all-star investing lineup for the past 100 years, you’d be hard pressed to build a better team.

The author explains that after researching all of these legendary investors, there was one major conclusion: they were all talking about the same thing. Sure, it was in their own way and in their own words, but at its core they were all making the case for value investing.

Value investors have underperformed their much-more celebrated growth investor peers over the past couple of decades. But that is partly because investors’ views on what value investing is in the modern age of technological disruption and intangible assets has changed. The principles remain the same: buy a dollar for 50 cents, invest with a margin of safety. But a generation ago, that meant looking at a company’s balance sheet and determining what all of its assets could be sold for and paying less than that sale price. Today, value investing is different. It asks investors to calculate the value of a business based on intangibles like network effects and intellectual property. But then still has investors buying when share prices dip below that intrinsic value.

Take, for example, Warren Buffett’s purchase of Apple in 2016. It wouldn’t have met the classic criteria of value investing outlined by Warren Buffett’s mentor Benjamin Graham. But times have changed and Benjamin Graham’s style of net-net value investing is no longer as relevant to the market today.

Styles of investing change, business practices evolve but core investing principles remain timeless. And this article is a good summary of the investing principles of some of the best to ever do it.

Andrew Brown: East 72 Dynasty Trust Quarterly Report

Andrew Brown was our very first guest on Equity Mates Investing Podcast. Since then he has regularly joined us on the podcast to talk about the stocks he’s investing in and his bold predictions for the year ahead. One thing we’ve learnt over the journey is that Andrew has a particular passion for dynastic family businesses, those complex corporate structures where some of the world’s wealthiest families have tied up their generational wealth.

To give you an example, take D’Ieteren. It is a Belgian conglomerate, 63% controlled by the D’Ieteren family who founded the company in 1805. Amongst it’s many holdings it owns 50% of Belron, the world’s largest auto-glass replacement business with brands such as Autoglass and Windscreens O’Brien. Whilst majority owned by the D’Ieteren’s, it is listed on the European stock exchange so everyday investors can invest alongside the family.

We’ve seen Andrew’s passion for getting into these complex corporate structures and understanding if there is value to be found. And he’s recently turned that passion into a fund - the East 72 Dynasty Trust. His fund is focused on buying these dynastic family businesses, many of them in Europe (take his top four holdings: Compagnie de L’Odet, Vivendi, Société des Bains de Mer and D’Ieteren Group).

In this quarterly report, Andrew unpacks his fund’s performance and then goes deep on one of his portfolio companies - Virtu Financial (NASDAQ: VIRT).