How Stretched Is The American Consumer?

 It seems as if we having been waiting patiently for the last two years for a recession to occur in the United States. When it did not occur  forecasters often admitted that they were wrong but pushed back the downturn to occur in 2024. A few have said the economy will have a “soft” landing and there will be no recession in the foreseeable future. Whenever and whatever happens, the issue will be dependent on the behavior of the American consumer.

Since the mid-late 1970’s, the American economy ceased to be an industry dominant economy. Today, the consumer segment comprises 70-72% of the Gross National Product. So, as the consumer goes, so goes the strength of the economy (when I was a teenager, the saying was “as General Motors goes, so goes the nation.” How times have changed!)

Interestingly, the US economy and the consumer has been defying predictions for the longest time in my recollection. Very few media outlets seem to say that trouble is brewing. The more conservative outlets tend to say that President Biden is in trouble as the economy is  not very good at all. They say this despite the fact that the unemployment is at a 40 year low and inflation has cooled from 9.1% some 18 months ago to approximately 3.2% today.  Their attack seems to be more political than fact based.The more liberal media tend to say things are great.

As you might expect, I do not see things either way. Recent polls from both CNN and Marist indicate that Americans feel that they are doing okay but the economy itself is not good. Some of this seems to be driven by the reality that many Americans are not pleased with the idea of the choice of either the current president or former president in November, 2024 so they say that things are not going well. Here is where I come out on the entire issue. The media need to focus on some facts. I see cracks in the economy but they have not surfaced in a big way yet. For example:

1) today, the median income household is paying 41% of take home pay for their mortgage payment. This the highest level since 1984. 

2) Credit card balances are going up as are delinquencies in payment each month. This is not good news. If it stops inching up and moves higher faster, the economy has to sag.

3) Another bellwether is the rise in delinquencies on auto loans, particularly with purchases of used cars. 

4) The US savings rate is down to 3%.

Clear data will not be available for months, but it appears that the top quintile (20%) of the households are doing great. And, for the first time in my life, the bottom 20% is in better shape than normal due to very low unemployment and strong raises for many low wage workers in the last year or two. The middle quintiles seems to be where the real stress is. They received a lot of cash during pandemic relief but that is now gone. Many engaged in “revenge buying” when the pandemic subsided and are now feeling the squeeze as bills come due. Also, student loans payments are back which is difficult for many young adults to meet.

Maybe the goldilocks economy will continue for another year. My wish is that the talking heads on business media focus on the consumer and keep us far better informed than we are now.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Net Worth Figures of US Households by Age

 

Last week, the Federal Reserve released their 2022 Survey of Consumer Finances. It provided household net worth data by age in terms of average and median net worth. What is net worth? Simply assets minus liabilities. In other words, the value of a household's home, cars, bank accounts, stocks and bonds, 401k’s or 403b’s, any real estate holdings minus mortgages, auto loans, student loans, and credit card debt.

The big surprise in the data provided below is that the young adults (under 35) were doing better than I anticipated. Yes, they carry the bulk of the trillion dollars in student loan debt but not every young adult has student debt.

You will note that there are two columns—one for average net worth and the other for median net worth. The gulf between the average and median appears, as best as I can tell, to be at an all time high. This is because wealth inequality is high now and always roars during a bull market in equities. Remember, these data are from February, 2022.

Why the huge gap between average and median numbers? Let me tell the modest joke that statistic professors have been using for years. There is a bar in a small town with 29 people in it. Bill Gates (worth $120 billion) enters. Now there are 30 people in the bar and the average net worth of folks in the bar in $4 billion ($120 billion divided by 30). The median net worth is about $75,000 as the median represents the 50th percentile in a group with half above and approximately half below that. It always annoys me that some people use average and median interchangeably. They are vastly different. So the wealthy, in each age group, pull the average up substantially. The median figure is a lot more realistic as a snapshot of American wealth.

If you roll up all the age groups, the Fed says that average net worth is $1,059,470 while the median is $192,700. Remember, half of American households are BELOW the $192,700 figure.

Age Range Average Net Worth        Median Net Worth

20-24          $120,896                        $10,800

25-29          $120,185                        $30,160

30-34         $258,073                                $89,801

35-39         $501,289                              $141,200

40-44         $590,718                              $134,730

45-49         $781,923                              $212,800

50-54       $1,132,532                      $272,800

55-59       $1,442,075                      $320,700

60-64      $1,675,214                              $394,010

65-69      $1,836,884.                        $394,300

70-74     $1,714,085                              $433,100

75-80     $1,630,969                              $316,000

Source: Federal Reserve Board, data from February, 2022

If we have a recession next year and a bear market in equities (stocks), the average net worth figure should drop far faster than the median net worth estimate as the wealthier tend to have a higher proportion of their wealth in stocks.

These numbers are fun to look at and do not get too discouraged if you are below either the average or the median for your age group. Living costs vary widely across our country as do real estate values. Your family may be doing just fine. 

I also do not wish to drown you in numbers but I did take a look at the 25th percentile by age (25% of America is below that number and 75% above).

This shaped up as follows:

Under 35 head of household—$4,000

35-55–19k

45-54–51k

55-64–82k

67-74–87k

75+—94k

So, clearly most of Americans are far from being millionaires although a million is definitely not a definition of wealth anymore.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Lessons From Jeff Bezos

 I have long been fascinated by Jeff Bezos and the growth of Amazon. There is no question that his firm has changed the way we shop and set a standard for service for retailers. Here are a few things that I have digested by tracking his actions over the past few decades:

1) Bezos’ mantra is: “We have a whole process that starts with the consumer and works backwards.” As a result, many business analysts would say that Amazon is the most consumer-centric company in the world. Many have imitated their approach.

When I mentioned this to people in various industries, I have often received the reply that “just about everybody does that.” Not in my experience. Not even close. I worked with people who promised outstanding service when pitching business, yet when it came in their primary focus was on earning a 20%+ profit margin on the new acquisition. I was frequently accused of over-servicing an account. The customer was paid lip service but the firm’s bottom line mattered far more than the long term health of the people ultimately paying us.

A similar scam goes on in financial services where a “customized plan” is put together for new clients. The reality is that it is almost always a pre-packaged mix of assets that is driven solely by the age of the client(s) and their existing net worth. The exception was the late Jack Bogle of Vanguard who popularized the index fund. His tactic, fully above board, was to buy the entire market and charge a very, very low service fee. Overtime, the natural growth of markets would make your holdings rise and you were not eaten up by high fees from investment "professionals.” Bogle was truly customer-centric.

2) Bezos is a great communicator. Study his work and it is cloning Winston Churchill. Years ago, I told a colleague that he should read Warren Buffett’s annual letters to shareholders of Berkshire Hathaway (I still highly recommend them). My friend said you should read the Amazon letter to shareholders that Jeff Bezos puts out each year. The guy writes like Churchill, he said.

I am a huge Churchill fan and was always impressed since my teenage years with the clarity of both his writing and speeches. The great man once said regarding writing or speechmaking: “Short words are best, and old words when short are best of all.” Read Bezos or watch some of his presentations on You Tube. The man is a great communicator. Many words have one syllable, sentences are short and memorable. To me, it is a 21st century American version of Sir Winston. Executives in all industries should imitate this approach.

3) “Missionaries love their product and love their customers.”—Jeff Bezos

Do you REALLY love your customers? If not, maybe you are in the wrong game.

4) “Humans aren’t good at understanding exponential growth.”—Jeff Bezos

When Jeff launched Amazon, a deciding factor was that the internet was growing at 2,400% per year. Mind boggling but most of us missed it. I never bought Amazon shares as, a quasi-securities analyst, they had no consistent earnings for years. Yes, sales kept exploding but I was wedded to a low P/E (price to earnings ratio) strategy and the company’s shares left the station without me. This comment still hits home and smarts a bit.

5) Avoid big departments. Bezos once said that if your team cannot be fed with two pizzas, it is too big. So, he divides teams into smaller groups and fresh ideas seem to pop up.

6) He banned power-points at meetings. At Amazon, memos are used and very tightly written. For some meetings, no one reads the recommendation memo until decision-makers are all in the room. The memo is passed out and everyone reads it at the same time. Also, for each staff meeting, there is an empty chair at the table. The point is that the chair represents the consumer and you always need to be aware of them and their needs and wants.

7) One last gem from Bezos—“You don’t choose your passions. You passions choose you.” 

Many people have tried to copy some of this. Some Amazon alumni are developing consumer-centric companies. I wish them well. One very successful player is Bom Kim who has created a company called Coupang (ticker symbol CPNG) which is referred to as the Amazon of South Korea. I am not touting the company and do not own any at present but I do follow their journey closely.

There are many books out about Amazon. My two favorites are: The Bezos Blueprint by Carmine Gallo and bezanomics by Brian Dumaine.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Game Over For Spot TV?

Last week, I was visiting a relative in a market that is no longer a top 50 Nielsen DMA. For a change, I watched a bit of local network affiliate TV checking some local news and a few other programs. I was more than a bit surprised by what I saw.

The issue was not at all the quality of the actual programming. It was the size and quality of the advertisers. I expected local multi-unit retailers and some car dealers. Instead, the airwaves were flooded with individual craftsmen such as plumbers, roofers, and glorified handymen hawking their business. 

All may be solid business people and pillars of their communities. The gnawing question was how can they afford to advertise on DMA wide TV? The answer clearly was that the network affiliates were taking what they can get. Actually, I applaud the sales teams who do not look down their noses at tiny players. What hit me was that the relentless decline in spot tv revenue was clearly coming to an end soon.

Also, how could the commercials pay out? A rule of thumb for decades is that you needed a certain number of points of distribution if you were advertising across an entire DMA for advertising to work for a retail advertiser. These one shot players must have been paying almost nothing for the time or would only be on one brief flight and swear off over the air TV as it failed to move the sales needle profitably for them. Local cable, however, could certainly work in some cases for single unit advertisers.

Linear, or over the air TV, was the greatest mass medium ever. Both network and their affiliate stations were able to reach an overwhelming majority of the country or their individual market respectively almost weekly. Profit margins for strong affiliates were a virtual cash machine. Not so any longer!

In media, as in life, it has always been true that the only constant is change. Still, I felt a bit of sadness getting hit so directly with visible evidence of the medium’s decline.

It also brought back another issue that I have mentioned several times over the years in Media Realism (MR). How does one launch a new product aimed at a mass audience? Fragmentation continues to get worse. My answer is that a few upstarts will break through as their message and products go viral. Most success will likely come from the existing giants in many categories who can do line extensions and are a proven quantity to most prospects.

You may reach Don Cole at doncolemedia@gmail.com or leave a message on the blog.

Will Artificial Intelligence Kill Search?

 Artificial Intelligence (AI) is the rage these days. Futurists, stock market analysts, gloom & doomers, sociologists, and mega-cap companies are all weighing in. They are all right about one thing—it is coming on fast and soon and it will likely be as transformational as the Internet revolution of a few decades ago.

I read many of the AI forecasts with great interest and some with amusement. One that tickles me quite a bit is that AI will be a sudden killer of online search. Another was that Tim Cook of Apple had no AI strategy.

We need to step back from the somewhat breathless forecasts for AI’s future and keep our feet on the ground. As, is true of many events in business evolution, I have seen this movie before. Remember, when Microsoft brought out Bing? Many were saying that Google (now Alphabet) was toast. Well, today Bing has a lusty 3% of search in the U.S. today while Alphabet has 88%+. Or when Google invaded social media and Facebook (now Meta) was finished? It did not happen.

Look at what the cash rich mega-caps in tech are doing. Apple, Microsoft, Alphabet, Meta and Oracle are investing billions in AI R&D. Yes, Nvidia may have the current lead according to some reports but there are dozens of smaller companies working in the AI space. If they make big inroads into AI you can be sure one or two of the deep pocketed giants will scoop them up. Does Tim Cook have an AI strategy? You can bet he does and some great minds are working on it along with AI swat teams at the other tech giants.

So will AI kill search as we know it? Yes, but not overnight. Consumers lag technology and the population in the West is rapidly growing older so adapting to a new approach may take a bit of time. Also, the long awaited recession in the U.S. will likely slow things down as well.

To sum up, I am convinced AI will rock our world. And, yes, search will suffer OVER TIME. Just do not be naive enough to think that today’s big players will get hurt as much as some are forecasting.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The Case For Disney

 

Yesterday, shares of the Walt Disney Company hit a nine year low on the New York Stock Exchange. From $190 just two years ago, they are hovering (as I write) at about $83 and change. This, plus a host of reports in the media have many analysts, pundits and consumers talking about the iconic company.

 

Disney has had a rough road the last few years.  The Covid virus killed their cruise ship business and was a body blow to their popular theme parks. Their ownership of ABC TV network plus several local network affiliate channels is a future albatross as linear TV continues to lose viewership and advertiser credibility. And, ESPN, once a corporate cash cow, faces some tough sledding as sports rights fee advance and ESPN is not as dominant with the heavy sports viewers as they were several years ago. Finally, Disney +, their streaming service, continues to lose big money.

 

Short term, the actors’ and writers’ strike, is an annoyance that they do not need right now.

 

So, is Disney down for the count? We do not think so. There are a host of things that they appear to be exploring and they include:

 

1)    Breaking the company up. Is the entertainment conglomerate just too big to be managed easily? A few people told me that Apple should buy the entire company. Others wrote to me that Apple could not afford it. Nonsense. If they stopped buying back their shares at such a frenetic pace, they could easily swallow Disney whole and bankers would not blink to make any loan needed. To me, Apple is not a good fit for ALL of Disney. Do they really want to run a cruise line or a slew of theme parks. Buy ESPN? Now that is any idea that has some traction with me. Apple wants to expand their presence in sports, and they can afford rights fees. Putting ESPN as a streaming service on Apple TV provides some synergies.

 

 

2)    As we put this together, Disney appears to be talking with Amazon about an ESPN partnership that could include the sports channel appearing on Amazon Video and Amazon perhaps taking an ownership position in ESPN.

 

3)    There are rumors that Disney might spin off the owned and operated ABC stations to shareholders. Or maybe ABC. Without being snarky, who would want them given the rocky road ahead unless the price was dirt cheap?

 

4)    The Disney movie studios have not produced the normal blockbusters of late. That may turn around quickly with a couple of winners.

 

     There is a lot to unpack in the Disney dilemma. Clearly, there will be changes in their structure and a new alliance or two is most likely. Just do not count them out yet as a dominant media player.

CEO Bob Iger had to come out of retirement to help right the ship. He is a very capable executive who is clearly exploring many options for the company. To me, his biggest task may well be helping to choose the right successor.

 

Disney has great assets. No one can accurately forecast their share price but I think that they will bounce back as a major player in entertainment.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

Dinosaurs Still Exist!

 

About 20 years ago, I would often hear from old media hands that they hated what was going on in the advertising world. The lament usually went something such as this: “Just give me three, maybe four stations to buy, add a couple of cable channels and I am happy. All this online activity is ridiculous. I want to go back to 1980.” At the time, I patiently would say that times are changing and, to stay at this game, you need to shift gears and embrace new platforms in both media and marketing. It did not play well.

 

A week ago, I got a bit of a surprise. I was approached by phone by someone who used to correspond with me decades ago. She never worked with me or was a client, but she had been one of the dinosaurs in denial of the internet and digital revolution. To my amazement, she still operates in media buying broadcast for a few clients in the upper Midwest. Her lament was remarkably like my manufactured quote above.

 

The conversation was not simply sad. It got me thinking. How many other digital deniers are still out there? They obviously are not dealing with Fortune 500 companies, nor do they likely have lush budgets from the clients they still maintain. What gnawed at me was how the clients must be getting shortchanged. Fifteen years ago, we looked at those who limited efforts only to conventional media as primitives. Now, it is unconscionable.

 

So, please keep learning. Stay on top of changes and continue to test new platforms or venues. Some will work, some will not but you will be doing your duty as a steward of clients’ funds.

 

Change is not easy for any of us. Shifting gears with communications strategy and tactics is essential.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.