CHANGE: THE DOWNWARD SPIRAL OF COMMODITIZATION

Am I Next? Downward Spiral of Commoditization

We appear to be entering another period of political and economic uncertainty. Where federally-imposed monetary policy is not producing the desired economic growth, rising employment, and investor returns. Add to this a marketplace where both goods are services are becoming commoditized. Where branding, once the shorthand proxy for quality, is rapidly being overcome by abundance, choice, and reduced prices until the brand is almost indistinguishable from the knock-off. Where the prestige or badge value of a particular name no longer serves as a means of status signaling for people who simply don’t care who made your goods or provided services. A trend exacerbated by the outlet stores that sell branded merchandise at reduced prices – even full well knowing that there may be a lower quality of goods found in the outlet stores. Or even worse, finding out that your store’s private label merchandise was made on the same assembly line as the branded version. 

Enter the world of change, where worldwide competition, a wide variety of choices, and overabundance is driving margins and profits lower. 

The traditional method of fighting commoditization such as re-skinning core products, adding product enhancements, and features, lowering production and administrative costs, and reducing customer service is not always enough.  Through platforms such as Amazon, we are awash in the seas of sameness, where other-branded merchandise, often from foreign producers, is available at a lower price point. And, the consumer doesn’t seem to care – particularly when the product cannot be seen by others.

What does this mean for employees? It is time to evaluate your company’s susceptibility to commoditization as management’s preferred response is often to eliminate the product or reduce personnel costs to compensate for declining profits.  

DOWDUPONT -- JOBS WILL BE LOST

Am I Next? DowDuPont Job Loss, Restructuring, Split, Activist Investors

Once again we are seeing outside activist investors demanding restructuring and “efficiencies” to improve shareholder value. Creating mostly tradable spreadsheet profits without any real regard to the companies and their underlying personnel. Of course, we release that any merger will cost jobs as duplicative functions and non-productive operations are reduced or eliminated. The question is how fast will job loss occur and is it better to be among the first to leave, seek lateral transfers, or simply wait-it-out to the bitter end? A question that can only be answered by the affected (or should we say afflicted) individual and their particular circumstances.

Here we find four major activist investors (Third Point LLC, Trian Fund Management LP, Glenview Capital Management LLC, and Jana Partners LLC) attempting to persuade management that their vision for the company should supersede that of the Board of Directors and senior management. Think Gordon Gecko in Wall Street. Individually, these activists own a tiny part of the company, but it is huge when measured against other shareholders. 

This deal has been cooking since 2015, so perhaps the cautionary tale is to track the major activist groups and see which companies are involved. The original plan called for the combined company to be disassociated into three separate companies with each having a more narrow focus: materials, agriculture, and specialty chemicals. One of the biggest points of contention is that the activist investors believe that the “Dow-Corning” assets should be deployed into a separate company and not the materials group.  

We have seen the recent split up of RR Donnelly into three separate enterprises in a similar fashion. Unfortunately for the shareholders, share value plummeted, and dividends were significantly reduced. In fact, it appears that the result was to make the individual parts more attractive to potential purchasers who wanted to buy additional capacity or a foothold in their core businesses. Unfortunately it destroyed much of the company’s value and left one of the newly-created companies in Chapter-11 bankruptcy.

Read the business news; it is often a portent of the future.