Kicking The Tires

18 April 2012 | talking about Stock Market

Wall Street analyst types are often “going undercover” to see how a business is doing. They might go to Home Depot and wonder around the store and buy a few items to see how the entire process is going. They might stand outside Macy’s and count the number of people going in and our of the store. All this to get an estimate as to how the business is doing. Over the last few years I have been making efforts to do my own little channel checks. I might not be camped out Macy’s counting people but I like to visit companies I am invested in, thinking about investing in, or competitors to companies I want to invest in. Below I am going to share two stories of my two most recent channel checks.

I love Starbucks. It has been a core holding of mine for a while now. I think they are one of the best runned companies (since Howard Schultz came back). I make every effort to visit Starbucks wherever I go to make sure they are truly consistent (it could be they are just really really well run in the Portland area). In the past 6 months I have visited a handful of Starbucks in South Carolina, Northern California, and of course different locations within my home state of Oregon. Each visit was a warming and consistent experience. It is clear Starbucks is working hard to make sure they have a brand people trust and rely on.

On a recent trip to Northern California I made an effort to visit Peet’s Coffee’s. I visited 3 different locations Cupertino, Davis, and Sacramento. Each visit was not pleasant at all. Getting on the Internet was a guessing game to begin with. Eventually I found out you have to get the barista to give you an access code good for one hour. Once connected, the service was completely unusable (in all 3 locations). In general the employees were not friendly and straight up rude in Sacramento. I found the bathrooms to be pretty gross in all 3 locations. I do not love the coffee but it is ok. It seemed a little burned at the Davis location. Nothing about the Peet’s brand really gave me any confidence. Many of the patrons I spoke with also had negative thoughts about the service and the poor wireless.

The second channel check concerned my decision to short Best Buy. I have never really spent much time in a Best Buy, but looking at their financial statements it seemed as if the company was on a path to zero. After putting on my short position I started to spend more time in Best Buy stores. Turns out they are doing a pretty darn good job. The customer service has always been amazing. The pricing has always been fair, and they always have what I am looking for. While I think the big box retail model is broken, Best Buy is best in bread. They still might go to zero, but it will certainly not be a fast fall. After realizing they are doing a pretty darn good job I closed out my short and just moved on. Tough to short a company with happy customers.

Investing is all about data points. You make an investment decision based on a collection of different facts you have researched. A company that is building a strong brand by making customers happy is a datapoint. It is a measurement of how in touch management is with their customers. Sometimes you have to get away from your desk, away from the financial statements, and do some tire kicking.


tags: investing, wall street

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