As streaming music booms, CD sales are no more at Best Buy 

As streaming music booms, CD sales are no more at Best Buy 

One of the industries that has both adapted to and felt the pain of our Digital Lifestyle investing theme is the music industry, something near and dear to the hearts and souls of team Tematica. Over the decades, we’ve seen the migration from vinyl albums to 8-track to cassettes to CDs followed by the abiltiy to rip and burn CDs, downloadable music and now streaming services. While it’s resulted in people buying the same music content more than once, people have continued to do so to have the music they want when they want it, where they want it and on the device they have at the moment. This has given rise to streaming subscription services like Pandora, Spotify, and Apple Music.

According to Loudwire, more than 62% of the total music market is now made up of streaming services, and physical sales only account for around 16% of the overall revenues. Following an announcement earlier this year, yesterday we said bye-bye to CD sales at Best Buy and soon perhaps at Target. What will Best Buy use the additional floor space for? Most likely appliances and other connected devices.

 

It’s the end of an era. Today is officially the last day you will be able to buy CDs at Best Buy, as they are pulling the discs from their shelves July 1st.

Back in February, we reported that the tech giant would be phasing out the products due to steadily declining sales over the years.

Seeing as Best Buy followed through on their promise, Target may be next to phase out CDs. In February, they gave an ultimatum to both their music and video suppliers trying to shift inventory risk back to the labels. If the wholesale companies don’t abide to the new terms, Target may slowly phase out CDs and DVDs as well.

Source: Today is the last day you can purchase CDs at Best Buy – Alternative Press

An all-in-one Apple media subscription plan could upset the content cart

An all-in-one Apple media subscription plan could upset the content cart

Apple CEO Tim Cook has been vocal about growing the company’s Services business as way to not only diversify its revenue stream, but in my view also make its iOS and other devices even stickier with consumers. As we have seen before Content is King is a key driver in our Digital Lifestyle investing them and index as consumers will move or remain for original content that resonates with them.

Apple’s move into original content is arguably one of the worst kept secrets, but as we have seen time and time again Apple will make the formal move with a product or service when it’s ready to do so. As Apple prepares for this, it looks to be addressing one of the growing issues faced by consumers – the rising cost of content faced by consumers. These are the same consumers that have cut their pay TV subscription and landline telephone services in a bid to skinny down that monthly bill. Yet, if consumers could see it rival their once costly cable bill.

We therefore find it interesting and potentially compelling that Apple would bundle its content offerings (music, video, news/magazine) into one monthly bill, especially if the price point is $9.99 vs. the current Apple Music monthly subscription that costs $9.99 per month, or $14.99 per month for a family subscription.  While it may take time for Apple to challenge Netflix with original video content, such a move could put a thorn in the side of Hulu, Apple friendly Disney and Spotify but be a boon for those impacted by our Middle Class Squeeze investing theme.

 

Via The Information, Apple is apparently considering combining its upcoming magazine service and original content television, with its existing music subscription, into a single ‘Amazon Prime’-esque subscription. Pricing for this bundle is not clear, right now Apple offers Apple Music for $9.99 per month.The report says Apple will allow customers to subscribe to each service separately, perhaps there is a cost saving in subscribing to the all-encompassing package compared to paying for each individually however.Try Amazon Prime 30-Day Free TrialEchoing a timeline previously reported by Bloomberg, The Information says the company wants to a launch an Apple branded news subscription service in 2019. The company acquired Texture in March of this year, a $9.99/mo subscription service that unlocked access to more than 200 premium magazines.The timeline for Apple’s original content TV efforts is still murky, but there are some hints that the first shows will be ready to air later next year. TV show production is often prone to delays and setbacks, but Apple has enough shows in the wings at the moment that it should still have a healthy offering even if only half of the orders are ready in 2019.

Source: Report: Apple mulling all-in-one media subscription plan, combining Apple Music, TV shows and magazines | 9to5Mac

Cocktail Investing Ep. 24: As Amazon becomes the Death Star of retail, the Fed still looks for inflation in a deflationary world

Cocktail Investing Ep. 24: As Amazon becomes the Death Star of retail, the Fed still looks for inflation in a deflationary world

In this week’s program, Tematica’s investing mixologists, Chris Versace and Lenore Hawkins discuss the week’s economic data, relevant political happenings and share where they have spotted a few of the latest Thematic Signals. A few highlights include:

 

  • While most Wall Street economists are still forecasting Q2 GDP to be around 3 percent, the NY Fed’s Nowcast and the Atlanta Fed’s GDPNow are below 2 percent, with an even lower forecast for Q3. We point out what they are likely seeing that the usual Wall Street suspects are missing and why this could be problematic for 2Q 2017 earnings season.
  • With the first half of 2017 almost over, only one other year going all the way back to 1928 has had a smaller maximum drawdown in equity indices during the first half. Find out what tends to happen in years where the first half sees such a steady move up.
  • The yield curve is giving us a very different message from the major equity indices. We discuss what and why this is important for investors.
  • We talk about what is happening in oil, on the demand as well as supply side, and what it means for the economy, geopolitics and earnings expectations for not only oil companies, but the entire S&P 500.
  • We wrap up our discussion with a focus on Amazon (AMZN) on its whirlwind of recent announcements from its acquisition of Whole Foods (WFM) to Nike (NKE) now selling some of it products directly to the online giant. We also explain why Amazon is THE poster child for thematic investing.
  • Finally, as if retail isn’t suffering enough from the retailing Death Star of Amazon, we discuss why a new report on retail and the food & beverage industries is a positive for our Safety & Security investing theme.

 

And be sure to tune into next week’s podcast when Lenore and Chris talk with Security-as-a-Service provider Alert Logic about the evolving world of cybersecurity. All that plus what to focus on next week and of course all the usual Cocktail Investing Podcast goodness.

Companies mentioned on the Podcast
  • Amazon (AMZN)
  • Amplify Snack Brands (BETR)
  • Apple (AAPL)
  • Bonobos
  • BP (BP)
  • Chevron (CVX)
  • Dick’s Sporting Goods (DKS)
  • Finish Line (FINL)
  • Foot Locker (FL)
  • Kroger (KR)
  • Marathon Oil (MRO)
  • Nike (NKE)
  • Sprouts Farmers Market (SFM)
  • Safeway Inc.
  • United Natural Foods (UNFI)
  • Wal-Mart (WMT)
  • Yum Brands (YUM)

 

Resources for this podcast:
Chris Versace Tematica Research Founder and Chief Investment Officer
Lenore Hawkins Tematica Research Chief Macro Strategist
Is a Safer, More Entertaining and Eventually Autonomous Car Near?

Is a Safer, More Entertaining and Eventually Autonomous Car Near?

It seems every day we hear about the inevitability of the autonomous car, a member of our Disruptive Technology investing theme, with many hoping that it will usher in a new area of safety.  According to the Association for Safe International Road Travel, 3,287 people die, on average, every day in road crashes. That translates into 1.3 million deaths annually with an additional 20-50 million injured or disabled. Globally, road crashes are the 9th leading cause of death.

Clearly, there is room for improvement and Apple’s (AAPL) CEO Tim Cook agrees, citing the auto industry as ripe for a major disruption in a recent interview on Bloomberg Television. According to Cook, there are three vectors of change intersecting: autonomous driving, electrification of the auto and ride-sharing. From our thematic investing lens, this is where Disruptive Technologies meet the Connected Society.

Cook revealed that his company is focusing on autonomous systems, referring to it as a very important core technology that is probably one of the most difficult AI (Artificial Intelligence) projects to work on. Apple has hired over 1,000 engineers to work on the technology and just this April secured a permit from the California DMV to test three self-driving sports-utility vehicles. The company is clearly also focused on the ride-sharing vector of change, as last year Apple invested $1 billion — pretty much chump change for the company these days — in Didi Chuxing, the biggest ride-hailing service in China. As for electrification, it remains to be seen if Apple will develop their own electric vehicles or partner and sell their technology.

Apple is not alone, as the electrification leader Tesla (TSLA) continues to break new ground and Alphabet (GOOGL) is working on autonomous technology in partnerships with Fiat Chrysler Automobiles (FCAU)and Lyft. BMW (BMWYY), in cooperation with Intel (INTC), reports that it intends to have Level 3, 4 and even 5 capabilities for self-driving by 2021. Level 3 is defined as conditional automation that requires a driver to intervene in certain situations, but aren’t obligated to be constantly monitoring progress. Level 4 is full autonomy, while Level 5 requires zero input from a driver to navigate city and highway roads and is expected to be at least on par with the performance level of a human driver.

 

A Conversation with One of the Pioneers of In-Car Information & Entertainment

To better understand the evolution of the smarter vehicle, on a recent episode of Cocktail Investing, Tematica Research’s Chris Versace and Lenore Hawkins spoke with Ted Cardenas, Senior Vice President of Marketing, Car Electronics Division at Pioneer Electronics Corp (PNCOY). Given that about 95 percent of his company’s business is related to auto and the company will reach its 80th anniversary next year, we thought he’d have some valuable insight. This is the company that introduced the consumer laser disc in 1979, the car CD player in 1984 and GPS car navigation in 1990, with around four decades in the car entertainment space.

Ted pointed out to us that compared to home or office-based technologies, the car is a seriously brutal local for innovation where electronics need to be able to withstand extremes in temperatures, moisture and vibrations – not exactly the friendliest environment! We discussed how the increasingly Connected Society allows for not just millions of on-demand songs, but also delivered the “killer app” of real-time traffic information thanks to all those GPS enabled smart phones tagging along with their drivers.

The Connected Society has materially changed product development for the car as well as it also means connected companies. The need for higher and higher speed data networks and the innovations that allow for and take advantage of them means that companies no longer have to, or should for that matter, go it alone. Each company is only part of the solution as we see more specialization taking place with the consumer benefiting from a simple, usually intuitive solution in which all the complexity has been blissfully hidden.

In this new development paradigm, relationships are increasingly important as companies specialize within the solution set and we’ve seen some of the complexity offloaded to smartphones, allowing for greater flexibility as consumer can choose which device best fits their needs. For Pioneer, this means offering in-dash multimedia receivers that are compatible with popular smartphone interfaces and apps such as Apple CarPlay®, Android Auto ™, and Waze®, as well as features such as Bluetooth® music streaming, hands-free calling, Spotify® and Pandora®.

Pioneer isn’t just innovating within entertainment and communications as the company is also developing advanced driver assist for both OEM and aftermarket, allowing owners of older cars to benefit from the latest in safety improvements. When asked about his expectations around the timeline for the truly driverless car, Ted framed his analysis in the context of the evolution of in-car GPS systems – an evolution by degrees rather than a binary event.

The first GPS systems were developed by Pioneer and were used to figure out where you were on a map, but could not provide point-to-point directions. Those first systems also didn’t provide 100% coverage, so drivers could find themselves driving into a GPS void when traveling in areas not covered by the devices internal maps. Over time the map coverage became increasingly more complete and turn-by-turn directions evolved from available only in highly-trafficked areas into the most remote. He suspects we will see something similar with driver-assist that will offer more thorough assistance in more populated areas with less as one gets into more rural areas. Over time the level of assistance and coverage areas will expand.

Finally, we discussed how the increasingly smart car will also do more of the heavy lifting when it comes to maintenance, providing a more seamless driver experience that not only provides autonomous transportation, but monitors and schedules its own maintenance needs. We likely not alone in looking forward to the day when we no longer find ourselves noticing that little oil change reminder sticker a few months and few thousand miles late. The car of the future will be safer, smarter and a lot more entertaining.

 

Companies mentioned on the Podcast

  • Alphabet (AAPL)
  • Apple (AAPL)
  • BMW (BMWYY)
  • Fiat Chrysler Automobiles (FCAU)
  • Intel (INTC)
  • Pandora (P)
  • Pioneer Electronics (PNCOY)
  • Tesla Motors (TSLA)
Cocktail Investing Ep. 23: The Evolution of the Safer, More Entertaining and Eventually Autonomous Car

Cocktail Investing Ep. 23: The Evolution of the Safer, More Entertaining and Eventually Autonomous Car

It seems every day we hear about the inevitability of the autonomous car, a component of our Disruptive Technology investing theme, with many hoping that it will usher in a new area of safety.  To better understand the evolution of the smarter vehicle, Tematica Research’s mixologists Chris Versace and Lenore Hawkins spoke with Ted Cardenas, Senior Vice President of Marketing, Car Electronics Division at Pioneer Electronics Corp (PNCOY).

Pioneer isn’t just innovating within entertainment and communications as the company is also developing advanced driver assist for both OEM and aftermarket, allowing owners of older cars to benefit from the latest in safety improvements. When asked about his expectations around the timeline for the truly driverless car, Ted framed his analysis in the context of the evolution of in-car GPS systems – an evolution by degrees rather than a binary event.

 

Companies mentioned on the Podcast
  • Alphabet (AAPL)
  • Apple (AAPL)
  • BMW (BMWYY)
  • Fiat Chrysler Automobiles (FCAU)
  • Intel (INTC)
  • Pandora (P)
  • Pioneer Electronics (PNCOY)
  • Tesla Motors (TSLA)

 

Resources for this podcast:
  • Chris Versace – @_ChrisVersace
  • Lenore Hawkins – @EllesEconomy
  • Tematica Research – https://www.tematicaresearch.com
  • Pioneer Electronics – http://www.pioneerelectronics.com/PUSA/

 

Chris Versace Tematica Research Founder and Chief Investment Officer
Lenore Hawkins Tematica Research Chief Macro Strategist
Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

When we look at the creative destruction associated with our Connected Society investing theme, on the positive side we see new technologies transforming how people communicate, transact, shop and consume content. That change in how people consume TV, movies, music, books, and newspapers has led to a sea change in where companies are spending their advertising dollars given the consumer’s growing preference for mobile consumption on smartphones, tablets and even laptops over fixed location consumption in the home. This has spurred cord cutters and arguably is one of the reasons why AT&T (T) is looking to merge with Time Warner (TWX).

Data from eMarketer puts digital media advertising at $129.2 billion in 2021, up from $83 billion this year with big gains from over the air radio as well as TV advertising. As a result, eMarketer sees, “TV’s share of total spend will decline from 35.2% in 2017 to 30.8% by 2021.”

That shift in advertising dollars to digital and mobile platforms away from radio, print and increasingly TV has created a windfall for companies like Facebook (FB) and Alphabet (GOOGL) as companies re-allocate their advertising dollars. With our Connected Society investing theme expanding from smartphones and tablets into other markets like the Connected Car and Connected Home, odds are companies will look to advertising related business models to help keep service costs down. We’ve seen this already at Content is King contenders Pandora (P) as well as Spotify, both of which use advertising to allow free, but limited streaming music to listeners. Outside the digital lifestyle, other companies have embraced this practice such as movie theater companies like Regal Cinema Group (RGC) that use pre-movie advertising on the big screen to help defray costs.

As we point out, however, in Cocktail Investing, investors need to keep tabs on developments in Washington for they can potentially be disruptive to business models and that could lead to revisions to both revenue and earnings expectations. Case in point, current Ways and Means Committee Chairman Kevin Brady recently acknowledged that there “may be a need” to look at some of the revenue raisers to complete his 2017 tax reform proposal. One item was revisiting the idea to convert advertising from being a fully deductible business expense – as it has been for over a century – to just half deductible, with the rest being amortized over the course of a decade.

The sounds you just heard was jaws dropping at the thought that this might happen and what it could mean to revenue and earnings expectations for Facebook, Alphabet, Twitter (TWTR), Snap (SNAP), Disney (DIS), CBS (CBS), The New York Times (NYT) and all the other companies for which advertising is a key part of their business model.

Other jaws dropping were those had by economists remembering the 2014 IHS study that showed the country’s $297 billion in advertising spending generated $5.5 trillion in sales, or 16% of the nation’s total economic activity, and created 20 million jobs, roughly 14% of total US employment at the time. Those same economists are likely doing some quick math as to what the added headwind would be to an economy that grew less than 1 percent in 1Q 2017 and how it would impact future job creation should an advertising tax be initiated. It’s hard to imagine such an initiative going over well with a president that is looking to streamline and simplify the tax code, especially when one of his key campaign promises was to lower tax rates.

As we talked on the last several Cocktail Investing Podcasts, there are several headwinds that will restrain the speed of the domestic economy – the demographic shift and subsequent change in spending associated with our Aging of the Population investing theme and the wide skill set disparity noted in the monthly JOLTs report that bodes well for our Tooling & Retooling investment theme are just two examples. Our view is incremental taxes like those that could be placed on advertising would be a net contributor to the downside of our Economic Acceleration/Deceleration investing theme.

That’s how we see it, but investors in some of the high-flying stocks that have driven the Nasdaq Composite Index more than 17 percent higher year to date should ponder what this could mean to not only the market, but the shares of Facebook, Alphabet, and others. In our experience, one of the quickest ways to torpedo a stock price is big earnings revisions to the downside. With the S&P 500 trading at more than 18x expected 2017 earnings, a skittish market faced with a summer slowdown and pushed out presidential policies could be looking for an excuse to move lower and taking the wind out of this aspect of the technology sails could be it.

Why the On-Demand Economy Doesn’t Make the Thematic Cut

Why the On-Demand Economy Doesn’t Make the Thematic Cut

We keep hearing that thematic investing is gaining significant popularity in investing circles, especially when it comes to Exchange Traded Funds (ETFs). For more than a decade, we’ve viewed the markets and economy through a thematic lens and have developed more than a dozen of our own investing themes that focus on several evolving landscapes. As such, we have some thoughts on this that build on chapters 4-8 in our book Cocktail Investing: Distilling Everyday Noise into Clear Investment Signals for Better Returns

One of the dangers that we’ve seen others make when attempting to look at the world thematically as we do, is that they often confuse a trend — or a “flash in the pan”  — for a sustainable shift that forces companies to respond. Examples include ETFs that invest solely in smartphones, social media or battery technologies. Aside from the question of whether there are enough companies poised to benefit from the thematic tailwind to power an ETF or other bundled security around the trend, the reality is that those are outcomes — smartphones, drones and battery technologies — are beneficiaries of the thematic shift, not the shift itself.

At Tematica Research, we have talked with several firms that are interested in incorporating Environmental, Social and Governance — or ESG — factors as part of their investment strategy. Some even have expressed the interest in developing an ETF based entirely on an ESG strategy alone. We see the merits of such an endeavor from a marketing aspect and can certainly understand the desire among socially conscious investors to ferret out companies that have adopted that strategy. But in our view and ESG strategy hacks a sustainable differentiator given that more and more companies are complying. In other words, if everyone is doing it, it’s not a differentiating theme that generates a competitive advantage that will provide investors with a significant beta from the market.

But there is a larger issue. A company’s compliance with an ESG movement is not likely to alter the long-term demand dynamics of an industry or company, even if certain businesses enjoy a short-term surge in revenues or increased investor interest based on a sense of goodwill.

For example, does the fact that Alphabet (GOOGL) targets using 100 percent renewable energy by 2018 alter the playing field or improve the competitive advantage of its core search and advertising business? Does it do either of those for YouTube?

No and no.

At the risk of offending those sensitive about their fitness acumen, it makes as much sense as investing in an ETF that only invests in companies with CEOs who wear fitness trackers. Make no mistake, our own Tematica Research Chief Macro Strategist Lenore Hawkins, a fitness tracker aficionado herself, would love to see more fitness trackers across the corporate landscape, but an ETF based on such a strategy means investing in companies across different industries with no cohesive tailwind powering their businesses, likely facing very different market forces that overshadow the impact of the one thing they have in common. To us, that misses one of the key tenants of thematic investing.

The result is a trend that is likely to be medium-lived, if not short lived. Said another way, it looks to us to be more like an investing fad, rather than a pronounced thematic driven shift that has legs.

Subscribers to our Tematica Investing newsletter know we are constantly turning over data points, looking for confirmation for our thematic lens, as well as early warning flags that a tailwind might be fading or worse, turning into a headwind. As we collect those data points, we mine the observations that bubble up to our frontal lobes and at times, ask if perhaps we have a new investing theme on our hands. Sometimes the answer is yes, but more often than not, the answer comes up “no”.

Now you’re in for a treat! Some behind the scenes action if you will on how we think about new themes and why one may not make the cut…

 

The On-Demand Economy:  Enough to become a new investing theme?

 Recently we received a question from a newsletter subscriber asking if the number of “on-demand” services and business emerging were enough to substantiate the addition of a new investment theme to go along with the other 17 themes we currently track.

By on-demand, we’re talking about those services where you can rent a car, (Lyft or Uber) or find private lodging (AirBnB) with the click of a button for only the time you need it rather than rent an apartment or studio for a week or month. It also refers to the many services that will deliver all the ingredients you need to prepare a gourmet meal in your own kitchen, such as the popular service Blue Apron or HelloFresh.

It was an interesting question because we have been debating this at Tematica Research for quite some time. We’re more than fans of On Demand music and streaming video services like those offered by Amazon (AMZN), Netflix (NFLX), Pandora (P), Spotify and Apple (AAPL).  Ultimately, we came to the conclusion that the real driver behind the on-demand economy is businesses stepping into fill the void created by a combination of multiple themes, rather than a new theme in of itself. Here’s what we mean . . .

Take the meal kit delivery services like Blue Apron, what’s driving the popularity of this service? We would argue that it’s not the fact that people like seeing their UPS driver more. Rather it is the result of underlying movement towards more healthy and natural foods that omit chemicals and preservatives — something we have discussed as the driver behind our Foods with Integrity theme — on top of a bigger Asset Light investment theme in which consumers and businesses outsource services, rather than accumulating assets and then performing the service themselves. The on-demand component of Blue Apron is not driving the theme, but is a beneficiary of what we call the thematic tailwind.

The challenge with the shift towards healthier cooking, that sits within our Foods with Integrity thematic, is the amount of work, and in many cases equipment, it takes to cook such foods — the shopping, the measuring, the cutting, special cooking utensils and preparation time, not to mention the cost. Recognizing this pain point, Blue Apron saw opportunity and consumers have flocked to it. As we see it, the meal delivery services are an enabler that addresses a pain point associated with our Foods with Integrity theme, rather than an independent theme unto itself.

There is also a clear element of the Connected Society investment theme behind these services, given how customers order the ingredients to prepare the meals – via an app or online – as well as our Cashless Consumption theme, given the method of payment does not involve cash or check and Asset Light whereby consumers pay for the end product, rather than investing in assets so that they can make it themselves. So that we are clear, the primary theme at play here is Foods with Integrity, but we love to see the added oomph when more than one theme is involved.

 

 Let’s look at Uber, the on-demand private taxi service. 

We’re big users of the service, particularly when traveling, and we love the ease of use. To us, while the service offered by Uber is very much On-Demand, from the customer perspective, it fits into our Asset Light theme, as it removes the need to own a car. If you think about, what’s?  the amount of time you spend using your car compared to the amount of time it spends parked at home, at work or in a parking lot? The monthly cost to own and maintain that vehicle vs. the actual number of hours it is used offers a convincing argument to embrace an Asset Light alternative like Uber.

We also like the payment experience — or the lack of an experience. We’re talking about having the ride fee automatically charged. No cash, no credit card swiping or inserting, no awkward “how much do I tip?” moments. It’s our Cashless Consumption theme in all of its glory, walking hand-in-hand with Asset Light — and the only thing better than a strong thematic tailwind behind a company is two!

The biggest users of the Uber and Lyft services, and the ones driving the firms’ valuations to stratospheric levels, are the Millennials who are opting to just “Uber “ around town — it’s become a verb — or use a car-sharing service like a ZipCar (ZIP) or the like.

Sure, Millennials have the reputation of being a more thrifty, frugal group compared to previous generations. But we have to wonder is it them being thrifty or just coming to grips with reality?

With crushing costs of college and student loans, as well as stagnant wage growth, many young workers are forced to cobble together part-time and contractor jobs rather than enjoying a full-time salaried position, so what choice do they have? Why buy a car and pay for it to sit there 95% of the time when you can just pay for it when you need it?

We call that the Cash-strapped Consumer theme meets Asset Light, and many businesses have also stepped in to service this rising demand for what has become known as the “sharing economy.”

 

Finally, what is the underlying function of all these on-demand services?

As we mentioned earlier, it’s the ability to connect and customize the services that consumers want through a smartphone app or desktop website, or from our thematic perspective, the Connected Society.

One of the key words in the previous sentence was “service.” According to data published by the Bureau of Economic Analysis in December 2015 and the World Bank, the service sector accounted for 78 percent of U.S. private-sector GDP in 2014 and service sector jobs made up more than 76 percent of U.S. private-sector employment in 2014 up from 72.7% in 2004. Since then, we’ve seen several thematic tailwinds ranging from Connected Society and Cash-strapped Consumer to Asset Light and Disruptive Technologies to Foods with Integrity that either on their own, or in combination, have fostered the growth of the US service sector. Given the strength of those tailwinds, we see the services sector driving a greater portion of the US economy. What this means is folks that have relied heavily on the US manufacturing economy to power their investing playbook might want to broaden that approach.

Now let’s tackle the thematic headwinds here

Headwinds involve those companies that are not able to capitalize on the thematic tailwind. A great example is how Dollar Shave Club beat Gillette, owned by Proctor & Gamble (PG), and Schick, owned by Edgewell Personal Care (EPC), by addressing the pain point of the ever-increasing cost of razor blades with online shopping. Boom — Cash-strapped Consumer meets Connected Society.

While Gillette has flirted with its own online shave club, the price of its razor are still significantly higher, and as far as we’ve been able to tell, Schick has no such offering. As Dollar Shave Club grew and expanded its product set past razors to other personal care products, Unilever (UL) stepped in and snapped it up for $1 billion.

Going back to the beginning and the impact of the food delivery services like Blue Apron — are we likely to see food companies build their own online shopping network? Most likely not, but they are likely to partner with online grocery ordering from Kroger (KR) and other such food retailers. That still doesn’t address the shift toward healthy, prepared meals and it’s requiring a major rethink among Tyson Foods (TF), Campbell Soup (CPB), The Hershey Company (HSY), General Mills (GIS) and many others. Fortunately, we’ve seen some of these companies take actions, such as Hershey buying Krave Pure Foods and Danone SA (DANOY) acquiring WhiteWave Foods, to better position themselves within the thematic slipstream.

The key takeaway from all of this is that a thematic tailwind can be thought of as a market shift that shapes and impacts consumer behavior, forcing companies to make fundamental changes to their business model to succeed. If they don’t, or for some reason can’t, odds are their business will suffer as they fly straight into an oncoming headwind.

Recall how long Kodak was the gold standard for family photographs, yet today it is nowhere to be seen, killed by forces that emerged completely from outside its industry. As digital cameras became ubiquitous with the advent of the smartphone and the cost of data transmission and storage continually fell, the capture and sharing of images was revolutionized. Kodak didn’t keep up, thinking that film would forever be the preferred medium, and paid the ultimate price.

As thematic investors, we want to own those companies with a thematic tailwind at their back — or maybe even two or three! — and avoid those that either seem oblivious to the headwind or won’t be able to reposition themselves, like a hiker who finds he or she has already gone way too far down the wrong path and is so utterly lost, needs to be helicoptered to safety.

Of course, when it comes to these “On-Demand Economy” darlings — Uber, Dollar Shave Club, Airbnb —few if any of them are publicly traded, which frustrates us so, since most of them are tapping into more than one thematic tailwind at once. If and when they do turn to the public markets for some added capital and we get a look into the economics of these business models, then we’ll also get to see the key performance metrics and financials behind these businesses.

In the meantime, stay tuned as we will be discussing more readily investable thematics next.