In The Headlines
Wal-Mart and Amazon Vie for America’s “Unbanked”
Few retailers have catered more to the unbanked than Wal-Mart. Whether it is a dislike of banks, a distaste for their fees, or some other reason, a sizable portion of U.S. households have chosen not to have a checking or savings account at a financial institution, and Wal-Mart has ensured they have a place to go. Through its 1,200 money centers, unbanked consumers can meet all of their banking needs at greatly reduced cost. From paying bills to wiring money here or abroad, Wal-Mart has made it cheap, easy, and convenient to bank without a bank. Now it is about to get some sizable competition from Amazon, which recently launched its Amazon Cash program that specifically targets this same subset of the population.
According to the FDIC, some 9 million households, or 7% of all U.S. households, do not have an account at an insured institution. Moreover, almost 20% of households, or 24.5 million households in the country, are “underbanked”—they have a checking or savings account, but also used other non-bank services for their banking needs. While conventional thinking has led us to believe that banks are the be-all, end-all of finance, it also shows that a huge swath of the population has a high level of distrust of or dissatisfaction with traditional financial institutions.
Wal-Mart offered them a better option. It had once tried to enter the banking industry by applying for an industrial loan corporation charter, or ILC, that would have allowed it to establish a low-cost financial-services arm similar to ones that Target, GE, and others operate, but banks raised a hue and cry against Wal-Mart, and the retailer subsequently withdrew its application. Today, Wal-Mart helps the unbanked by offering an entire suite of financial services, which, in addition to the services mentioned earlier, also lets customers cash payroll and government checks, get prepaid debit cards, and print personal and business checks. Its Bluebird financial accounts, arranged through American Express, essentially allow customers to bank without a bank.
Although these financial services total less than 1% of Wal-Mart’s annual net revenues, that is still more than $4 billion worth of financial business being conducted, and it recently noted that the volume of money services transactions it is making can be measured “with a B.” It is no wonder Amazon.com is looking to get in on the action. Amazon Cash is not yet as large as a Wal-Mart Money Center, but it is specifically targeted to the unbanked consumer and may provide a platform for future expansion.
Amazon customers will not need a checking account to deposit between $15 and $500 in cash into an Amazon account. Instead, they can go to one of 10,000 retail stores from the likes of CVS, Speedway, Sheetz, and others and simply present a barcode from Amazon that they have either printed out or downloaded to a smartphone. There are also no fees to use the service. This is important because these are customers that have arguably been ignored previously by the e-tailer. Typically you need a bank account to access Amazon services, and often it pays to be a Prime member. Not so with Amazon Cash, which is open to anyone.
As Wal-Mart and Amazon continuously clash for retail dominance, every consumer becomes more valuable. By making its platform more accessible, Amazon can siphon off additional customers, and because Amazon Cash will be available both on smartphones and via analog means (such as printing out a barcode) the retailer is able to include the third of unbanked adults who do not yet have a smartphone.
Initially, it would seem Wal-Mart will not lose many customers to Amazon because money deposited at the e-commerce leader can only be spent on Amazon. Even PayPal, which has its own online cash service, is open to use at thousands of retailers, while Wal-Mart customers have an array of financial services available to them at its brick-and-mortar stores, and soon via mobile phone. Yet Amazon is only just tapping into this demographic. It is easy to see that if the unbanked increasingly use the service, Amazon will make more options available including varied financial services. This is just the first skirmish between Amazon.com and Wal-Mart for the loyalty—and wallets—of the unbanked. It definitely will not be the last.
Citations
1. http://bit.ly/2piSYrJ – Motley Fool
2. http://read.bi/2qB6pa8 – Business Insider
Sky-High Mattress Prices Could Keep You Awake at Night
If you have not gone mattress shopping recently, you may be in for a shock. Mattresses are now big-ticket purchases, with Tempur-Pedic’s Luxe Breeze model carrying a price of $5,500 for a king-size model. Instead of a place to relax your mind, mattresses may simply spark head scratching over how to secure financing for a purchase.
Tempur Sealy and its major competitors have been reshaped by market forces, including the involvement of private equity firms, and the demands of an aging American population willing to shell out big bucks for a comfortable night’s sleep. In 2012 and 2014, the average price of mattresses rose at more than double the inflation rate, and wholesale bedding sales have increased at a compound annual growth rate of almost 5% since 1995, according to Tempur Sealy. While that should pay off in the form of higher revenues and profits, the mattress industry itself is doing some tossing and turning. One worrisome issue the major makers are facing is a growing challenge from internet upstarts like Casper and Leesa, which are enticing shoppers with more affordable prices, free shipping, and high-end components such as memory foam.
Interestingly, while private equity has had a major hand in the growth of the big mattress retailers, venture capital is backing these smaller internet ventures. Casper, for instance, has raised almost $70 million from 22 investors, including actor Leonardo DiCaprio, according to Crunchbase. There is also turmoil within the mattress industry, with Tempur Sealy losing its biggest retailing customer, Mattress Firm, to rival Serta Simmons. Tempur Sealy recently said its first-quarter sales were little changed at $722 million, while per-share profit excluding some items jumped to 96 cents compared with 68 cents a year earlier, beating estimates. Investors cheered the results, sending shares higher.
But Tempur Sealy signaled some restlessness ahead. On a recent conference call with investors and analysts, CEO Scott Thompson said the company was preparing to spend more money on marketing and to debut new products. “We’re going to run a little sloppy until we understand how the bedding market resets,” he noted. “I think that’s going to take a couple of quarters.”
Tempur Sealy has also jumped on the internet bandwagon with its Cocoon by Sealy product, which is sold online and shipped in a box, similar to Casper. Cocoon’s California king “Chill” model costs $1,149 and touts its “premium memory foam” and “innovate cooling technology.” Tempur Sealy said North American sales for its internet-based business have tripled. “We think that’s going to be a good growth engine for us,” Thompson said. “When we look at the overall bed-in-a-box market and we look at Google searches, talk to various people, it’s clear the industry is still growing.”
The private equity industry has left its mark on the mattress industry. As of 2014, the company with the greatest number of private equity sales was Simmons Bedding Co., which was passed around between owners including Thomas H. Lee Partners, Merrill Lynch Capital Partners, and Wesray Capital. The company, now Serta Simmons Bedding, filed for bankruptcy in 2009 after it was loaded up with debt from its private equity owners.
The bankruptcy occurred as the country was recovering from the housing crisis, during which bedding sales slumped. Since then, luxury bedding has recovered to the point where some consumers are spending as much on a bed as a house. Sweden’s custom-made Hästens Vividus bed will set you back by $150,000. Stuffed with flax, horsehair and cotton and wool batting, the handmade mattress promises to be the “luxury bed of luxury beds.” While that may be out of reach but for anyone but the top 0.01% of earners, bedding companies are betting consumers will pay up for even mid-level beds as they seek a good night’s rest.
Citations
1. http://cbsn.ws/2q92hyA – CBS News
2. http://on.mash.to/2pPs79N – Mashable.com
The Good News Is . . .
• Job creation in April bounced back from a disappointing March, with nonfarm payrolls growing by 211,000 while the unemployment rate fell to 4.4%, its lowest level since May 2007. The payroll increase nearly tripled the dismal March number. Job growth was concentrated in leisure and hospitality which added 55,000 positions. Health care and social assistance rose 37,000, financial activities grew by 19,000 and professional and business services grew by 39,000. Government payrolls increased by 17,000 and mining rose 9,000.
• Apple, Inc., one of the world’s leading makers of computer hardware and software, reported earnings of $2.10 per share, an increase of 10.5% over year-earlier earnings of $1.90 per share. The firm’s earnings topped the consensus estimate of analysts by $0.08. The company reported revenues of $52.9 billion, an increase of 4.6%. Management attributed the results to robust customer response to its iPhone 7 smartphone and continued strong growth in its services business.
• The LVMH Moët Hennessy Louis Vuitton luxury empire and the French billionaire Bernard Arnault announced a series of moves to take over Christian Dior in a $13.1 billion deal to consolidate control over the 70-year-old Parisian fashion house. The transaction would simplify LVMH’s relationship with Christian Dior by buying out minority shareholders. LVMH, the world’s biggest luxury group by revenue, already owns Parfums Christian Dior, and the deal would give it ownership of the Christian Dior haute couture, leather, men’s and women’s ready-to-wear, and shoe businesses. LVMH continues to outperform the wider luxury market, which has faltered in recent years in the face of fears of geopolitical conflict and currency fluctuations. The company called Christian Dior, which owns the brand’s couture business, will continue to exist and will own 41% of the share capital in LVMH, plus 56.8% of voting rights, making it the conglomerate’s controlling shareholder.
Citations
1. http://reut.rs/2pPPQ7F – Reuters
2. http://cnb.cx/2lwnm3s – CNBC
3. http://apple.co/2qpP4kD – Apple, Inc.
4. http://nyti.ms/2piQjy7 – NY Times Dealbook
Planning Tips
Guide to Retirement Planning in Your 50s
Upon reaching their 50s, the unexpected happens for many people when they fully realize how close their retirement actually has come. This pre-retirement phase can last a short time, a long time, and all variations in between, but this definitely is the time to begin taking certain steps in a thoughtful, realistic preparation for retirement. Below are some basic steps you can take to help with your retirement planning. It is important to consult with your financial advisor to set up a retirement plan that is appropriate for your goals and current situation.
Evaluate Your Retirement Savings – Retirement savings should be at the top of your priority list. Questions you should be asking yourself include the following: How much have you saved? Do you have enough? Do you need to save more? What are your options? The most important part of saving for retirement is making sure you are saving enough. In order to do this, you must have a clear idea of what you want your retirement years to look like. Evaluate not only your basic needs but also all the things you would like to do during retirement. Having a better picture of what you would like to accomplish will help you successfully save for the lifestyle you would like to have during your retirement years.
Higher Income Equals Higher Taxes – Many people experience their highest level of income during their 50s. Earning more leaves you exposed to more taxes. A financial professional can assist you in ways to reduce the burden of taxes, allowing you to save more for your retirement years.
Take Advantage of Employer Matching – If you are saving through a company retirement plan and your employer offers matching, this is the time you want to make sure you are taking advantage of the full potential of that. In addition to employer matching, this is also the time you should be maxing out your retirement accounts and saving as much as possible. If you are already maxing out your existing retirement accounts and have the desire and means to save more, you always have the option of opening additional accounts.
Catch-Up Contributions – Life has a tendency to throw us curves and make us rearrange our priorities. If life has gotten in the way and you have fallen behind with your retirement savings, individuals over the age of 50 have the opportunity to make catch-up contributions to compensate for missed contributions in prior years. Different types of retirement accounts have different catch-up contribution amounts.
Evaluate Your Expenses – This is the time you should be making catch-up contributions, not slacking on your saving efforts. It is more important now than ever before to not let expenses get in the way of your retirement. Budgeting is a great way to get a feel of where your finances are and keep them on track. Evaluate each of your expenses and determine if any of them can be eliminated or reduced. A newer trend altering retirement savings is the increased amount of adult children moving back home; be sure to evaluate who you are supporting and how long you plan to do so. Supporting others before and during retirement is fine if you have planned for it. Although it seems expenses just accumulate as the years go on, it is crucial to continue saving the amount that will deliver you a comfortable retirement. Again, we stress the importance of consulting with your financial advisor.
Citations
1. http://bit.ly/2q8LQ55 – Forbes
2. http://bit.ly/2pj3nUc – TheBalance.com
3. http://bit.ly/2q92FNy – Investopedia
4. http://bit.ly/2q8SWqy – Bankrate.com
5. http://bit.ly/2peQbyK – The Motley Fool
