In The Headlines
Zippo: Finding a New Light
As the third-generation owner of Zippo Manufacturing Co., George Blaisdell Duke is often asked how the company remains in business. America does not light up as much as it used to, so it is a reasonable question for the most famous maker of cigarette lighters in the world. But the business is doing well—in fact, very well.
Despite the 50% downturn in the number of U.S. smokers since the heyday of cigarettes in the 1950s, Zippo booked a record more than $200 million in sales last year, and had the best May and June sales in its history in 2014. The company’s revenue has increased by a compounded 14% in the past three years, thanks to new, nonsmoking CEO Greg Booth, who focused marketing the 82-year-old manufacturer’s legendary lighter to a younger audience and expanded business in China. New products, including a clothing line and camping gear, and its first retail stores added fuel to the increase in sales.
It is a long way from the first Zippo, created by George Blaisdell after watching a friend struggle to light a cigarette on a windy day in 1932 in Bradford, Pa., the small town in the Allegheny Mountains where Zippo is still based. He came up with a windproof chimney and the distinctive hinged lid, and guaranteed the lighter for life meaning Zippo would continue to fix the lighter as long as its owner sent it to the factory. After soldiers received the lighters in WWII, Zippo successfully marketed itself with a utilitarian, made-in-America image for the next half-century. Nonfamily CEOs ran it after the death of Blaisdell, who left Zippo to his family. By the 1990s, his daughter Sarah Dorn and her son, Duke, had bought out the rest of the clan. Zippo hit a rough patch in the 2000s. Sales plummeted, and prompted Duke to make Booth, who had been running Zippo’s knife-making subsidiary, CEO in 2001.
The average age of Zippo’s customers then still hovered between 30 and 50 years old. The company needed to think younger or else, Booth thought at the time, “all the buyers will have Zippos in their caskets, like Frank Sinatra.” (The crooner was buried with his trusty silver Zippo in 1998.) It needed to reach the 18 to 24 year-olds who were children when Sinatra died. To do it the company shifted advertising dollars from print to Google AdWords and sponsored music concert series. They churned out lighters with Jack Daniel’s imagery and others inspired by the TV show Sons of Anarchy. In all, Zippo produced 30,800 unique designs last year, up from 8,900 a decade ago, a 246% increase partly owing to a new Zippo.com feature where users can design their own lighter from scratch. Zippo has positioned itself as a maker of talismans, lucky charms, or something akin to customized belt buckles. “The Zippo lighter is a thing of taste,” Booth says. “Sometimes it’s used by folks just as a fashion statement.”
That is also the guiding light Zippo is following in China. When Booth took over, the Chinese business did not exhibit so much as a pulse. Now it is 13% of Zippo’s revenue (60% of sales come from overseas). Zippo launched there in 2012, and today it has a 15-person team in Beijing. It has opened 14 retail stores in China, with another 35 to come by 2015, all riding the idea of Zippo as an all-American lifestyle brand. The stores carry a Zippo-designed clothing line with gear resembling J. Crew’s preppy woodsman style. The retail stores worked well enough for Zippo to open two in Las Vegas at the Luxor Hotel and Planet Hollywood casino earlier this year.
The Zippo brand extends into camping products, including grills, stoves, and LED lanterns. It launched in 2012, and sales were around $3 million last year. Zippo hopes to hit $20 million by 2016. For now those products are partly made in China. Greater sales would make it economically feasible to move those overseas jobs to Bradford, where Zippo remains the greatest source of blue-collar jobs, employing around 950 workers.
Booth will retire at the end of 2015 and Duke is actively recruiting both of his twenty-something sons to take his place. One has already worked at developing new lighter designs while on his college breaks. “This is just a metal box,” Duke says of the Zippo lighter. “But there’s a lot you can do with a metal box.”
Metromile Launches Pay as You Go Auto Insurance
Metromile, a small insurance startup, is pioneering a new form of auto insurance based on a combination of technology-based services and a pay as you drive concept. Metromile’s pitch is straightforward. Your insurance premium should be based on exactly how much you drive. The more miles you put on your car, the more you pay because the odds are higher you will have a claim. Drive less, pay less. While the company is small, its business concept may prove to be the way of the future for the auto insurance industry which has been challenged with slower growth.
Insurers have long asked policyholders to report mileage, but that information typically influences the bill only when drivers renew for another term. Metromile’s new customers get the Metronome, a mileage tracking device that plugs into a car’s data port. The company uses the information to customize its rates. Executives at three-year-old Metromile hope word-of-mouth enthusiasm from people will help make the company a household name. The insurance is available in four states—California, Illinois, Oregon, and Washington. Metromile acts as an agent, with the policies underwritten by National General Insurance Group.
Metromile has raised $14 million in venture capital, says Chief Executive Officer Dan Preston which is about as much as Geico spends every five days on TV spots, billboards, and other advertising. “As a startup, we can’t do Super Bowl ads,” Preston says. To set itself apart from much bigger rivals, Metromile markets itself as a service to manage the costs of owning a car.
The GPS-equipped mileage tracking device sends alerts to a proprietary app on a customer’s mobile phone if street sweeping is scheduled where her car is parked, helping users avoid parking tickets. So far the company has sent 18,000 warnings to drivers in San Francisco and Chicago, the cities where the feature is offered. Metromile also pulls information from a vehicle’s data port to help drivers monitor fuel use and diagnose maintenance problems.
The company will not divulge how many people have signed up for coverage. But its concept of putting data in the hands of drivers may be a fresh way to gain share in the $186 billion auto insurance market. Metromile Chairman David Friedberg has been successful bringing ideas to the industry. The ex-Google executive founded Climate Corp., a company that sells crop insurance. Monsanto bought it last year for about $930 million.
The insurance industry has seen its marketing costs climb much faster than policy sales. As consulting firm Bain wrote in a study this year, car insurers in the U.S. “must feel like Alice in Wonderland, running flat out with barely any forward motion.” Auto insurers “need to invest in wowing customers and not just merely satisfying them,” says David Whelan, a partner in Bain’s financial services practice. Some big carriers have gotten the message. Progressive has a data-port device called Snapshot that gathers information on driving behavior to offer discounts. Allstate has several apps, including one that allows customers involved in minor traffic accidents to upload photos of the damage to adjusters to expedite the claims process.
None of that has the appeal of helping a customer avoid parking tickets. Friedberg sees Metromile providing more services to policyholders. Insurers could, for example, help drivers by suggesting ways to cut down on commuting time. “That’s an entirely different relationship than being the guy you go to when things go wrong,” he says.
Sources:
1. http://onforb.es/1vBLVHE – Forbes
2. http://buswk.co/1lqF3fS – BusinessWeek
The Good News Is . . .
• Existing home sales increased in July to their highest annual pace of the year, according to the National Association of Realtors (NAR). Total existing home sales, which include single-family homes, townhomes, condominiums, and co-ops rose 2.4% to a seasonally adjusted annual rate of 5.15 million in July from 5.03 million in June. Sales are at the highest pace of 2014 and have risen four consecutive months. Lawrence Yun, NAR chief economist, said sales momentum is slowly building behind stronger job growth and improving inventory conditions.
• Hormel Foods Corp., a leading multinational manufacturer and marketer of consumer-branded food and meat products, reported earnings of $0.51 per share, an increase of 21.4% over year-ago earnings of $0.42. The firm’s earnings topped the consensus estimate of analysts by $0.03. The company reported revenues of $2.3 billion, an increase of 5.8%. Management attributed the company’s results to strong demand for pork and turkey, and increased sales of value-added products in its Refrigerated Foods, Jennie-O Turkey Store, and international segments.
• Power producer Dynegy announced two separate deals for coal and natural gas generation assets worth a total of $6.25 billion. The company is buying ownership interests in power plants in the Midwest from Duke Energy and its retail business for $2.8 billion. Dynegy is also buying ownership interests in plants in New England, Pennsylvania, and the Midwest from the private equity firm Energy Capital Partners for $3.45 billion. The two transactions will add 12,500 megawatts of generating capacity, giving Dynegy nearly 26,000 megawatts of generating capacity nationally. Dynegy will also enter three new retail markets in Ohio, Pennsylvania, and Michigan.
Sources:
1. http://bit.ly/1tkKYUy – National Association of Realtors
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1qE48jq – Hormel Foods Corp.
4. http://nyti.ms/1vcx60M – NY Times Dealbook
Planning Tips
Planning Tips – Understanding How New SEC Rules Affect Money
Millions of investors use money market mutual funds as a place to park cash in their portfolios, since they are generally viewed as safe, convenient short-term investments. In fact, U.S. investors have put nearly $3 trillion in money market mutual funds. However, regulators have been tightening rules to make them safer in the wake of the mass exodus from these funds during the 2008 financial crisis. Last month, the Securities and Exchange Commission approved a new rule to help prevent a dramatic flight from these funds from happening again. Below are some tips to help you better understand what money market mutual funds are and how they work under the new regulations.
Understand what money market funds are – Money market funds (MMF) are mutual funds you can purchase through a bank, brokerage, or a fund family. Most retail MMFs are linked to brokerage accounts, giving investors a place to park their cash after the sale of stock. But these investments can also be used to build cash for savings purposes. Investors buy shares in the fund and the fund’s manager invests the money in short-term debt instruments, such as Treasury bills and commercial paper that mature in less than 13 months.
Be aware that money market mutual funds are not insured – The funds invest in low-risk, highly-liquid investments like U.S. Treasury securities (T-bills), certificates of deposit (CDs), and corporate commercial paper. They are regulated by the SEC and their value is determined by underlying investments, but they are not guaranteed investments.
Withdrawals may be harder in times of crisis – One provision of the new SEC series of rules provides new tools to non-government money market fund boards such as liquidation fees and redemption restrictions to address the kind of runs that were experienced in the 2008 financial crisis. The new rule requires all money market funds (except government money market funds) to pose certain restrictions on withdrawals if there is a sharp decline in the amount of underlying investments in the fund that could easily be sold to raise cash.
Money market fund share prices may experience lower yields – The new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. With a floating NAV, institutional prime money market funds, including institutional municipal money market funds, are required to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV. These funds will no longer be allowed to use the special pricing and valuation conventions that currently permit them to maintain a constant share price of $1.00. What this means is that MMFs will be more liquid, so they will be better able to handle heavy redemptions in future financial crises. But the downside will be reduced yields on those very short-term investments.
Consider using a money market deposit account – A money market account is like a “souped-up” savings account that can also invest your money in treasury notes, CDs, and other short-term investments to give you a slightly better yield than a regular savings account. As with a savings account, the federal government insures your deposits in a money market account up to $250,000.
Sources:
1. http://1.usa.gov/1p6tris – SEC
2. http://bit.ly/1tIvKqA – Bankrate.com
3. http://www.cnbc.com/id/101904602 – CNBC
4. http://onforb.es/1ojXxZU – Forbes
5. http://on.wsj.com/UtPxhp – Wall Street Journal
6. http://nyti.ms/1nL8SaG – Dealbook.com
