RECENT NEWS
The Hindu Business Line  Apr 1  Comment 
Shares of Godrej Consumer Products today gained 1.1 per cent as Kotak has upgraded the stock to “add’’ from “reduce’’.It has cited recent correction, potential margin expansion, and earnings...
Market Intelligence Center  Mar 30  Comment 
MarketIntelligenceCenter.com's patented option-trade picking algorithm found a pair of trade ideas on Consumer Staples Select Sector SPDR (XLP) today after it traded between between $48.40 and $48.77 before closing at $48.71 on Friday. For more...
TechCrunch  Mar 29  Comment 
 Can we agree that the term “internet of things” should go away when we’re talking about consumer products? Like the “world wide web” before it, the internet of things phrase is a relic from the past. I don’t need a connected washing...
Forbes  Mar 27  Comment 
Looking at the sectors faring best as of midday Friday, shares of Healthcare companies are outperforming other sectors, higher by 0.9%. Within that group, Alexion Pharmaceuticals Inc. (NASD: ALXN) and Endo International plc (NASD: ENDP) are two...
Forbes  Mar 26  Comment 
The worst performing sector as of midday Thursday is the Services sector, showing a 0.3% loss. Within that group, Staples Inc (NASD: SPLS) and Wynn Resorts Ltd (NASD: WYNN) are two of the day's laggards, showing a loss of 2.9% and 1.7%,...
Canada.com  Mar 25  Comment 
If Warren Buffett likes ketchup with his mac 'n' cheese, it's probably less about the taste and more because there is no end in sight for the market's appreciation of the consumer food sector
Forbes  Mar 20  Comment 
Traditionally, investors looking for consistent returns could reliably turn to consumer products companies to put their money to work. And why not? These companies had a formula for creating profitable growth: Delight consumers with innovations,...
Forbes  Mar 19  Comment 
To the growing list of human behavior causing pollution and climate change, you can add one more: unsustainable production of palm oil, needed for multiple consumer products from deodorants and toothpastes to cookies and chocolates.




 
TOP CONTRIBUTORS

The Toy business leads this category, and by a wide margin. The 3 largest U.S. toymakers, Hasbro (HAS), Mattel (MAT), and JAKKS Pacific (JAKK), were all on the screen for significant periods of time. I think this is another illustration of how the Magic Formula does a lot of the work of digging up beaten down sectors for us. The first quarter is generally a weak one for toymakers, as most of their profits come in the Christmas season (as much as 60%).

The original thought was to separate between Consumer Staples (items that we must buy regardless of our financial condition) and Consumer Discretionary (luxury goods). However, many of the industries above would be ambiguous. For example, we need shoes (making them a staple), but in tight times we may decide to buy a store brand instead of more expensive Nike (NKE), adding a measure of discretion to the purchase. Consumer goods companies can make great long term investments - just ask Warren Buffett, whose investments in Coca-Cola, Anheuser-Busch Companies (BUD), and Procter & Gamble Company (PG) are legendary.

Forces affecting the Retail Industry

Brand is unquestionably the strongest form of competitive advantage in Consumer Goods. However, it's important to also judge the durability of the brand. For example, Coke is a brand known around the world, and has endured over 100 years of competition to still enjoy the top spot in the soda category today. That's a durable brand. Compare this to Gap (GPS).Ten years ago, Gap and it's spin off stores Old Navy and Banana Republic were considered fashionable and chic for the all important teen and college set. Today, the store is avoided by those same groups, lest their fashion sense be ridiculed by friends. That's a fickle brand. It's important to be able to separate a fad from a juggernaut. Add this to the PR problems Mattel faced last year with lead paint, and you have an unwanted sector, with some interesting potential investments.


Distribution is also important in the Consumer Goods sector. A company with a wider distribution network can leverage economies of scale to earn more on their fixed costs. An especially attractive arrangement is when one of these companies has an exclusive deal with a large distributor. Take Anheuser-Busch (BUD), for example. While this firm has an incredibly strong brand, they also require exclusivity from distributors. This allows them to lock out competitors like Molson Coors (TAP) and Miller, protecting profit margins. The soda companies also do this well. Have you noticed that McDonald's (MCD) only sells Coke products, while Pizza Hut (Yum! Brands (YUM)) only sells Pepsi? With these exclusive deals, competitors are blocked from those roads of distribution, protecting profits for the established companies.

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