Defying Disruption: Three Ways to Profit
Disruptive forces are wreaking havoc across the global business world. But not all disruption is fatal. Lots of companies are facing the threat—and thriving. We think they deserve more credit than investors are giving them.
Disruptive innovation is a red-hot investment theme today, and investors can’t seem to get enough of the technology goliaths leading the onslaught. The so-called FAANG stocks—Facebook, Apple, Amazon, Netflix and Google-parent Alphabet—have strongly outperformed the market this year, notwithstanding the recent sell-off.
These juggernauts of disruption continue to demonstrate that their spectacular growth may be sustainable. Yet we also think the market is underrating the ability of other companies to adapt to unfolding changes. Plenty of them are proving more disruption-resilient than generally acknowledged.
Here are three common beliefs about disruption and examples of companies that are defying them. We view these overlooked pockets of resilience as fertile investment hunting grounds.
#1: AMAZON WILL RULE ALL RETAIL
Amazon has built a near-indomitable shopping machine, with its recent $13.7 billion takeover bid for Whole Foods marking its latest foray. It’s not hard to imagine this e-commerce behemoth taking over all retail itself.
But, while in-store traffic is declining, there are certain items consumers still prefer to buy in a physical store (Display). Off-price apparel and home-goods chains, auto-parts retailers, and sellers of items such as men’s suits and luxury goods are holding up well amid the retail gloom. They’ve crafted business strategies focused on personalized services and encouraging customer loyalty and frequent store visits.
Examples include off-price apparel retailers, which lure shoppers to their doors by offering ever-changing, limited-lot designer-brand assortments and a treasure hunt appeal. Auto-parts stores benefit from an aging car fleet and do-it-yourselfers who don’t have time to spare when making repairs and want to talk to someone knowledgeable if they have questions.
Another takeaway: consumers are buying experiences over stuff. That insight inspired makeovers at some restaurant chains and the major US movie-theater chains, which have buoyed attendance and profits with upgrades such as cushy recliner seating; premium concession items, including alcohol; and alternative content, such as live events and classic films on slow nights.
#2. EVERYTHING IS MOVING TO THE CLOUD
Companies are adopting cloud services at a remarkable pace. Gartner predicts that, by 2020, businesses without a cloud-based IT strategy will be as rare as one without Internet services today.