The Agony of Corporate Disruption in Six Cautionary Charts
(Bloomberg) -- Disruptive technologies -- think e-commerce, ride-sharing or social media -- are knocking some of the world’s biggest companies off kilter and erasing billions of dollars in market value.
While no one is suffering the fate of the buggy-whip makers a century ago, the pain is reflected in both earnings statements and stock prices. Here’s a look at the new technologies bedeviling some of the world’s best-known companies and brands.
Disrupting WPP: Options for Advertisers
Media giant WPP Plc stunned investors with its third warning in a year of lower-than-expected sales on Thursday, pushing shares down the most since August. Over the past year, it’s lost about a third of its stock market value -- some 8.35 billion pounds ($11.5 billion).
Since London-based WPP was built ground-up more than three decades ago through a web of acquisitions, the sprawling media empire run by Martin Sorrell has dominated the advertising industry. But the world as Sorrell, 73, knows it is changing dramatically: The industry is beset by a retreat from major customers just as online competition erodes its core business. Global consumer-goods giant and WPP client Unilever Plc is holding back ad spending to cut costs, while web companies cut out advertising agencies that act as middlemen and consultants like Accenture Plc and Deloitte LLP poach digital marketing work.
Disrupting H&M: Amazon and E-Commerce
Swedish retailer Hennes & Mauritz AB used to have a formula for growth in fast fashion: Keep opening new stores at an ever faster pace, blanketing the world’s city centers and shopping malls with outlets selling $5 T-shirts and $20 jeans. Then its industry was jolted by the rise of Amazon.com Inc. and nimbler online players like Inditex SA’s Zara, along with even cheaper and more cheerful discount chains like Associated British Foods Plc’s Primark.
H&M’s shares fell 33 percent in 2017 as the company struggled to catch up, investing more in e-commerce and new store formats. The stock plunged anew in late January as H&M reversed that strategy, stepping up store closings in its flagship chain. Hedge funds keep increasing their short positions, betting there may be worse to come.
Disrupting Hertz: The Rise of Ride-Sharing
Rental-car agency Hertz Global Holdings Inc. has been hit by new technology and emerging alternatives for travelers to get around. Ride-hailing services like Uber and Lyft have lured away customers at airport locations, where Hertz and its rivals have lots of cars to rent. Its fourth-quarter loss was wider than analysts expected on Wednesday, contributing to a 20 percent stock decline over the past year.
The ride-hailing boom has come at the worst time for Hertz. Former CEO John Tague had already added to the fleet to grab market share, and with more people choosing Uber the company had a tougher time keeping cars rented out and holding prices steady. Rivals like Avis Budget Group Inc. had also added capacity, contributing to the market glut.
Many shareholders fear that the erosion of the rental business is just the beginning and that eventually, buying a ride instead of renting a car for days would put Hertz and Avis out of business. But there’s hope: The stocks got a boost in the middle of last year when Bloomberg reported that Hertz was managing the self-driving car fleet for Apple Inc. and Avis was doing the same thing for Alphabet Inc.’s Waymo unit. That showed investors that both companies could play a role in the future of transportation managing fleets of robotaxis for Waymo, Uber and anyone else who gets into the business.
Disrupting Xerox and Fujifilm: the Death of Copiers
The dominance of email and other forms of electronic communications means the business of printing and photocopying documents is dying out fast. That’s one of the factors behind this year’s deal that will see an American icon, Xerox Corp., cede control to Japan’s Fujifilm Holdings Corp.
Global shipments for printers and copiers are expected to drop 2.3 percent from 2016 through 2021, according to Gartner. Revenue at Fujifilm’s document-solutions division fell more than 7 percent last year. To survive in this landscape, the Japanese company is focusing on managed-print services and medical imaging. Fujifilm is expanding in the health-care sector, hoping to bolster sales through demand for products such as ultrasound and endoscopy equipment.
Fujifilm’s deal with Xerox will end independence for a U.S. company whose copiers were so ubiquitous that the name Xerox became a verb. The transaction, which will see Xerox merge into a joint venture it has with Fujifilm, aims to strengthen both companies through a more global reach.
Disrupting UPS: Investing for Online Shoppers
United Parcel Service Inc. has tumbled 16 percent since Jan. 31 as an investment binge prompted Wall Street to question how much the courier will profit from the rise of e-commerce. The shares fell 11 days in a row in January and February, the longest losing streak since 2007.
UPS is seeing unprecedented demand as online shopping drives deliveries. The challenge is that the Atlanta-based company earns less profit on residential stops, since drivers typically handle fewer parcels per home than when they serve businesses. To adapt, UPS is spending an extra $7 billion through 2020 to automate its warehouses and buy new freighter jets -- but without aggressively ramping up prices.
Disrupting Japan Tobacco: Smokers Changing Habits
As governments around the world move toward tighter smoking regulations, the race is on for tobacco companies to offer products that deliver a nicotine hit without all the smoke and tar of traditional cigarettes. The industry was rocked last summer by the U.S. Food and Drug Administration’s plan to mandate nicotine cuts in tobacco products to non-addictive levels.
Japan Tobacco Inc., which has seen domestic cigarette sales fall for 17 straight months, is playing catch-up in adapting to the changing environment. The company’s Ploom Tech smokeless tobacco device lags behind Philip Morris International Inc.’s IQOS in the Japan market, which is one of the early adopters of next-generation technology. Japan Tobacco’s stock has dropped more than 20 percent over the past 12 months.
New CEO Masamichi Terabatake is determined to close the gap. He said last month the Japanese company will introduce a new heated tobacco product that more closely resembles the technology of its rivals. Japan Tobacco will invest more than 100 billion yen ($943 million) over three years to develop next-generation devices, Terabatake said.
©2018 Bloomberg L.P.