Category: Business

• People prefer IKEA’s maze-like design

  IKEA opened its first permanent showroom in 1953. And by 1965, it had opened a 500,000 sf flagship store on the outskirts of Stockholm.

  Supposedly, the inspiration for this new store was Frank Lloyd Wright’s Guggenheim Museum in New York. Inspired by its continuous looping design, IKEA wanted to create a real-life version of its well-known catalog. This led to the current maze-like design where you wander through staged living spaces and get excited to buy lots of things.

  However, as IKEA began to open in more urban locations it actually started doing away with this prototypical design. The thinking, which seems perfectly reasonable, was that mazes weren’t appropriate for smaller and more urban locations. These customers would want to pop in, quickly get what they need, and then leave.

  But it turns out they were wrong. Their customers are telling them the opposite: they still want mazes. In other words, they want a curated experience that helps them figure out what to buy. According to IKEA: “People buy more when they are shown more.” Sounds right. And so IKEA is now working to make its urban stores more, you know, maze-like.

  The company has already done this in cities like Vienna and Paris, and apparently it consistently leads to higher sales. It’s a good reminder that (1) humans are still humans regardless of where they live and (2) if you want people to visit and linger in your physical store, it’s good practice to curate experiences.

  P.S. I love IKEA.

  2023.09.05

• The Citadel effect

  

  Last year, the formerly Chicago-based hedge fund Citadel announced that it would be moving its global headquarters to Miami. (Though to be clear, the company still has an office in Chicago.) Today, the Miami housing market is feeling the effects:

  “They’ve been buying here aggressively,” said Michael Martinez, a real estate agent with Sotheby’s in Miami, who recently brokered the sale of a $5mn home in Coconut Grove, a quiet salubrious suburb, to a Citadel employee. Most of the luxury homes he has sold in recent months have been to hedge fund buyers, half of them from Griffin’s firm, he estimates. “The Citadel migration is definitely occurring.”

  But it’s not just Citadel.

  According to another agent quoted in the article, there are many other “hedge fund buyers” active in the market, and many/most of them are buying all cash. In desirable suburbs like Coral Gables and Coconut Grove, homes between $3-7mm now account for about 40% of all listings.

  I remember visiting family in Miami in and around the GFC of 2007-2008. It was at this time that I really fell in love with the place. You could see how it was using art and culture to carve its identify. It was (and still is) this really exciting and sexy place.

  But it was also reeling from the GFC. I remember seeing listings for large and newish 2-bedroom waterfront condos for ~US$150k in some areas. If I had any money, this likely would have been a smart move given how Miami has grown since then.

  So I think this story is less about the Citadel effect and more about Miami’s continued rise as a global city and global financial center. Notwithstanding the whole climate risk thing, this city region has some pretty powerful tailwinds.

  Photo by Ryan Parker on Unsplash

  2023.09.02

• A few charts on working from home…

  Here’s an interesting paper from WFH Research that looks at, “the evolution of working from home.” Not surprisingly, remote work tends to vary by industry, with tech being the most likely to work from home and with hospitality & food services the least likely.

  

  By extension, WFH prevalence also appears to correlate with population density. This largely has to do with the kinds of jobs that center themselves in big and dense cities. This is interesting because one conventional way to think about cities is that they are places where businesses and people cluster to accumulate wealth. That clustering is still happening, but work is evolving.

  

  And that is always the case.

  

  Overall, the authors conclude that about 40% of US employees are now working at least one day a week at home, and that just over 11% are fully remote. They also argue that fully remote work lowers average productivity by about 10-20%, but that hybrid work is closer to flat. Interestingly enough, opinions on productivity differ whether you ask employees or managers.

  If you’d like to read the full paper, click here.

  Figures: WFH Research

  2023.08.31

• Over 15% of retail sales in the US are now happening online

  

  Amazon was founded in 1994 and went public in 1997. By 1999, some 5 years after the company was started, only about 1% of total retail sales were being done online in the US. So you have to give it to Bezos, he saw what was coming and he got in early to help create it. This was not so obvious back in the mid 90s. The internet as a whole was still being viewed with skepticism, especially after the dot-com bubble.

  Today, online shopping represents over 15% of total retail sales. (See above chart from Charlie Bilello.) The pandemic pop is over, but it looks like we’ve returned to a pretty clear trendline — up and to the right. I guess the questions now are: When and where does this start to flatline? It doesn’t seem likely that this goes to 100% in the foreseeable future, especially if you include grocery. But it’s going to go a lot higher.

  For myself, if I were to exclude food/grocery, I would say that the vast majority (80-90%) of my retail purchases are done online. Even if I’m in a physical store, I’ll often pull out my phone to price compare. If it’s cheaper on Amazon, I’ll just order it there.

  Here’s another example.

  This past summer when I was in Park City, I discovered the brand Vuori. I had heard of them before, but I had never actually seen or touched their clothes. It’s great stuff. But instead of the store convincing me to buy something, it convinced me that I like the brand and that I should probably shop on their website at some point in the near future. And that’s exactly what I ended up doing. (Sorry Lululemon. You’re still my favorite.)

  All of this is perhaps obvious in a world where 15% of total retail sales are happening online. But I would imagine that the retail landscape and our cities will look very different when this number goes even higher. Our cities were different at 1% compared to today at 15%; so imagine what 50% or 80% might be like.

  2023.08.22

• Can I take your order — from somewhere else?

  There is a Freshii at the bottom of our office building that is staffed by exactly one human. This human’s main job is to prepare food orders and then distribute those food orders to the humans waiting for lunch.

  If you’d like to place an order, well that is done through an iPad-like device on the counter and a video feed of someone that is seemingly located very far away from the bottom of our office building. You just tell the person on the screen what you’d like and they ring it through.

  And if you’d like to add a drink to your order, simply grab it yourself, hold it up to the iPad, and then boom. There’s very little room for chitchatting. This is an important lunch transaction.

  Virtual humans are not a new thing. Some, though not many, residential buildings use them in place of in-person concierges. I don’t know exactly how much money this saves, but I would imagine that it’s meaningful. You can now leverage one human across multiple buildings.

  So I think there’s no question that the world is heading in this direction. That is, less rather than more human interaction. But clearly this is all about utility. It’s about delivering you a healthy lunch bowl as quickly and efficiently as possible.

  If you’re instead looking to sit by yourself at a bar and learn something from the bartender, or you’re looking for a truly remarkable hospitality experience — well those are different things all together.

  2023.07.24

• France’s luxury goods empire

  The US has tech and France has luxury goods:

  The roots of French dominance lie in a luxury ecosystem that dates to the court of Louis XIV, and a culture of corporate raiding that began with Bernard Arnault. After gaining control of LVMH in 1989, he set out to build the first house of luxury brands through serial acquisitions. Rivals followed his lead. Increasingly, the global luxury industry is based on goods that are still made by small Italian firms but sold by big French conglomerates. Gucci, Bulgari, Fendi — all are Italian brands now under French owners.

  While US tech firms overshadow all rivals, the same can be said of French luxury. Among the top luxury firms, the French have annual sales three times higher than the Swiss, more than four times the Americans and Chinese and 12 times the Italians.

  One of the most interesting things that LVMH is doing, though, is a combination of tech and luxury goods. In 2021, they announced, along with founding partners Prada and Cartier, a new luxury goods blockchain called Aura.

  The idea behind Aura (an appropriate name, in my opinion) is to create a kind of digital passport that proves authenticity and ownership, and also allows for traceability. So if you want to sell one of your luxury items or you need to service it, now someone can easily see the chain of ownership and determine that it’s real.

  This to me is a perfect use case for the blockchain technology and, as of March of this year, the group was reporting 24 brands on board. At the same time, they also announced a new feature that allows brands to participate through public chains such as Ethereum or Solana.

  All of this is probably still very esoteric to most. But eventually the tech will recede into the background and most will probably just see it as, “I’m buying this expensive purse and along with it I get this digital passport thingy that lives on my phone. I don’t know or care how the tech works, but it makes me feel even more special.”

  However, a big question remains: What does all of this innovation do to industry concentration? (Which is one of the main points of the above article.) One promise of crypto is that it will be a decentralizing force in our economy. And while I believe this to be directionally true, I obviously understand that LVMH has an empire to maintain here.

  For those of us who deal in real estate, it is also interesting to think about this topic of brands and authenticity when it comes to property. And so we will talk about that later this week on the blog.

  2023.06.04

• Sam Zell dies at 81

  Sam Zell, the billionaire real estate investor, died this week at the age of 81. That seems young to me. Or maybe I’m just being overly optimistic about life expectancy. This is around the US average.

  Whatever the case, if you work in real estate, you likely know/knew of Sam. In my case, he spent a lot of time at Penn after he permanently endowed the real estate center (under both his name and his late business partner’s name).

  I used to go and listen to him speak at least twice a year, and I would hang off his every word as a young student of real estate. “So wait, how does this all work?”

  It was also at this time that he sold Equity Office to Blackstone for $39 billion (back in 2007, it was the largest private equity deal in history). Sam’s explanation for doing this deal was that Blackstone offered him more than what he thought the portfolio was worth, so he sold it. He took no credit for good market timing.

  If you’ve ever heard Sam speak, you know that he’s incredibly direct. Generally, he also didn’t seem to give a fuck, and was happy being the only person in a Hawaiian shirt among a sea of blue and black suits.

  In fact, he’s largely the reason that, as students, we used to all joke that the richer the speaker, the more funny and honest they would be. “Come on, let’s go to this one. She’s rich.” I guess this is just what happens when you no longer have anything to prove.

  But none of this is to say that he didn’t care. He cared a great deal about the school and about helping young students. And for that, I say: thank you Sam. Thank you for being generous with your time.

  2023.05.19

• World’s largest asset manager now wants people in the office 4 days a week

  The trend continues. BlackRock — the world’s largest asset manager with about 20,000 employees in more than 30 countries — announced today that employees need to be in the office at least 4 days a week starting this September. This is an increase from the current 3 days a week.

  You can’t read the news today without seeing some sort of headline about the demise of downtowns. But what is clear from announcements like these is that we still have yet to reach an equilibrium. And it’s probably just taking a lot longer than most people initially anticipated.

  I know that this is a very divisive topic and that many of you think I’m old school for continuing to say this. But I fundamentally believe that there are irreplaceable benefits to in-person interactions among teams. I don’t know, maybe it’s because of my architecture background.

  In architecture school you’re expected to spend all of your time “working in studio.” And even though you’re often working and producing things on your own, you do it so that you can be around your peers, shout out questions when you need help, learn from their work, and go for burritos and beers together.

  And it was such a fun and creative experience for me that I can’t imagine what it would have been like had I been forced to work from my apartment. I probably would have had an equal number of burritos, but maybe a lot less beer?

  2023.05.16

• How disruptive is AI really going to be?

  AI is going to be very disruptive, right? At this point, I think it is pretty clear to most that the answer is yes, almost regardless of what industry you’re in. But is it going to be really disruptive? Like disruptive in the Clayton Christensen sense of the word. (Christensen is known for coining the term “disruptive innovation“, which he contrasted against “sustaining innovation.”)

  This is a good question, and I like how Ben Thompson thought about it in his newsletter this morning:

  I tend to believe that disruptive innovations are actually quite rare, but when they come, they are basically impossible for the incumbent company to respond to: their business models, shareholders, and most important customers make it impossible for management to respond. If that is true, though, then an incumbent responding is in fact evidence that an innovation is actually not disruptive, but sustaining.

  The point he is making is that given that the big tech companies (and of course everyone else) are all now responding to AI by incorporating it into their businesses, it, by definition, must not be a disruptive innovation. It’s a sustaining one. This doesn’t mean that AI won’t have significant impacts on our economy; it just means that maybe it won’t put a company like Alphabet out of business.

  I thought this was an interesting way of looking at things because it is a reminder that “disruptive innovations” often start out at the bottom of the market. They start in a way that can feel innocuous to incumbents; that is, until they move upmarket. But this is not at all how AI feels. As soon as you play around with ChatGPT you immediately think to yourself, “holy shit, this thing can do my job.”

  That is obviously something very meaningful. But is it going to shake up the big tech world order? I don’t know, if you follow Christensen’s definition, crypto sounds like the more disruptive innovation.

  2023.05.15

• Speed outweighs all else

  Rapid and high-volume decision making are fundamental to real estate development.

  In fact, it’s hard to think of anything being more important when it comes to executing on a project. This is not to say that being thoughtful and doing remarkable work aren’t important. You, of course, need to do those things as well. But it is to say that the benefits of moving as fast as you possibly can usually outweigh all else.

  What this means is that any decision is often far better than no decision. Because no decision can grind everything to a halt. You need to maintain momentum and the way to do that is to make a lot of high-quality decisions.

  As someone who was originally trained as an architect, this is something that I had to learn in the workplace. Because in architecture school, you’re basically taught to work on your projects for as long as humanly possible and then, when you’re done, you work on them some more. They’ll never be good enough and you certainly haven’t spent enough time “working in studio”.

  But in practice, you need to go. I would like to once again reiterate that this is not a license to do crappy work. I think the way to think about this is that speed and excellence reinforce each other. Our team always strives to do exceptional and remarkable work. And one of the ways to actually do that is by focusing on speed.

  2023.04.12