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By markoose
January 6, 2003

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Still, I don't know too much about its competitors. What are your thoughts on some of them?

I see their competition at different levels. The first wave consists of the dollar-type stores in general, such as Dollar General (DG), Dollar Tree (DLTR), and Family Dollar (FDO)... all which sport decent to good balance sheets and financial metrics. Looking back, this whole industry has been pretty kind to its shareholders over the years; and looking ahead long-term, generally speaking I don't see why it shouldn't continue. And as we know, gm is a fan of DLTR (in addition to NDN), of which I can't really blame him, from what I have seen. Also in this category are the smaller mom & pops, which will probably always enjoy their little niche... though I would certainly keep my eye out on any up-and-comers for potential investment. All of today's larger companies had to start out somewhere, as we all know.

A second level of competition, in my eyes, consists of larger discount stores (Wal-Mart, Kmart, etc.), supermarkets (both public and private), membership warehouses (Costco, BJ's, etc.), retail pharmacy chains (Walgreen's, CVS, etc.) and even convenience stores (both public and private) that all sell similar overlapping merchandise and share a customer base. Things of that nature. Guess you gotta look at it from all angles.

A final and third (lesser) level consists of closeout retailers such as Big Lots (BLI), and even something along the lines of a privately-held Building #19, which is certainly an interesting little company in its own right. That sorta stuff, though with some of these, many merchandise lines aren't always overlapping with NDN (though that could be subject to change).

Obviously there's a lot out there, with some at least to a certain extent. Which is fine, as there is plenty of room and opportunity to go around. And as always, excellent execution will always stand a notch above the rest.

Yes, I know in my previous post I stated that I wasn't much of a retail guy. Of course, that is relatively speaking. Personally, I'd like to explore more of the first level I mentioned (dollar-type stores), both "on paper" and actually in the field. NDN is obviously the baby of the publicly traded bunch, in terms of market cap, # of stores, revenues, etc. Relatively riskier, perhaps... but also much more room for potential expansion to enjoy the (hopefully) long ride up as it methodically marches across the country.

I guess you could say that NDN's "siblings" provide a potential glimpse into the future, of what NDN may eventually look like in a few years in terms of number of stores, sales, etc. However, I've noticed that NDN's average store size is quite a bit larger... which translates into a good deal of merchandise flowing through. About $700 mil in sales, yet only 150 stores or whatever? Sheesh. Can you imagine if/when they number in the thousands someday? Talking pretty big bucks, a lot more than its "siblings," on many apples-to-apples comparisons.

Also, certain membership warehouses (e.g., Costco) and retail pharmacy chains (e.g., Walgreen's) have my interest *somewhat* piqued; though unfortunately they are a bit out of my range in terms of size -- I'm more of a small- to mid-cap kinda guy. But I've learned never to rule anything out.

Anyway, you speak of NDN as "compelling." I certainly agree. I could go on and on about incredible management character and corporate culture & methodology & philosophy and whatnot. But one quick thing that stands out, as gm has already highlighted in his quarterly letter to his clients, is management compensation. Very low 6-figures for a company this size is an amazing thing these days. And executive stock options? What stock options?? The family's wealth is tied to its big chunk of ownership. Owner/operators are a very cool breed, indeed. I've been searching long and hard for something that resembles this in other potential investments; I may be looking in the wrong places, but it appears as though they are far and few between. And I may be going out on a bit of a limb here, but the Buffett/BRK connection immediately springs to mind when thinking of NDN, at least in this regard. (As an aside, it's amazing to think that the world's 2nd richest man, with his wealth measuring in the tens of billions, had a salary of a relatively "mere" $356K in FY2001, according to Yahoo.)

In any event, thank you for providing me an opportunity to get some of my NDN thoughts down on "cyber paper." So many thoughts, so little time.

; )


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