It's Not a Great Time to Be a Great American Brand

On this Market Foolery podcast, host Chris Hill and Motley Fool Funds' Bill Barker parse some of the more interesting news items of the day from the business world: An analyst report let the air out of the tires of iconic motorcycle maker Harley-Davidson (HOG -16.91%), but the market barely tapped the brakes on the stock; Time Inc. (TIME) is considering rebranding itself to appeal to the young readers it wants rather than the old ones it has; and Amazon.com's (AMZN -2.11%) plan to create its own version of the Geek Squad could pose a threat to Best Buy (BBY 0.52%).

But there's one piece of unmitigated good news -- and it's about coffee.

A full transcript follows the video.

This video was recorded on July 12, 2017.

Chris Hill: It's Wednesday, July 12. Welcome to Market Foolery. I'm Chris Hill. Joining me in studio today, from Motley Fool Funds, Bill Barker. Thanks for being here!

Bill Barker: Thanks for having me!

Hill: I know I'm tearing you away from the tennis.

Barker: No, you're not. I've got it right in front of me.

Hill: Wimbledon is going on, for those who are not big tennis fans. Andy Murray -- defending champion Andy Murray?

Barker: Yes.

Hill: Yeah, he's out. He went down in five sets today. That's not a spoiler alert --

Barker: England is weeping. Although, they have Johanna Konta in the women's semi tomorrow. First time since '78 that there's been a British woman in the semifinal, the era of Virginia Wade.

Hill: I think we're done here. That's going to do it for this edition of --

Barker: I could keep going. We haven't talked about court tennis yet.

Hill: We're going to dip into the Fool mailbag. We are going to talk media. We have to start, though, with Harley-Davidson. Shares are down a little bit because Bernstein put out a little note downgrading the stock. I find this interesting because the stock drop today is not indicative of this report. The shares are down, last time I checked, which was within the past hour, was down a little over 1%. This report is not at all good for Harley-Davidson shareholders. Among the highlights, it's all about demographics and how the baby boomer generation has a lower propensity to ride motorcycles than Generation X or Y, and the biggest finding for Bernstein was, I'm just going to quote here, "Younger millennials have shown dramatically lower interest in riding motorcycles." I suppose that's one more thing you can blame millennials for.

Did you have the same reaction to this report that I did? You know the company better than I do. The report was worse than what we're seeing with the stock today.

Barker: Well, if your reaction was, "This is old news, this is what everybody has been talking about for years in the case of Harley, and whether it will be able to solve this problem," then yes, my reaction was the same. Is that what your reaction was?

Hill: That was not my reaction.

Barker: Oh, so you haven't been paying attention. But the market has been. The stock is already down 15% over the last three months. The last quarterly report highlighted many of these issues. So the analyst isn't really breaking new ground here.

Hill: But I think it's deeper ground. We've talked on this podcast before about Harley-Davidson and the aging demographic that they depend upon. This is the first thing I've seen. Again, I don't follow it as closely as you, which is why you're in the studio for stuff like this. But this is the first thing I've seen to really drill down, going generation by generation. And I suppose, if you're looking for a silver lining, it lies with Generation X and Generation Y.

Barker: I think it highlights the fact that you're looking at, the story is reasonably low ceiling but a reasonably high floor. You have a very dedicated consumer base for Harley. The people who buy Harley are big fans, as we've pointed out here and others pointed out before us. There aren't that many companies where people get the company's logo tattooed onto them in great numbers. Harley has that, and it has a place in America which is very secure, and that's a positive and a negative. They produce their motorcycles here, and their customers expect them to continue to do that, which gives them the inside track on a certain amount of patriotism. But that also makes it a very American thing abroad, which is attractive to a certain number of consumers, but they're produced here. And you can produce things, so I'm told, cheaper in other parts of the world at times than here. 

Hill: I've heard that.

Barker: So Harley is kind of locked in to producing things which are more costly to do so here, but create a more stable base. And the generations, as this report points out, and it's not the first to point out, but I think it probably does a better job than some of breaking down the exact numbers, of what the challenge is for the company. I think they have said in the past that they need to create 2 million new customers over the next few years.

Hill: That seems high.

Barker: It does seem high for a company that has not really created new customers over the last 10 years. Their sales over the last 12 months are right where they were 10 years ago.

Hill: Yeah, that really seems high and ambitious.

Barker: Yes.

Hill: Do you think there is a silver lining, in terms of our generation, and the one right after ours?

Barker: Which generation are we?

Hill: I believe we're Generation X, although you're older than I am. Are you technically a boomer? Are you part of the problem here?

Barker: No, I just missed that, thank God. Yeah, there's always some hope. Where they can make in roads are more women riders, and international has been, generally, a bright spot for them, although that tends to come and go as the dollar moves around. Then, the next generation is the biggest challenge. They've got the older baby boomer generation, which is helping, to a degree, as they retire and choose to spend money on that. I don't think they're in the same crosshairs for the autonomous-vehicle experience that other carmakers might be. That's probably neither a challenge nor an opportunity to the same degree that it is for the carmakers.

Hill: Let's move on to media. Senior executives at Time Incorporated recently met to discuss a potential rebranding of the company that could include changing the corporate name. Time Incorporated has brands under the umbrella, including, obviously, Time magazine, Sports Illustrated, People magazine, Fortune. I suppose if there's good news here ... look. This is a really well-known brand; this is an established brand. When I saw this headline, I winced and thought to myself, "Don't do that. Just don't do that." On the other hand, as we've talked about before, the bar is pretty low in terms of rebranding media properties. If you just look at recent history, which includes such winners as --

Barker: I know where you're going.

Hill: Tronc, Oath, and Qwikster, I feel like the brain trust at Time Incorporated, if they're going to attempt to rebrand, I feel like they can beat that. Although maybe not. Who knows? It's going to be tough to beat Tronc, though.

Barker: There's a mismatch of the strength and quality of the brand with where their audience is and where they want to go. That is, you and I remember Time -- although when's the last time you bought an issue?

Hill: I actually have Time delivered to my home, because I think it was one of those, "You have some airline miles that are going to expire; would you like a free magazine? Would you like to trade them in for a magazine?" And I said sure.

Barker: Yeah. OK, so you're a new subscriber over the last decade.

Hill: Yes. If, by subscriber, you mean that I've traded in airline points for it.

Barker: Well, you could have traded them in for something else.

Hill: It was pretty slim pickings. [laughs] 

Barker: So it cleared a very low bar in your mind.

Hill: Yes.

Barker: All right. But, we know what it is, and we know the greatness that it had in American media in generations past, which it no longer really does.

Hill: I would say the same about Sports Illustrated. Those four brands as media properties -- People, Fortune -- there is value there. And unfortunately for the people at Time Incorporated, the name Fortune Brands is already taken. 

Barker: Yeah. They want to go into more of an online presence. But they have a lot of positive names under the umbrella, things which connote more hope than Time, which is somewhat neutral, I think. Between Sports Illustrated, Travel + Leisure, Food & Wine, Fortune, these are all things that sounds great, don't they?

Hill: Yeah.

Barker: Let's pick from those. Time is good and bad. Nothing more valuable than Time, really. But also, it's your enemy. I mean, it's a whole existential thing for their brand. They just take it offline and go with something ridiculous like Tronc, and then people don't know what they're up to.

Hill: Do you think they should just bag this idea altogether?

Barker: Which idea?

Hill: The idea of rebranding the corporate company? Because they're not talking about "We need to change the name of Sports Illustrated." Nobody is that dumb, thankfully.

Barker: There are people that dumb.

Hill: [laughs] Well, they don't appear to occupy executive positions at Time Incorporated. But I don't know. I look at this and think, if you're looking to reinvigorate your brands, I feel like they can do more harm than good with this one. Witness: Tronc, Oath, and Qwikster.

Barker: And yet they keep doing it. What evidence do we have, other than mockery, that this is hurting the companies? That Tronc would be having more sales with the Tribune Media than as Tronc? You're not one of the kids that they're aiming for.

Hill: No, I'm not.

Barker: They're don't care about you and your money. You're not online. You're not that hip.

Hill: I'm online.

Barker: You don't know about watching videos online like the kids.

Hill: Yeah, that's true.

Barker: That's what they're after, somebody who's 20, 30, 40 years younger than you. 

Hill: Again, I think they're setting themselves up for a mistake here.

Barker: All right. We'll see.

Hill: We'll have to see how it plays out. You can follow us on Twitter, assuming anyone is still actually listening. @MarketFoolery is our Twitter handle. Question on Twitter from @wallyzman, who included a link to a story and asked, "Do you think Best Buy is going the way of [Sears Holdings] because of this?" The "this" referred to the link he included which was a story on Recode about how Amazon is quietly putting together its own version of the Geek Squad.

You and I went back and forth on this topic yesterday. I almost look at this as two separate things, because one of them is, how do you think Best Buy is going to deal with Amazon putting together their own Geek Squad? Then, separate from that is, is Best Buy going the way of Sears? And to that second question, I would say a resounding no, because I look at how Sears has been managed over the last five years with Eddie Lampert at the helm, and how Best Buy has been managed over the last five years since Hubert Joly took over. Joly and his team have done an amazing turnaround job with Best Buy. If Eddie Lampert got put in the corner office of Best Buy five years ago instead of Joly, I think Best Buy would be right where Sears is now, which is on death's door. Just look at the stock prices.

Barker: So you're going ad hominem in your analysis of this, that it's the CEOs that make a difference on this.

Hill: I think if you're making up a list of the last five years, why has Best Buy succeeded and why his Sears failed, No. 1 on that list, for me, is who's running the company. Shares of Sears are down nearly 90% in the last five years, whereas Best Buy is up almost 150%.

Barker: OK. But I think more powerful than the intellect or abilities of the CEOs is what is happening in the retail space, and Amazon's effect on things. I think the same thing that's happening in Sears is happening to J.C. Penney; it's happening to Macy's. These are things which are no longer particularly needed, right?

Hill: For a lot of people, they are still needed, but it's a smaller number than it used to be.

Barker: Yeah. I think Best Buy mostly is in that category and may have superior management to stem the effect to a degree. But for the last 10 years, Best Buy hasn't grown sales. It's got the same level of sales today that it had 10 years ago, which is hardly. That went up a little bit, but sales are lower today than they were in 2011 by about 20%. And they're making a little bit more money off those sales. But earnings per share are basically in the same ballpark as they were seven, eight, nine years ago. What does the future look like?

We were talking about this the other day, yesterday. I'll challenge you. If you had to go with three retail brands, traditional retail, and you had to buy them and hold them for the next 10 years, and you're not allowed to change, maybe they'll get bought out by somebody so you can keep that money, but all of your money has to go into these three, what would you go with?

Hill: Wow, traditional retail.

Barker: Traditional retail.

Hill: So Amazon is not on this list.

Barker: No, the way I'm defining it.

Hill: See, if only I were a millennial --

Barker: See?

Hill: -- if I were in my 20s --

Barker: You're not young enough to claim that Amazon is traditional retail.

Hill: If you're young enough, you can. Boy, I would have to think about that, and that doesn't make for good audio. But I think Best Buy, because of the way it's been run, would be on the short list.

Barker: I'm going to let you return to this in a future episode.

Hill: OK. What did you in the brain trust at Fool Funds come up with?

Barker: We had to play it safe, pretty much came out with Wal-Mart, Costco, and Home Depot, things which have not yet been crushed.

Hill: Home Depot is probably No. 1 on my list, I would think.

Barker: In the sense that it's not been crushed yet, yeah, and it has performed the best over some relevant period of time. Of course, we're looking at it right now, although the housing market is very healthy. It's not always going to look as good as it does today. But what I like about Home Depot is it's not opening up any more stores. All the places whose growth strategy revolves around opening more stores, I look at now with great panic.

Hill: You seem pretty calm for someone with great panic.

Barker: Well ...

Hill: You don't have all your money in these stocks. [laughs] 

Barker: I've got my coffee with me. We'll get back to that.

Hill: The greatest possible news has come forth in the form of not one but two coffee studies, and their effects on long-term health. It is, dare I say, nothing but great news, including this little nugget. The first study, which was the largest of its kind, looked at the correlation between coffee drinking and mortality, among nearly half a million participants in 10 European countries. This is a 16-year study. This is not some fly-by-night study we're talking about here; this is incredibly comprehensive. Researchers found that men who drank three or more cups of coffee per day lowered their risk of death by 18% compared to those who didn't. So, three or more cups of coffee per day -- you and I totally qualify for that.

Barker: By 9 o'clock, often. 

Hill: Lowered their risk of death by 18%. The second study -- this to me is the icing on the cake. This was done in the United States. It found that over the same time frame, drinking one cup of coffee per day lowered the risk of death by 12%. Two or three cups lowered the risk by 18%. So, again, something that we have long suspected, hoped for, is now proven by science, which is, the more coffee you drink, the closer you get to immortality.

Barker: The greatest risk that you can take with your health is to not drink at least seven or eight cups of coffee a day.

Hill: I think that's right.

Barker: You look at those numbers and extend that out. They're only studying, how much?

Hill: I think they're going up to three.

Barker: Right. It stands to reason that eight or 10 or more cups of coffee a day will extend your life that much further.

Hill: If one cup goes 12%, and two to three lower your risk by 18%, you and I --

Barker: It's diminishing returns, but they still keep improving, is my argument. Get to that 50th cup, it's not helping that much, but a little bit.

Hill: OK, serious question. 

Barker: First time for everything.

Hill: At what point do you think coffee companies -- Starbucks, Dunkin' Brands, any publicly traded coffee entity -- at what point do you think they start pushing studies like this in their advertising?

Barker: I don't know, it's a bit like Qantas, isn't it? You don't know where I'm going with that, do you?

Hill: The Australian airline that has had no crashes, is that it?

Barker: That's right.

Hill: I only know that from the movie Rain Man.

Barker: Exactly. Why don't they promote that?

Hill: Because people think, "That streak is going to end at some point, and it'll probably be when I'm on the plane." 

Barker: Exactly. So the reason they don't do that, I think, is because if you're going to hang your hat on that, and some study comes out and you don't like the results, people start pointing fingers at you. I think it's good enough that there are no bad studies that I'm aware of, except if you have high blood pressure or hypertension, and that it's addictive. And they don't need to overdo it. If they start selling Starbucks as a health product, I think people are going to start pointing at the sugar stuff. Because it's not pristine, in Starbucks' case. There's too much sugar.

Hill: No. And that comes up in the article, like, "Look, any time you're adding in sugar, cream, syrups, that sort of thing --"

Barker: Gummy bears.

Hill: Gummy bears, whatever that unicorn Frappuccino thing, whatever that monstrosity was --

Barker: Reese's Pieces.

Hill: Yeah, that's obviously going to affect your health in other ways. But I don't know, I see what you're saying, and I agree with you that I don't think this is a mass-market consumer message that Starbucks would ever put out there. But somewhere, maybe when they're selling to businesses --

Barker: Just have your bot get that out there on their Twitter, just some account that you're vaguely associated with, the coffee industry, you support them and they push it out. I don't think, if you're Starbucks, you put your own hat on that.

Hill: OK, you have, the Coffee Growers of whatever Association -- you put it out through them?

Barker: Yeah.

Hill: I think that's probably a good move. For anyone who is listening and wondering, whatever happened to that episode a couple weeks back when you were casting the buddy-cop movie with CEOs? Here's what happened -- we got such an overwhelming response from listeners who emailed us and posted on Twitter and Facebook, we're still compiling all of them. At a future episode later this month, I promise we will review the winners, because as you do from time to time, you blithely offered up, "This will be a contest and we'll give out prizes."

Barker: I thought what happened is you went on vacation.

Hill: That's part of why we're still going through them. But there were a ton of responses, and some of the ones that I saw were brilliant.

Barker: You haven't shown me many. I've seen the ones on Twitter and Facebook. 

Hill: I'm going to hit you all at once.

Barker: Do you prefer that stuff gets emailed directly to you? Or that it goes onto Twitter or Facebook? Or what?

Hill: Any way the listeners want to interact, whether it's Twitter, Facebook, or emailing [email protected], it's all good. And anyone who did that qualifies for this contest.

Barker: If anybody could turn it into some sort of a video, they get two prizes. We talked about that once, having Wilford Brimley in as Tom Cruise for the Mission Impossible scene. And somebody photoshopped and did a brilliant job, and now that's the Twitter.

Hill: Yeah, that's the background on the Market Foolery Twitter account.

Barker: They went above and beyond.

Hill: There's a guy in Toronto who did that within a few hours of the episode being published. He listened to it, heard us talking about, "Could Wilford Brimley play Tom Cruise's roles and vice versa?" And I made the point, you don't want Wilford Brimley hanging off the side of an airplane, as Tom Cruise did in the last Mission: Impossible movie. And boom, it was a brilliant job.

Barker: So if you have the mad skills to put Jeff Bezos into a cop car along with whatever other CEO happens to pop in your mind right now ...

Hill: Yeah, if someone wants to --

Barker: Do a video of that. Two prizes.

Hill: Two prizes.

Barker: From Chris, very soon.

Hill: You can read more from Bill Barker and his colleagues. Go to foolfunds.com and sign up for Declarations. It's the free monthly newsletter from the Fool Funds team. That's foolfunds.com; sign up for Declarations. It's great stuff. Bill Barker, thank you for being here!

Barker: Thank you.

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!