In this episode of Industry Focus: Consumer Goods, Emily Flippen chats with Motley Fool contributor Asit Sharma about the impact of a possible COVID-19 vaccine and election results on consumer goods stocks and companies. While some industries that saw a positive impact from stay-at-home circumstances have experienced some pullback on vaccine news, others are yet to see any benefit from the news. Emily and Asit have lined up a whole range of industries to go through, including cruises, hotels, restaurants, entertainment, and much more.

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This video was recorded on Nov. 10, 2020.

Emily Flippen: Welcome to Industry Focus. I'm your host Emily Flippen, and today is Tuesday, Nov. 10, exactly a week after Election Day here in the United States. I'm joined by The Motley Fool's Asit Sharma to take a look at the impact that we expect on consumer goods stocks and industries, both as a result of the election, but more importantly, as a result of some of the really positive news that we received yesterday about the potential for a coronavirus vaccine. Asit, how are you doing?

Asit Sharma: Doing great, Emily. Just took a deep breath, because we have so much material to cover. I caught myself on that. I'm excited. And yourself? [laughs]

Flippen: We do. We have a motley collection of topics today. I know we're going to cover cruises, hotels, entertainment companies, restaurants, so many industries that are consumer goods industries and companies that are going to be heavily impacted based on the development of a COVID vaccine, so I'm looking forward to discussing it with you.

But I have to be honest. I want to start with the industry that means the most to me, individually, and it's probably going to give all of our listeners a little bit of a chuckle here, but of course, that's cruises. Nothing has changed for me over the past six months, I am still constantly checking cruise prices with no intent of getting on a cruise until I get a vaccine, of course. But with all of the enjoyment of cathartically looking at these vacations and trips that I'm unable to take, my assumption is that, and we saw it yesterday with a lot of the cruise price movements, that cruises do not get back in business until every person, every American, anybody who's getting on a cruise, is fully vaccinated. Is that a right assumption?

Sharma: You know, I think it's probably near as correct as we can say at this point. We don't know what the CDC will eventually say, what their posture will be like, I don't know, come March, April, May, June. But I think you're right in that, for cruises to take passengers now, there has to be a really high level of confidence that most the people going onboard either have had been vaccinated or at least will take a test, is the most that I can figure at this juncture. But I can see, as everyone who is watching the cruise lines yesterday, I can see that the big tidal wave of investors is very positive about the potential for a resumption of cruises next year. So, Emily, you might finally be able to take your trip.

And I want to say, the very first podcast we ever did together, it might have been a year ago at that point -- am I correct to remember that you hadn't been on a cruise and you're starting to look for cruises? Is that correct?

Flippen: [laughs] I was getting to that point in my career as a young adult where I was like, man! You know, normally I was taking these really crazy trips and going on vacations that would hardly count as vacation, which increasingly made the experience of a cruise sound that much more appealing. Just a week, no internet, you know, just lay down on a beach somewhere, on a cruise ship, have all the details figured out for you. That sounded really appealing to me. Of course, and then COVID immediately hit. I have clearly not been on a cruise since then. And I think it's safe to say that I won't be looking anytime soon now that the vacation backlog I have has prioritized me probably traveling elsewhere once it's safe. But I would imagine that for people who regularly go on cruises, they are the ones who are looking forward most to getting back on the cruise ships, and they are almost going to be the guinea pigs for what the post-COVID cruise industry could look like, because they are the people who are going to be the first to set sail, whether it's with the vaccine or if it's with testing and social distancing and mask orders in place.

The future is still, really, unknown for a lot of these companies, but despite that, stock prices yesterday, for all three of the major cruises, were incredible. You mentioned it earlier, but Carnival, Norwegian, and Royal Caribbean were all up nearly 30%, [laughs] 39% in the case of Carnival. And they've corrected a little bit today, naturally, [laughs] I think as expectations came back down, right? We're closer to a vaccine, but it's still not happening over the short term. but still it definitely is a little bit of the light at the end of the tunnel for not just cruise-investors but also cruise goers.

Sharma: For sure. And you know, you mentioned all these stocks are down today. They had to give back some percentage points, but I think I'm looking at, for example, Royal Caribbean, some notes that you shot me earlier this morning. It's down just about 4% today after a 29% pop yesterday. Carnival, as you mentioned, up 39% yesterday. Now, they decided to jump right in and came out, I think, with some news. I just saw that they're going to do another stock offering because they need liquidity, so they're down a little bit more than the others; down 12%. But all in all, I mean, if you take what probably will be the result of today's losses and net them with yesterday, it's a positive movement for these stocks, and I think it's easy to see why in some sense, because the only way for the cruise lines to get out of this rut is to be able to take passengers and get back on the seas. [laughs]

Flippen: [laughs] And as you alluded to, we're seeing a lot of movement from these cruise lines. And I know that we have lots of industries to cover, so I don't want to harp on it too much, but this is a really interesting note that you pointed out that I would like you to expand on more, that we've seen, as cruise lines have started to report earnings. And we have Norwegian reporting earnings after market close yesterday. But Royal Caribbean reported on October 29th, and one unique thing that they mentioned in their report was that they actually had negative revenue. Now, that's not earnings, negative revenue. Can you explain to me and to the listeners how that happens?

Sharma: Yeah, I know, this is like one of the funkiest things you'll ever see [laughs] on an income statement. You look at the topline, which is always positive, and it's negative, how in the world does that happen? Well, you know, companies are taking in money all the time in advance of earnings, and cruise lines do that as well. Now, not all of the money that a cruise line will take in advance, let's say, you or I, puts down deposit for a cruise, that really should be neutral to the income statement if we are due a refund, if a cruise gets canceled, but the cruise lines do recognize some amounts of revenue when they take on some deposits. There are certain types of deposits -- usually this is an onboard revenue, before you even get onboard. We never see this, because if a major cruise line is going to book, I don't know, $1 billion or $2 billion in revenue during a year, then those offsets in which they have to reverse out some portion of revenue that they recognize, we never see it, because they are minuscule, they're not really big numbers. But if you have zero [laughs] revenue coming in or just a little bit and then you have to reverse some of those entries that you've made, because you recognize them at the start is true revenue, not deferred revenue, but you actually call that stuff that you earned and you have to give that back, that creates a negative number, and that's what we saw, as you pointed out, on Royal Caribbean's latest report. I thought that was really funny.

Now, this is not a funny situation, these cruise lines [laughs] are losing a lot of money, jobs are at stake, so not laughing at them, I'm laughing with them.

Flippen: And to cover that a little bit more, I think if you're an investor in cruise lines and you're looking at the three major carriers and you're trying to differentiate them in your brain about what may set one apart from another. They move largely in tandem, so I'm not ready to say that one is going to be a great investment while the others will be terrible, but what is worth looking at, and keeping a closer eye on, is the refund rate that you're seeing from a lot of these cruise lines. The number of people who had bookings, whether it be for this year or early next year, are choosing to get a refund versus choosing to extend their booking out to some point in the future. Now, the cruise lines all offered different advantages to whether or not you get a refund, some of them are offering double points, whatever it may be, to not get your money [laughs] refunded back to you, but if you're wondering about the liquidity and what that could look like over the next few months for these businesses, definitely looking at that refund rate is critical. Right now, between the three major carriers, we're seeing that hover around 50% to 60%.

Sharma: And that's a huge number.

Flippen: Yeah. So, I kind of want to leave it off here, I had a couple of friends [laughs] message me yesterday saying, oh, I'm so excited, the Royal Caribbean I bought has finally paid off. And it's great, I'm happy for, if anybody made money off of that deal, but at the same time, the market has been incredibly on fire since the pandemic. So, I still personally believe that there are probably better places you could put your money as an investor.

That being said, when you look at the industry, before we move on, are you interested in cruise lines now, now that there is a vaccine really close on the horizon that has really strong efficacy, do you see that as an industry that maybe is now worth dipping your toes in, even after yesterday's pop?

Sharma: It's interesting, Emily, because I've been really skeptical on all the major cruise lines since the pandemic, simply because they had to do so much in the way of getting liquidity onto the books with note offerings, diluting shares with stock offerings, etc. And what we're running into now is that you've got a tax on your income statement, not your income tax [laughs] expense, but if you've borrowed a lot of money, you've got a lot of interest expense. So, I call that a tax against future earnings.

You may be operationally profitable, but a big chunk of that is going to get taken out when you finally get to net income, because you're paying interest on all the debt, and that squeezes out some of the other profit. So, yeah, maybe I'm getting a little interested in a shorter-term value play, because I do have a value component to my investing. But in terms of a really long-term play, they've lost a lot of luster for me. I think there are better places -- you mentioned one in our notes which we're going [laughs] to talk about, so I won't give that away. I'm not super enthused, surprisingly, I thought it would be, but these balance sheets, only a mother could love these balance sheets. So, I'm staying away for now. [laughs]

Flippen: [laughs] Oh! Well, let's talk about the hotel industry next. And I'm going to give a little bit of a personal story, because I painstakingly spent most of my morning this morning hunting down a hotel, I have an exam coming up the first week of December, and I wanted to do my best to quarantine after Thanksgiving to prevent any, sort of, spread heading into my exam. So, I had to leave my one-bedroom apartment here with my boyfriend to find a place to stay for a week. And I was pleasantly surprised about how cheap a lot of the hotel offerings were, not dirt cheap, right, [laughs] I'm not saving money by doing that, as opposed to paying rent, but cheaper than, obviously, what they would be if the pandemic were not happening. That kind of leads me to believe, based on the rates that I was seeing, a lot of these hotel chains are still going to be not necessarily producing net losses, but not nearly what they were doing in the years past.

Now, how is the hotel industry -- with my anecdotal total story out of the way here, right, it doesn't make me too excited, but you tell me, you're the expert, how does the hotel industry hold up during this? And how do you expect it will change as a result of a vaccine?

Sharma: I think the industry has held up pretty well. Interestingly enough -- so, one of the tickers that you and I wanted to talk about today, Marriott International, it and some competitors, like Hilton Worldwide, are hotel franchisors, so they've got properties that they own, but for the most part they are licensing their brand. So, what they did during the pandemic was just to work with hotel owners and say, look, we will cut you some slack on the fees and royalty payments that you need to pay us and we'll help you figure out how to maybe shave off some of your expenses. Let's do this together, because we don't want you to go out of business. You know, hotel, if you go out of business, that's our future revenue. I think they did a really good job of this.

And this is the industry that, I think, we were both saying before the show, is maybe preferable to cruise lines if you are looking for, sort of, a value investment. I like that you wanted to talk about Marriott, because they have been profitable. If you look at just this basis, so what does [laughs] profitability mean, it means the ability to make money off of whatever revenue stream that they have coming in. Now, they show net losses on their books.

But getting back to this idea of how you can be at least neutral during a pandemic, maybe that's a better way to say that. Marriott, surprisingly, they projected a cash burn of $85 million or so for each month of this most recent quarter that they reported on. Last quarter they projected that. But come to find out with this report, they were cash neutral, cash burn neutral. So, to me, that was a really good sign that the steps they've taken to reduce cost to be more efficient, to work with their property owners, all that's paying off.

And, Emily, you had mentioned one point that is really essential to note for people who aren't familiar with how the hotel industry is operating this year, they're seeing a lot of improvement in China, because China has, sort of, gotten the pandemic under control relative to other countries around the world. And that's a bright spot for them. So, I was impressed by that.

Flippen: Yeah, I felt the need to, kind of, talk about Marriott, because there were two silver linings I saw in this business that I'm not seeing with, say, cruise lines right now. And you mentioned the first, which is, they have an international business. And other countries are far further into this pandemic, in a good way, than we are here in the United States. So, the fact that they have so much of their business coming from places like China which are seeing a return to normalcy, kind of, risk mitigates in a way that we don't see with cruises right now, which are 100% dependent on vaccines for the most part.

But also, what they had in the last quarter, which they reported last week, a doubling of occupancy rates in North America. So, it's easy to double from whatever low rate they reported the quarter before, which is worth noting, but it's also worth noting that people are increasingly going back to hotels. I use myself as an example of somebody who is just driving to a hotel, but the need for that is going to steadily increase as people begin to start to travel and loosen up a little bit more. We see more willingness for people to make these decisions to travel and stay locally at a hotel in a safe manner as opposed to going on entertainment trips or cruises. That might continue throughout, say, the holidays, right? If you want to have a socially distanced holiday dinner with your family, maybe you get a hotel room for a period of time then you eat outside, whatever that looks like, I can see those being more immediate tailwinds for the hotel industry versus some of the other "cruise industries" or "COVID industries" that we're seeing.

Sharma: Yeah, absolutely. I mean, they are ready to receive travelers. And I think that there's going to be some resiliency in some of these stronger brands. In fact, I'll take just a minute, but this would be a really good place to talk about an interesting metric. In case you don't know, but you [laughs] like the hotel industry, RevPAR, Revenue Per Available Room, this is a key metric in the hotel industry, and it's made up of two components, so occupancy, which you're talking about, Emily, and average daily rate.

So, you've been looking at hotel rooms for your exam that's coming up. What is so cool about Marriott is that they really held the line on their discounts during this whole pandemic. Now, that's still a great discount. If you want to stay at a nice property in that really big panoply of brands Marriott has, you can still get rooms that are 20% to 25% off what they were pre-pandemic, but no more than that, they haven't had like these big fireside sales.

So, they watched their occupancy drift down to, like, [laughs] low double-digits or high single-digits in some markets, but they decided, look, let's just keep a little bit of promotional discount going, so that when that occupancy starts to come back, we can make money. And that was such a smart decision, because now if we do have a vaccine and people start to travel more, as you point out, and business travel picks up, most importantly, they'll have a lot of resiliency in that RevPAR metric and investors will see that climbing, and I think that they will jump back into the stock, which actually, just ballparking, I think it's only down about 20% this year, Emily, versus [laughs] like, 16% and 70% for those cruise lines.

Flippen: [laughs] So, it's like, only 20%?

Sharma: [laughs] Yeah, I know, right?

Flippen: So, in the second half of the show, I know we're going to talk about some of the consumer goods industries that have really benefited from tailwinds of the pandemic that we saw pull back yesterday on the vaccine news. But before we do that, I want to talk about one more industry that has, depending on where you look, been hammered as a result of the pandemic, and that's restaurants. And it's purposely vague, because as you well know, Asit, restaurants can be fast food, fast-casual, sit-down dining, local mom-and-pop shops, every single one of them has had a different experience. And then even within those groups, some have adapted and changed differently than others, which has led to a very uneven experience for the restaurant industry.

But regardless, I think we can all agree, having a return to normalcy for this industry would be very beneficial, and we didn't see a ton of movement yesterday in a lot of these big names, I think the only one that you noted down here may have been Darden Restaurants, which had a, yeah, 18% bump yesterday. Which is the owner of Olive Garden, [LongHorn Steakhouse], those sorts of businesses. With the exception of that, though, we didn't see a lot of movement.

So, when you look out over the horizon of, you know, say, I'll be giving here, say it's March, [laughs] and we're all getting our vaccines and returning to whatever normal life looks like for us. What do you see consumption looks like on a restaurant level?

Sharma: It's interesting, Emily, because, you know, you shouldn't do this, but I do this all the time -- I drive by my local Chipotle and I look to see, because it's got that glass front, how long the lines are. You shouldn't make your investment decisions based on that kind of stuff, [laughs] but I do it all the time. And the lines have been so short during the pandemic, but I do see them doing a good pickup business. That's a great example.

You mentioned Dunkin' in our prep for this show. Dunkin' is another great example of a company that sped up drive-thru and had people come into the store just to pick up stuff and go out. I thought these companies, which show a big bounce, because there's a real marginal benefit for people coming back into restaurants, it's going to mean something to the Dunkin's, the Chipotles, the Starbucks of the world.

So, what that's telling us is that, and I think, and I'd love your opinion on this, I think it's telling us that investors gave these companies a lot of credit, and they've done well relative to other restaurants during the pandemic. So, maybe it's not the most exciting thing that Chipotle's in-store traffic is going to increase, because they've done such a great job of switching gears and having people order online, pick up. I know from my personal experience it's really streamlined. I pay online, I walk in, they've got my stuff in a bag with my name on it, I walk right out.

The other thing I will say, though, is that this pop we saw in Darden Restaurants -- so, for those of you who don't know, Darden owns a lot of bellwether brands, like the Olive Garden, let me see, Cheddar's Scratch Kitchen, I think you mentioned LongHorn Steakhouse, the Yard House, Bahama Breeze, lots of full-service restaurants that are chains that you might know, but just not realize they're all huddled up under this one publicly traded company. That is good news for these types of restaurants, because that is showing that investors are reasonably optimistic that the bigger chains are going to make it. We've seen so many small mom-and-pop restaurants go out of business, and that's really depressing during the pandemic, but at least retail institutional investors yesterday gave these types of concepts a big endorsement, they're going to be around, they can last till March, they've got enough liquidity on their books.

But, Emily, what did you think of that? Were you looking for a bigger bounce out of some of these really well-known restaurants and beverage names like Starbucks, Dunkin's, etc.?

Flippen: I actually was. And apparently, I'm full of anecdotal stories today, but I can't help myself here. After I was stressed trying to find a hotel room, I promptly ate my feelings as one does. And because during the pandemic I had downloaded the Chipotle app on my phone, I gave into temptation much easier. I picked myself up a Chipotle bowl, I'm holding it up for you to see over our Zoom meeting right now. I literally have it in my hands. I promptly ate it all before taping this podcast. And it's something that, had this been [laughs] eight or nine months ago, I would not have done, I would have eaten what was in my house, but because of the ease of access of the app here on my phone, I justify that purchase much easier.

Now, to me, that says there are a lot of people out there who are now accustomed to interacting with their favorite chains in a much easier manner, right? They have your credit card information on the app, maybe you're on a web browser and you go to GrubHub more often and you order on there way more often than you used to.

When we have a vaccine, we're going back into stores again, in my opinion, you're less likely to go to an Olive Garden, to go to Steakhouse, maybe not, maybe I'm understating it, but I would think that that would almost be more of an existential threat to sit-down restaurants, just the ease of access that people are engaging with fast casual restaurants. I have to wonder how much people will go back to eating in stores in comparison to picking up, to getting delivery or even cooking in their houses, all of which using pick up during this pandemic. I think it goes further from where it is today, I think more people, obviously, go in, but do I think it gets to pre-pandemic levels, I'm actually not sure, I'm not sold on it.

Sharma: Yeah. You know, I personally think we're going to rediscover our love of seeing our friends in restaurants, but having done this so much, now who knows, like, 50% of time, you might just say, it's so easy, and we've been doing this, let's just order and we'll pick it up or have it delivered. And so, I think maybe the business models will change a little bit so that new restaurant concepts that we see in the future are geared more toward a little bit less seating space and just a more robust ability to service orders that are takeout or delivery. So, I do think that some of this we're not turning back from; an exciting new world. But one thing I can say is, we'll still be eating, and we'll still be eating out [laughs] on accession.

Flippen: [laughs] That's definitely. I know, if anybody is like myself, they will constantly be eating more and more, and whether that's Chipotle or Darden, obviously, vaccines are a tailwind, right?

Sharma: Almost have to say, "wake up, Emily," in a few minutes, because it looks like that lunch is going to hit you probably in the next 5 or 10 minutes, but we'll keep going. [laughs]

Flippen: [laughs] It really is. I'm hoping to wrap it up here before I hit the pillow after this. It was a sizable Chipotle bowl; I will not lie.

But as I mentioned a few minutes ago, I want to talk about companies or industries, I should say, that have seen a big boon as a result of the pandemic, that are consumer goods industries that promptly pulled back yesterday. We saw a lot of tech high-flyers -- companies that we'd call our stay-at-home pandemic basket, companies like Zoom or DocuSign, big tech software companies, they all came back down to earth yesterday after sky-high valuations.

But I think you can say the same, not to the same extent, but to some extent the same is true for a lot of these back-to-life COVID stocks. I'm thinking Walmart, Target, you know, Instacart is private, but the Instacart-like businesses that saw huge demand for their services purely as a result of the pandemic. My instincts say that I think a lot of people go back to shopping in-person after this. But I realize that's kind of hypocritical after my commentary on the restaurant industry, [laughs] what do you think?

Sharma: Well, it's a different experience because you're going out and getting groceries, but I think the same. I mean, I think that some of these companies -- I'm a big Costco fan -- I think they're going to grab some advantage going forward out of this and just parlay that into future business. I think Costco did a really wonderful job of, as best as it could, getting products that its customers wanted, having stores open, clean and really configuring service. So, I think they're going to win some loyalty there, but levels will drop back.

Target, I don't know, that's a big question mark. I mean, they just killed it on the digital front during the pandemic. If there's one company that really grabbed market share and did it in a big way out of all these that we're talking about, it was Target, because they were just ready, they had been not planning for a pandemic but, you know, making crucial decisions, like, let's service our digital orders through stores, which worked out well for them. I think that they will have some market share going forward.

And some of these others, yeah, it's time to come back down to earth, come back to reality, back to life, back to reality. For those of you, of a certain age, who remember that soul song. I think this is way back from the [laughs] 1990s now, but that's the theme here, you know, you wake up and it's sort of back to business. The Kimberly Clarks of the world, I mean, they're like the Cinderellas in this story, they had a pop earlier this year, they're already coming back down to where they were pre-pandemic, if you're looking at stock price. So, I agree with you there for sure.

Flippen: Let's talk about Target a little bit deeper, because I can't not mention the deal that we saw come out today with Target and Ulta, and Ulta being the beauty supply company known for their makeup, for anybody out there who's a customer. They came out and announced an agreement, a partnership with Target, where those are going to start, I believe, with 100 stores and put tiny Ulta stores inside Target locations. Not dissimilar to what we saw happen with, say, a J.C. Penney and a Sephora, except for, obviously, [laughs] probably a better deal for both Ulta and Target, given Target's strong foot traffic, excuse me, into their stores.

It seems like a really exciting partnership, it seems to allude to just what you were mentioning earlier, the strategy that Target has taken over the past few months, that's going to set them apart in my opinion from other companies that may see a pullback as a result of having a vaccine, because Target is deepening their relationship with customers. They're not just getting customers because it's convenient and pretending like they've done something amazing; they're actually finding ways to keep and retain the customers that they've gotten. And this deal with Ulta just seems like one of the ways that they're going to do that.

Sharma: It's a win-win. I really liked this deal. I mean, this is like when you're getting ready to go out with your friends, not that I have done this personally, but you're putting on a little bit of makeup, and then you want to put just some glitter on, you just want to put that extra thing on and go out and have a fun night. This deal is like that for me.

What better thing for Ulta, which you know there's two big models in the beauty industry, there's the Estee Lauder model, which is we're going to make really great products and get them into stores, and there's the Ulta model, we're going to put our own frickin' stores out there and beat your model. And for years, Ulta was really the star, and then of course, the pandemic hit and they had a little bit of slowdown before that, but this lets them execute their strategy without the real estate risk. I mean, they're putting essentially popup stores in Target, which is, we're just talking about how hot Target has become [laughs] during independence. Who would have thought -- I'm sure we're going to be hearing within a matter of months people refer again to it as Tarjay after this deal, which was a lame joke the first time I heard it, but it's become a little bit of a fancier place now, and will draw in another demographic. So, it works for both companies.

I haven't seen Target's stock price today; I think I saw Ulta's and it was up earlier. So, yeah, kudos to this deal.

Flippen: I'm still getting a chuckle, because while our listeners in podcast form can't see you, I can see you. And our viewers over Motley Fool Live, where we tape this, can see you. And ask you to talk about getting ready for your nice night out, putting that extra little glitter on, I had a nice visual representation of you, there we go, [laughs] of what you look like during that process. Maybe at some point we'll have the opportunity to go out and put a little glitter on.

Sharma: Exactly. What I'm really trying to say here is that the glitter experience is a unisex experience, anyone should be able to put on some glitter when they want and go out and enjoy themselves. But I hear it's not that environmentally friendly, I think my wife told me that some time ago, anyway.

Flippen: [laughs] That also sounds about right.

Sharma: [laughs] Yeah. Absolutely.

Flippen: Well, I want one last comment here before we can move on to talk about some of the entertainment companies, our last industry here for today's episode, I want to talk about what sets some of these pantry stockers, the Target, Walmart, Costcos, out from our niche retailers. And we talked a lot about these companies on the podcast in the past. So, we won't spend another episode talking your ear off about them, but this is like the Tractor Supply Co, the Ollie's, the Dick's, and I'll throw out Etsy out there, these retailers which have just done an amazing job of gaining customer count and traction as a result of the pandemic. I think where I draw my mental line in determining who is a long-term winner versus who is a long-term loser is, what are these businesses doing to make sure that you revisit their site when you suddenly have the option to go elsewhere again.

And in the case of the Etsys, despite yesterday's pullback, once they have your credit card information, once you're set up on the platform, whether you're a buyer or a seller, and you've gotten over that initial hurdle of just finding yourself on Etsy.com, I think they do a great job of retaining you as a customer. They have emails, right, you're constantly reminded. With the holiday season coming up, especially, I think they're going to get a lot of customers as a result of the pandemic.

I'm kind of questionable about what you have labeled in our outline here as discount retailers, these are the businesses that I wonder if they know their customer well enough to get them to retain at the same rates that Target, Etsy, Costco, and Walmart may.

Sharma: Yeah, I agree with you. Well, just a quick comment on Etsy. I too think that the selling we saw in the stock yesterday, maybe it's partly due to just how well the stock has done this year. So, some people always take profits off the table when there's a sign of trouble, but it's been a really great platform, as you point out, for buyers. And it's really sticky, once you have that experience, it's easy to buy again, and you love searching for unique items, but also for new sellers on the platform, those who just came on for the first time to do math, they also realize how easy it is to sell things. And I think they'll stick around for a while.

As for those companies that are like the Ollie's and the Dollar Generals of the world, you know, what they compete on for the most part is price. And that is harder, that's harder when the economy picks up to keep those customers, those who shop religiously at Dollar General, if they see a boost in their personal incomes, they might take it one step up. So, they may be in for a little bit of tougher sledding, or at least not the kinds of stock gains that we've seen in the last year.

So, I've been a fan of these, I am an owner of Dollar General, I think it's a great dividend stock as well. I think it does well in all kinds of environments, but maybe some of the easiest stock price ascent is going to be in the rearview mirror in a few months, we'll see. I mean, all of these have pretty nice business models, it's just that they don't have another draw besides price, that's the main thing [laughs] that keeps people visiting them on such a regular basis.

Flippen: And circle back on Ollie's. I did a deep dive on this podcast with Dan Kline earlier this year, and neither of us had ever been into an Ollie's. There's an Ollie's on my commute to my Saturday morning bagel place, I drive pass it every day and I tell myself, I will go in there at some point when I deem it safe [laughs] to do so. I promise our listeners, I will go in there and we'll do an update episode on Ollie's, because it is a really unique business.

But without further ado, I already promised I wouldn't talk your ear off about Ollie's [laughs] and all these other retailers, so I won't.

Sharma: I'm restraining myself from jumping into Ollie's too. I actually did a deep dive, but it was here on Live with Auri Hughes. And we asked listeners, and they chimed in with a lot of comments on how those stores look. So, when you get to that, hopefully, I'll be with you and we'll trade notes [laughs] on Ollie's.

Flippen: [laughs] That sounds great. And before we sign off here, let's talk about entertainment companies. We can't do an Industry Focus Consumer Goods podcast about at least talking about Disney once. And I want to talk about Disney, you can also add Dave & Busters, really any sort of company where a large part of their business comes from gatherings of people, right. Those are the ones that, obviously, stand to gain a lot from this vaccine. And when you look at companies like Disney, how do you feel about their efforts? Do you think that a large part of their business really does depend on the vaccine like the market is pricing in or do you think it has a more differentiated business now, that even if we don't get a vaccine in 2020 or 2021 even, say, it's not till the second half of 2021, how badly is a company like Disney hurt?

Sharma: So, you know, we saw this year that Disney -- we saw the good and bad of that diversified business model, one that Disney managed to have a pretty good cash flow in some quarters, but then in other quarters we saw how much not having the parks open really hit the bottom-line and cash flow. So, for Disney, I think it is maybe the future is about leaning on streaming services and making that just a bigger component of the total top- and bottom-lines, because then they can really absorb the impact of a total shutdown; God forbid it should ever happen. So, Disney turned out to be that really strong bulwark company that we thought it was, but a little bit to a less degree, I think, than many investors expected. And the ride was really rocky.

I just want to quickly mention here. So, one of our colleagues, or my colleagues on the Fool.com's site, a really insightful writer who I admire in Consumer Goods, Jeremy Bowman, wrote an article last month, just pointing out that there is one activist-investor, Dan Loeb, who wants Disney to invest everything in streaming, he wants them to stop paying a dividend and pour billions into competing with Netflix. And people always talk about Disney's really big content catalog that stretches back decades, but Dan Loeb is all about, hey, go ahead and create new content and fight Netflix around the world, [laughs] because you can take his guys on.

I bring this up only to say that Disney still has a lot of potential to do much more in streaming then it has done already, so maybe in the future they will diversify that business model, shift it a little more toward the high margin side. But I guess, bottom-line, I'm curious, Emily, what your thoughts on Disney are? I think that they did OK during the whole pandemic, surprising to see how big an impact the parks had on their financials, but they got through it. What did you think watching all this over the last six months, this sort of, slow-motion train wreck with the resort, etc.?

Flippen: [laughs] Oh, no! See, now you've done it, Asit, you don't know what you've done, but you've done it, because like with so many companies, sometimes I have a little bit of a bone to pick with each of them. And I had Jim Gillies on a few weeks ago to talk about GameStop, I had a bone to pick with GameStop and I have a little bit of a bone to pick here with Disney now, particularly, about what you're saying about Dan Loeb and the move to streaming.

I am convinced that if Disney hadn't launched Disney+ last year, which in hindsight was the single-best timing they could have had for that streaming service, if they hadn't launched Disney+, they would have been much perceived by the market much worse off in this pandemic than they are right now. I think a lot of investors and a lot of people on Wall Street, especially, are focusing so much on the streaming business, which has obviously received a bump as the pandemic has raged on, but really would have received a similar bump had it not happened in the first place.

As that time has come on, we put so much focus on streaming that we seem to discount the entire part of Disney's business that is actually generating money. I think what's worth reiterating to investors is that their streaming businesses right now, as expected, generate no money, right, they're losing money on it. It's one of the worst loss-performing segments of their business. All of their operating income, virtually all of their operating income comes from parks and their events and to a lesser extent, and not entirely broken out, cruises and stores.

I like Disney because they have a differentiated business, and they have businesses that are highly profitable that can allow them to turn money into streaming. I am convinced that if Disney divested all of its other business, and they wouldn't do this, like Loeb wants, right? But if they stop paying a dividend, if they took all of their excess capital and invested it into streaming, you would turn a really highly profitable company into one that is increasingly less profitable, because streaming and the streaming wars right now are extremely expensive. Netflix has been doing this for how long without generating cash, right? I mean, this is a hard business to compete in. So, I think it's misguided to say that they should throw everything they have into streaming.

I think they're playing it smartly; I think they can find a way to scale streaming where it's beneficial to its core business, without throwing the core business away to pursue an unprofitable line. That's just my two cents, I'm not Dan Loeb, right, I'm not the CEO of Disney, whose name is escaping me right now, and there's a reason for that. But you ask my opinion, there's my bone, I had to pick it.

Sharma: I love it. You know, sometimes these activist-investors -- and oftentimes, they can be [laughs] dead wrong on a business proposition. And you know, the idea is that over time that does become, sort of, the really profitable part of the business, but you know, he's also calling for them to create content, and this is where the real expense starts to come in, as you're pointing out, that's where you can [laughs] start to lose money. The whole argument for Disney to get into this business is that it had that back catalogue. So, yeah, I'm a little skeptical of that, I find it interesting, especially, to tell them to dispense with what has been a really great reason to buy the stock for so many investors over the years, which is their dividend, such a cashflow rich business before the pandemic and generates a lot of free cash flow.

So, we should leave it at that, but I'm glad I was able to find a bone for you to pick, that was fun to listen to you go off on that idea. [laughs]

Flippen: [laughs] I feel so vindicated right now. I've overcome my Chipotle hump now, and I have renewed myself with an excess level of energy, so maybe that commentary obviously has allowed me to get through the rest of the day without taking a nap. [laughs]

Sharma: [laughs] Nice.

Flippen: [laughs] Well, Asit, thank you so much, as always, for your commentary. I mean, you put so much work into these podcasts, it's a ton of fun to chat with you, and I appreciate the time that you've taken to chat today.

Sharma: Thanks so much, and it was, as always, a lot of fun, Emily.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions or you just want to reach out to say, "Hi!" you can always shoot us an email at IndustryFocus@Fool.com or tweet at us @MFIndustryFocus.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for his work behind the screen today. For Asit Sharma, I'm Emily Flippen. Thanks for listening and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.