Hi @Augi I stopped following the company for these reasons:
1.Being a discounted retailer,it has to constantly find/innovate ways to reduce prices than the competition.Here,the problem is costs cannot be cut after a certain level( or indefinitely).However,if you happen to buy a company with pricing power,it can always increase prices to match the inflation atleast.
2.In price sensitive industries like retail,price forms a larger portion of customer’s buying decision.And the stuffs that VGL is selling are non branded items which are like a commodities with no product differentiation.Here,the only way to survive is to sell the items cheaper than your competition.
It does not matter whether I buy the ruby stone or ipad case from VGL or QVC or JTV,all I care about is cheaper price.
World’s best retailers like Walmart,Home Depot are low cost producers because of the scale advantages they are enjoying.
3.A company can reduce costs by 2 ways: 1) Process innovation 2) Scale based cost advantages.
Let us look at the first one: If VGL finds a better process to source and manufacture the goods cheaply,the next logical step for the competition would be to copy or replicate the same process.What prevents competition from coping the same process that VGL follows? Unless VGL follows some proprietary process which cannot be replicated easily by the competition,process based competitive advantages are not very durable.It can certainly gives VGL an edge over others in the shorter term but that cannot last for longer.
In the case of scale based advantages,fixed costs should be greater than the variable cost for the operating leverage to come into play.For VGL,apart from broadcasting costs,there are not many fixed costs.
4.Problem with discounted retailing is the industry dynamics are extremely brutal.Take the case of VGL,first it was doing all it can to reduce the costs by sourcing in China,manufacturing in India,selling in hot retail markets like US,UK.Then one of their competitors introduced stretch pay.Initially Sunil Agarwal mentioned this is a not a long term viable strategy and this player cannot last for long.Now VGL is doing the same thing.
Tomorrow if somebody else comes up with some other ways to lure the customers,VGL has to accommodate that.On one end,there is a constant technology issues,other side competition,then this fashion trends which keep changing every year.
Then on the financial side,if the company starts paying taxes, declaring dividends and the exchange rate fluctuations..just too many variables to track.I decided this is not worth for 20% grower.So,I thought I would focus my energy somewhere better.
Having said all these,this stock may become a multibagger in the future.So,please take my views with a pinch of salt.
Like a great saying,when facts change I change my opinions.So,if you could convince me about its business models,i am always open to change my view.