It’s that time of year again. Kids, there’s someone out there who’s going to bring you toys! Just fly into your backyard and drop off exactly what was on your wish list! And they don’t make ANY profits from doing it! It’s a company called Amazon (AMZN) .
In all seriousness, though, we here at Equities.com have recently received a copy of the following letter, sent from activist investor Ebenezer Scrooge detailing his concerns about his investment in Christmas, Inc. (XMAS) and its CEO Santa Claus. It makes for an interesting read given the season.
A Letter to the Shareholders of Christmas, Inc.
I write this letter based on my tremendous concern for the potential of any return on my initial investment in Christmas, Inc. I believe that this company’s management has failed to steer this business towards profitability in several key ways.
I would like to cite the following issues:
Lack of Transparency
It’s impossible to be all that sure about anything involving Santa’s business model. This is because of his complete lack of transparency. Not to go on a rant here, but rather than throw open the books on his operation, Santa continues to operate largely in the dark. I don’t know what our current share float is, where we source raw materials from, or even the precise location of our corporate headquarters.
This sort of lack of communication with shareholders is a serious concern, one that raises serious questions of malfeasance.
No Scalable Distribution Network
Santa Claus must have the capacity to deliver at least one toy to each of the world’s 2 billion children. Now, I can already hear you all shouting “NOT EVERYONE CELEBRATES CHRISTMAS!” However, that does not mean that Mr. Claus can ignore them in planning out his distribution outlays. Should a child, anywhere, have a sudden H-hour realization of the meaning of Christmas, our current model requires Mr. Claus be ready to accommodate them.
One look at the industry leaders should indicate where we’ve gone wrong. Wal-Mart (WMT) with its 8,500 locations in 15 different countries uses 158 distribution centers, 6,500 tractors, 55,000 trailers, and some 7,000 drivers to move its goods into the hands of consumers. We're running a single, reindeer-drawn sleigh out of a single location.
By insisting on running all our goods through a single distribution center thousands of miles from any major population base and inaccessible by sea during the crucial holiday season, Mr. Claus needlessly runs up our shipping costs. Expanding our operation by building new fulfillment centers could dramatically improve our operating margin.
What’s more, dramatic improvement could also come from highlighting certain remote areas with limited populations celebrating the holiday and dubbing them “Non-Christmas Regions.” By maintaining our current, vast network without consideration for where our customers are located, we unnecessarily increase costs. Simply cutting off children in areas where it’s inefficient for us to deliver (most of North Dakota, for instance) would help reduce operating expenses moving forward.
Lack of Cost-efficient Production Methods
The decision to continue manufacturing our product within the organization cannot be defended in today’s economic climate. The constantly changing world of toys requires our workforce to retrain themselves annually to master the creation of that year’s hot product. Something that grows harder and harder as tablets, smart phones, and other high tech offerings are more and more in demand.
The elves themselves also represent an unnecessary expense. Our labor costs grow each year because of the out-of-control pension liabilities and scheduled wage increases negotiated by the powerful elf unions. By outsourcing our manufacturing, we could pay pennies on the dollar for labor to get the same quality of product.
Potential Legal Liabilities in Outdated Delivery System
Our sizeable reindeer fleet exposes us to a potential PR nightmare should PETA ever get wind of the conditions in which they’re housed. Also, sending our corporate CEO out on a cold, dark night in a single sleigh that is loaded well over its capacity and features neither seatbelts nor airbags is a major risk. It opens us up to a wide variety of legal liabilities without any real benefit. The sleigh needs to be grounded without delay.
Boeing (BA) offers a variety of aircraft that would more than suit our needs. I anticipate that the cost of the airplanes and jet fuel would be more than offset by improving efficiency and eliminating harness expenditures.
Failure to Utilize Potential of Big Data
Our decision to rely entirely on Mr. Claus to perform all naughty/nice research is one that seriously damages the organization. This monopolizes the time of our CEO for 364 days out of the year, preventing him from addressing many of the other issues highlighted here. Also, the potential for abuse by placing this entire segment of our operation under the control of a single individual is considerable. Especially when the individual most capable of identifying naughty behavior is the one least like to blow the whistle.
Google (GOOG) has paved the way for collecting consumer data on a large scale, and we should leverage their expertise. Rather than dedicating the whole year to tracking the alternating sleeping/awake status of our entire customer network, we could hire Google to scan their emails and provide us with the naughty/nice data we rely on at a fraction of the cost.
Financials Remain Troubling
No area of concern, though, is as great as the one surrounding our financial statements, which, as noted above, show a frustrating lack of transparency.
Despite being a nationally recognized public figure and servicing hundreds of millions children each year, Santa has not reported any revenue in the history of this organization. This is unconscionable. What is he doing? GIVING the toys away?
I would also have to assume that licensing fees collected from Coca-Cola (KO) and appearance fees due from thousands of shopping malls and parades each year must add up. Given that these deals are only available to Mr. Claus because of the considerable work being done by the rest of the organization, I would not consider it ethical for Mr. Claus to keep these monies as personal income rather than revenue for Christmas, Inc.
Company Shows Potential Despite Concerns
While I am seriously concerned about the present direction the company is headed in, I can also see its potential. This is a massive, vertically integrated organization operating on a global scale and serving a key demographic. It’s with this in mind that I have to insist that we call for a change in leadership. Mr. Claus and his cronies on the Board of Directors, most notably the Easter Bunny and Tooth Fairy (whose continued presence after last year’s revelation of an extramarital affair with Mr. Claus is itself a major concern), should all be removed as soon as possible.
Christmas is a little over a week away, and I believe that we can, and should, do better. Thank you.
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