Then why should I (or my 401K provider) put my money in Joanns?
And this is why companies get sold to PE - traditional investors are investing to make money. If an asset isn't making money (eg. Joann's), you invest elsewhere (eg. Alphabet).
And if you're on HN, you probably have a 401K or IRA and are also enabling this, so cut the "holier than thou" BS.
Why would that be the hypothetical? The people that made Joann are the ones who decided to make it a publicly listed business, all the way back in 1969.
>Call me old-fashioned, but maybe craft stores don't need infinite double-digit growth.
Craft stores don't need double digit growth (returns is more accurate than growth), but Joann did because Joann's owners decided they wanted to try to expand their business, and probably their own wealth, and so they tapped the public equity markets.
People seem to be upset that business owners desire to bet for bigger returns, but isn't that the business owners' right? A lot of times, it doesn't work out, or it eventually doesn't work out. But what is the alternative?
State ownership of business or heavy restrictions on the ability of owners to sell, dissolve, for take risks with business they own.
I don't agree, but that seems like the clear alternative.
Some people might propose preventing debt backed private equity firms from defrauding investors, but those laws are already on the books. The banks that fund buyouts and sometimes get left holding the bag absolutely know the risks and have well funded legal teams capable of protecting them.
Consumers don't get a say because they are not actual equity owners things like securing access to yarn or all you can eat shrimp do not supersede property rights in the view of the government.
Until they either collapse (LGFVs in China) or severely degrade in user quality (Air India), and it's the taxpayers on the hook.
> heavy restrictions on the ability of owners to sell, dissolve, for take risks with business they own
Then there's no incentive to start or scale a business, for example why business incorporation in Switzerland is preferred over France despite similar/same culture, but easier ability to incorporate, sell, or shut down businesses
> Consumers don't get a say because they are not actual equity owners things like securing access to yarn or all you can eat shrimp do not supersede property rights in the view of the government
I can still go to Michael's, Hobby Lobby, or my local crafts shop to buy the same products.
This should be clear from my post, but you are preaching to the choir. In my opinion, if someone wants to gut their business, that is their choice. If someone doesn't like the options, they should start a competitor.
basing a system on the idea that consumers shouldn't have to shop or businesses can never fail leads to all sorts perverse outcomes.
As a reminder, the question was “why does a craft store need double-digit growth?” And the answer is “it doesn’t, until the owners make a big enough bet that it’s unrecoverable if they fail”.
I fundamentally agree that companies don't need to grow. They do however need to have returns.
Companies need returns to justify their continued existence to owners.
Growth comes into the picture because if someone thinks growth is possible, they are willing to pay more for it then an owner thinks it's worth.
This is an extremely common PE situation, where a management firm and Banks think more profit could be generated then the current owner. Then they offer more money than the owner thinks it's worth and try their luck. Sometimes it works out, and sometimes it doesn't.
The other common case is when PE act a buyer of last resort. If someone doesn't want to run a business anymore, they look for a buyer.
1. Smaller Inventory - reduces supply chain complexity along with the need for full fledged ERP integrations
2. Leasing storefronts - Retail Chains and Big Box brands tend to try to take ownership of the property the store is located on, because at their scale it can have potential savings benefits in the medium-to-long term
3. Family as employees - this reduces the impact of salaries, because profit, customer experience, and employee performance are all directly aligned with each other
4. Relationship-based Sales - your local business will maintain relationships with other local businesses, and be flexible with their own needs as well. That boutique's payment is delayed? No big deal, we'll sell you fabric on credit and you can pay us back when you are able to.
5. Smaller scale - you don't need a $100m influx of capital if you are a single or couple local stores. Mo money, mo problems (and a major reason why several unicorns have stayed private over an extended period even before the IPO window shut)
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There are plenty of difficulties when managing a small business as well, but they are different from those that a Joann's might face.
It must be possible to manage a company in a sustainable way where constant influx of capital is not necessary. In fact the vast majority of companies must be run that way because they don’t have access to large amounts of capital, no?
> It must be possible to manage a company in a sustainable way where constant influx of capital is not necessary
It absolutely is! It's called being "Free Cash Flow" (FCF) Positive - ie a business generates more cash from operations compared to capital expenditures.
Sadly, not all businesses can become FCF Positive - especially if they are heavily leveraged, have significant liabilities, or don't care for optimizing for FCF at the expense of expanding market share or growth.
FCF Positive has become the primary indicator for business health over the past 2-3 years, whereas before the primary metric was market share growth, but it is very difficult to retool or drastically change a business.
More fundamentally, a company like Joann's is dealing with a relatively crowded market (Michaels, Hobby Lobby, resurgence of boutique craft shops), and something has to let go.
Even if you don’t have a 401k or IRA or otherwise personal investment in the market, everyone is exposed via tax liabilities of their city/county/state’s taxpayer funded defined benefit pension plans…which are invested in the private equity funds that everyone loves to gripe about.
The person you replied to mentioned double digit growth and they're right. Not everything has to have hyper growth. If, as an investor, you want hyper growth, there are entities that can give you that. But even _some_ growth still means your 401(k) is growing and that 401(k) is supposed to grow for you for decades, compounding, not return you 50% next year so you can buy a new jetski.
Technically, if you use SP500 as a benchmark, you do need double digit growth. Why would I invest in a business without the prospects of additional returns, especially when SP500 is nearly risk free?
Why should I invest in my own business if I am not going to get at least what SP500 does? Other than buying myself a job.
You seem to be getting personally offended by someone suggesting an established crafts store doesn't need to be positioned as a financial asset – you might be projecting a bit with the "holier than though" comment.
It was big box stores like Joann's that ruined craft stores and killed Main Street by leveraging economies of scale and real estate speculation to undermine local players.
I'm not shedding a tear for a badly managed big box chain now that local boutique shops now have greater breathing room.
Is the purpose of a store to sell goods to people or to make it so you can retire after sucking it dry?
For what it's worth, I do have a 401(k), I AM holier than thee, and I don't think we should cannibalize every last business on earth and sell its organs in an alley in the name of economic growth. But those decisions are above my pay grade.
And this is why companies get sold to PE - traditional investors are investing to make money. If an asset isn't making money (eg. Joann's), you invest elsewhere (eg. Alphabet).
And if you're on HN, you probably have a 401K or IRA and are also enabling this, so cut the "holier than thou" BS.