The Best One Yet - 🎃 “Halloween Inc.” — Spirit Halloween’s zombie retail. Microsoft’s house of brands. Costco’s Kirkland clothing.

Episode Date: October 16, 2023

Odds are you’re getting a costume from Spirit Halloween this week, at one of their 1,400 seasonal locations — But Spirit’s real estate operation follows a strict 3-part calculation.Microsoft just completed its biggest acquisition ever: $69B for video games — Microsoft’s “house of brands” is 2nd in value only to Apple’s “branded house”. And Costco makes more money selling clothing than Lululemon or Ralph Lauren do — And it’s all because Costco’s co-founder believes prices can be like a drug.$COST $MSFT $TGTSubscribe to our newsletter: tboypod.com/newsletterWant merch, a shoutout, or got TheBestFactYet? Go to: www.tboypod.comFollow The Best One Yet on Instagram, Twitter, and Tiktok: @tboypodAnd now watch us on Youtube Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. Welcome back. It is Monday, October 16th. And today's pod, it is the best one yet. It's a T-boy. Pumped, I get to do the show with you, Nick. Yeties, I can't wait for the rest of this one?

Jack, can you whip up the first story for us over there? The most important retail chain right now, and for the next two weeks, is Spirit Halloween. Yeties, how does Spirit sell $600 million of costumes in 60 days? The answer is zombies. Zombies. For our second story, it's Microsoft. They just completed their biggest acquisition ever, a $69 billion video game company.

Besties, Microsoft isn't a branded house. It's a house of brands. And our third and final story, you know it, it's Costco. They sell more clothing than Lulu Lemon, Levi's, or Ralph Lauren. Call up our buddy over at Kirkland because Costco thinks selling clothing is like a drug. But Yeties, before we hit that fantastic mix of stories. So excited to be on the mics with you, Jack. and a really perfect mix of stories.

Nick and I were heartbroken all of last week after the terrorist attacks on Israel. This stat says it all. More Jews have died in the last week than any week since the Holocaust. But Hamas's attack on Israel was sadly just the beginning. Yeah, the way to think of things right now, Yeti's, the pain of terrorism is now morphing into the pain of war. In just the last few days, one million Palestinians have been forced to flee their homes as the Israeli counterattack began.

So now, thousands of innocent, Palestinians are dying because Hamas's terror network is enmeshed throughout Gaza. Over the weekend, I felt like there was nothing we could do, except feel new, raw heartache for more innocent families. So here's what Jack and I did. We spent a lot of time talking over the weekend, and we realize there's one small thing that we wanted to do to start the week with you. We want to share with you our go-to sources for following the Israel-Hamas war.

And here's the reason. Jack and I are voracious readers of news. Like to do this show every day, we are just constantly consuming and eating up news. We've been doing shows for 12 years now. And in times of war and chaos, we do not get our news from social media. No, we don't. In these moments, Yetis, Jack and I go to our most trusted news institutions. We go to the institutions that are on the ground.

They've been doing it for decades. And they have access to the experts who know the nuance. We should share more context here, shouldn't we, Jack? It's easy to bash traditional news sources, right? now. But Nick and I actually trust them more than ever at this moment. So yeties, here's what we want to share with you. These are where we've been going every single day over the last week to stay informed on this conflict. When it comes to text, we go to the New York Times, the Wall Street Journal, NPR, and Reuters. Those are our core form. When it comes

to podcasting, we go to the New York Times daily right now. The Wednesday, October 11th episode was an incredibly informative place to start when it comes to this crisis. And then when it comes to video, we watch the PBS NewsHour. PBS NewsHour's full one hour episode every night on YouTube. It's free. It's easy to watch. It's on cable. It's on broadcast. It's a quality program. Now, we'd love to make the next 20 minutes a special part of your day. Let's make it the best one. Let's make it a tea boy. Jack. Let's hit our three stories. Fifteen years before this song, two boys from the Northeast met in the dorm. They had an idea that caused a cultural storm. It's the best one yet, but the best is an

50% that's a fat tip. Tea Boy City on your at list. If you know, you know, because we're ready to go. We can't wait no more. So just start the show. Start the show. For our first story, you just Googled Halloween costumes near me. Didn't you?

Didn't you? Yeah, you did. And what is that confirmed, Jack? It's Spirit Halloween season. Spirit Halloween is the biggest holiday brand because it follows a scary thesis. Yeties, check your watch. You're 15 days from my... Halloween trick-or-treating.

We're like halfway there. I'm kind of stressed. I'm kind of sweating right now, man. You're starting to feel costume pressure, aren't you? Yeah, you're feeling that freaky foamy, aren't you? You got outfit paralysis. Well, Yeti's one business with a uniquely freaky business model that only happens once a year.

It's Spirit Halloween. Odds are, you're going to buy a costume in the next two weeks from Spirit. This isn't a maybe. This is destiny. Because since their first store in 1983, Spirit Halloween oozes Halloween like a young Tim Burton. At Spirit Halloween, you can find a costume to become a sexy spreadsheet. You can find a costume to become a monster mutual fund.

Or the viral costume from this year, the Gabagoole. A Gabagoolegoo. They have a costume for that. Along with a bunch of mini kickats for the trick-or-treater. Let's talk about the numbers. Spirit Halloween has 1,400 locations every fall. Jack, could you sprinkle on some context for us over there? That's three times as many locations as Whole Foods.

That's two times as many locations as the Olive Garden. That's almost as many locations as $1,000. Target. Sit down, stand up, and check aisle six again. And they make $650 million a year in sales, but they're only open for 60 days a year. And how do they make that $650 million in sales, Jack? Nearly one out of five costumes purchased in America is purchased at Spirit Halloween. If you see someone walking around with a Sam Bankman-Fried head and a Barbie body, they bought it at Spirit Halloween. Now, the secret to Spirit's business model is what we're calling zombie retail because they turn dead stores into undead stores.

Yeti's Spirit Halloween isn't in the costume industry. Spirit Halloween is in the real estate industry. They only sell a product for two months out of the year. So what they do is they find abandoned stores for a short-term three-month rental. Yeah, dead stores, they make undead. They take one month to set up and then two months they spend selling Barbie and Ken costumes, and then they shut it down. That abandoned bedbath and beyond right off exit 12?

Well, Spirit takes it for three months. That old Forever 21 the landlord can't find a tenant for? Spirit takes it for three months. And here's my favorite part. Oh, we love this. Every year on November 1st, the day after Halloween, Spirit begins planning for next year. Jack, this is like the elves over up at Santa's North Pole.

The day after Christmas, Santa makes them start working for next year. And they love it. So, Jack, what's the takeaway for our buddies over at Spirit Halloween? Halloween isn't chaos. It's actually calculated. Yeties, Spirit Halloween stores are everywhere right now. Like there are two near Jack. There's one near me. One of them's like opening up in my shirt. They're everywhere. I live in Vermont and there's two of them within five miles of me. Can you believe that? There's a spirit within a spirit. Now, the business model appears chaotic. Like if you've been in there, the wig basket, it's chaotic. But actually, Spirit is anything but random. Because

Spirit will only open a store if it checks three key criteria. First, it must be for a three-month lease for over 5,000 square feet of retail. No exceptions. Second, that store must be in a community with at least 35,000 people in a three-mile radius. No exceptions. And third, this is the most important one for real estate. 25,000 cars must drive by the location every single day. We repeat, 25,000 cars must see the Spirit Halloween sign as a costume reminder. Spirit literally forces the landlord to count cars and prove to them that that many cars drive by. Because Spirit Halloween only has a limited time to get your attention if they're renting for three months. Spirit Halloween, it appears from the outside to be a chaotic business.

But its foundation is real estate and it follows a strict calculation. For our second story, against the odds, Microsoft just closed the biggest video game deal of all time. Microsoft, is doing the opposite of Apple, and it's working. And it's also official. Microsoft just closed the biggest video game deal ever. It's also Microsoft's biggest deal ever. Because Microsoft now owns Activision Blizzard. Microsoft dropped $69 billion on the biggest video game collection

outside of Japan and China. It took almost two years battling regulators in the United States and the United Kingdom, but Sachinadella announced on Thursday he had persevered. Yes, Microsoft's lawyers, defeated the FTC in court, and then they tweaked the deal to make the Brits happy to. The way they tweaked the deal was including a promise that they would not limit Call of Duty to Xbox only. Breathe easy, PlayStation owners, breathe easy. So from Call of Duty to Candy Crush, Microsoft now owns them off.

Microsoft is now the queen of the controller. Although the last video game Nick played, he had to blow into the cassette. I mean, I'm never going to apologize for a Game Boy, Jack. Never going to apologize. Yeties, here's what Jack and I found fascinating about this story. While we were preparing it over the weekend, we were looking at each other and we were like, can we take a moment here, please? Microsoft has become a diversified behemoth of consumer and business products.

Can we appreciate the depth of its diversity and behemothness for a moment? Microsoft is now a top video game company in the world. Microsoft owns Xbox, which means they now own the console and the games. And Microsoft owns half of OpenAI. the tech company behind ChatGPT. The largest artificial intelligence startup in the whole world. Remember last week? LinkedIn? Microsoft owns it, the sudden cool kid of social media.

Including LinkedIn's one billion registered users. And Microsoft owns Bing, the leading challenger to Google in Internet search. Oh, sorry, Eddie. Do you want more because Jack and I got more? What else we got, Jack? Microsoft Azure, the cloud computing business, brings in $50 billion a year in revenue. And of course, sales on classic Microsoft Word and accessibility. Sell, they're still growing by double digits.

PowerPoint is still a thing too. How do you like them apples, Clippy? But here's the interesting thing. Most of Microsoft's businesses don't include the word Microsoft. And that led to Jack and I thinking of an interesting takeaway. So Jack, what's the takeaway for our behemoth buddies over at Microsoft? Microsoft is the most valuable house of brands in the world. Yeties, Microsoft is the second most valuable company on Earth.

It's actually trailing only Apple. But Apple is a branded house. Everything Apple sells has the Apple logo right on it. On the other hand, Microsoft is a giant house of brands. Each of its businesses is its own distinct independent brand. Microsoft acquired LinkedIn and Activision Blizzard and is letting both of those brands continue to live on. Microsoft created Xbox. It helped create chat cheap.

And it's letting those brands also live on. That's why Microsoft's enormity might feel like a surprise. Microsoft is the brand. brand in the background you barely ever interact with. So besties, Apple, it's one branded house. And that strategy, it's working great for them. Microsoft isn't a branded house. It's a house of brands.

And that seems to be working pretty well for them too. Both strategies work. For our third and final story, we just learned that Costco sells a crazy amount of clothing, right Jack? Like more than Lulu Lemon sells clothing. A crazy amount of clothing. But they also make the least amount of clothing. least amount of profit of any clothing company we've ever seen.

Now, Yetis, earlier this week, Jack and I shared a best fact yet about cashews. Jack, do you want to share that fact over there, man? Apparently, half of the world's cashews are sold at Costco. So, Jack was so skeptical of this. We devoted like three hours to finding out if it was true. A book just published called The Love of Costco, and the author got elite access to the management. But that led us to discover even more about Costco.

A Wall Street Journal fashion writer is constantly getting comments from his readers that Costco's clothing is tops in fashion. So they jumped in T-boy style, and it turns out that Costco is one of the biggest fashion companies on the planet. From Kirkland Kroanex to Costco khakis, Costco does fashion. You want cargo shorts? They got like 12 different options over in aisle 6. Now, the core demographic who shops for clothing at Costco is 45 plus males who just want clothing that, and I quote, gets the job done. Like we said, six different types of cargoes. But Costco recently went viral on TikTok because Gen Z is wearing Kirkland hoodies too. Now, Nick and I can't speak to the quality of Costco clothing.

It's true. That's fair. But we can speak to the quantity of clothing. Okay, Yetis follow us here. Costco's clothing is only 5% of their business. It's actually less than 5%. 5% sound small, but 5% of Costco's business is still a huge business. Get this. Costco sells $9.1 billion.

a clothing every single year. Can I sprinkle on some context? I would love for you to, Jack. That is more clothing sales than Lulu Lemon. And more than Chanel. And more than Levi's jeans. And more than Ralph Lauren. And half of the gap.

And not as much as the gap. Perfectly put, Jack. Yeties, in times of inflation, $14. $1 Costco jeans and a $10 button down are a badge of honor. But Costco's clothing business gives us even more. They give us fascinating insight into the business of fashion. Here's what we learned, Yetis. The average fashion markup is actually 75%. So if a cute top cost Anthropology $100 to produce, Anthro is going to sell that cute top for $175.

What that means is that nearly half the price that you paid for that cute top is profit into Anthropology's pockets. But at Costco, the markup is much, much, much smaller. They have a company rule that markups may not be more than 14%. Not 75%, 14%. So if Costco pays $100, $100,000,000,000. So if Costco pays $100, much, much smaller, they have a company rule that markups, they have a company rule that. to produce that cute top, they're going to sell it for $114. Okay, now we have the two numbers. Jack, can you compare Anthropology to Costco then? What anthropology charges $17 for, Costco charges $114 for. So yet, he's add all this up.

And we just learned that first, Costco sells a shockingly large amount of clothing every year. And yet, it's choosing to make way less profit than all the clothing competition. Jack and I were confused. We also were curious, and then we found a takeover. So Jack, what's the takeaway for our buddies over at Costco? Thick margins are an addictive drug. That is an actual quote. Yet he's, Costco's founder is like kind of a crazy dude,

and he says some wild things like this. It's tempting to make another $7 a profit on a pair of pants, but once you do, it's like heroin. You can't stop. That's why Costco treats its pricing like a sacred ornament. And that's why Costco has discipline to never violate that hallowed margin. rule of 14% maximum. Now, Costco knows that getting a taste of richer profits would be a short-term

win for the whole business. But once it raises prices a little bit, it would do it again. And then it would probably do it again, and then it would raise prices again. And that would a road customer love, which is based on good quality at a good price. Costco will not increase their profit margins because they know they won't be able to stop. So Costco treats profit margins like an addictive drug. It won't even touch them. Jack, can you whip up the takeaways for us to kick off the week? It's Spirit Halloween season. Fourteen hundred locations are selling bumblebee costumes for the whole family. Spirit appears chaotic, but one real estate calculation is the key to its business.

For our second story, Microsoft closed its Activision Blizzard deal, defying attempts by regulators to block it. With Activision Blizzard, LinkedIn, Open AI, Xbox, and PowerPoint, Microsoft is the most valuable house of brands in the world. And our third and final story is Costco. They sell more clothing and apparel than major clothing brands like Lulu Lemon or Levi's. But Costco won't increase their profit margins because Costco treats margins like a drug. But Yetis, this pod's not over yet. Here's what else you need to know today. First, Delta's profits surged 60% this summer because you flew to a mall fee, not Epcot. While premium airlines like Delta are thriving, discount airlines are feeling tight wallets. And second, Chipotle just raised their prices again. That's their fourth price hike in two years.

People are not happy. The extra grok is now extra extra. And finally, for the first time in decades, new technology is coming to your recycling bin. And that tech is the QR code. Smart label QR codes are being adopted across the food and beverage industry so you can scan that bottle and figure out if it's recyclable or not. Because honestly, like, what are those numbers on the recycling even mean? Like, does anyone even know what's... The carton of almond milk. I still don't know if you can recycle that. Pizza box?

Compost. If it's clean, you can recycle. If it's not clean, I'm not sure. You don't sound that confident. Now, time for the best fact yet. This one sent in by legendary Yeti, Teres Melanchenko, from lovely Austin, Texas. We all know the superhero, the incredible Hulk. The big, green, musly guy.

We've all seen him. We all know him. Turns out, the Hulk was supposed to be gray, not green. He wasn't even supposed to be green in the first place. A printing issue in the first edition of the comic forced him to be green. So the Hulk was intended to be gray. He ended up being green when they just kind of left it that way. I think that's one of those fortunate mistakes.

Hulk, you never look better. Yeties, you all look fantastic right now. If there's one thing Jack and I are hoping for, it's that you can have an easier week than last week. Nick and I'll be here for every day of it. And first, we'll see you tomorrow. Can't wet. Before we go, a happy birthday to Kate Maasarechio.

who's celebrating that birthday in Brooklyn by running a half marathon, going to the Natural History Museum, and then taking a nap. Yeah, she's going to sleep after that. That's an epic day, though. And a happy birthday to Nathan Fara over in Bay City, Michigan. And happy 22nd birthday to Bobby McGuire down in Hopkington, Mass. Just as I'm Boston. And Douglas Lawson's got a new job and a birthday over in Seattle.

Congratulations. And Bon Compliano to Emma Pellegrino in Veraci, Italy. And a naughty Jane just got his ever. NBA from Anderson and is celebrating with a birthday in San Francisco. Congratulations to McGill Ramirez. Just got their first job in the Philippines. It's at Jollaby as a corporate manager. And Carrie Mannion's got a new job hanging out in San Mateo, California.

Congratulations to Michael Starkman. He got a shout-up from us for his engagement. Now he's running the Columbus Marathon. You got this, Michael. Hydrate, you got this. And Lisa and Tristan Clark, a couple of Sikwatt. They got a dog, some kids, and a brand new baby. Name of the baby, TBD.

They're taking a week to get to know them. If you know, you need a week to know. And to anyone else, celebrate something today. Make it a T-boy. Celebrate the wins. This is Jack. I own stock of Levi's and Nick and I both own stock of Apple, Lulu, Lemon, and Chipotle. Beautiful, and the gods of Xfinity blessed us.

The devils, actually. They spared us. They bless us. us. They spared us. That actually be a good costume, like an X-Pinity guy. He was just like, yeah, I went in it. That'd be really funny.