The Prof G Pod with Scott Galloway - Office Hours: On Running, Expanding College Admissions, and How Banks Can Boost Their Brands
Episode Date: October 25, 2021Scott answers a question about whether On Running is a good long-term investment after its recent IPO. He then shares his thoughts on how legacy banks can keep up in an increasingly digitized financia...l system, and why universities with big brands need to let in more students, not fewer. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices
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Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your
questions about business, big tech, entrepreneurship, and whatever else is on your mind.
If you'd like to submit a question, please visit officehours.profgmedia.com.
Again, that's officehours.profgmedia.com.
First question.
Hey, good morning, Prof G.
My name is Perry.
I'm a database developer with a major telecom provider in New Jersey.
My question for you is regarding OnRunning's recent IPO.
I personally wear the sneakers. I think they're great for performance. They're comfortable, they're stylish, and they have a premium price point. I'm just curious if minutes outside their store in Soho to buy another pair
of their black on-running tennis shoes. I don't know what they're called. It just strikes me that
this company has absolutely thread the needle between appealing to wealthy people who have
disproportionately done well or people with a lot of disposable income and feeling like you're a bit
of an artisan that you're in the know. It's one of those brands that just captured lightning in
a bottle. I think they look cool. I think their retail is cool. I think their
presentation, small number of SKUs that are really edited well. I just think these guys
have just nailed it on merchandising, distribution, their online, just lightning,
capturing lightning in a bottle. Well done. I wouldn't touch the stock at these levels.
And that is every stock at some point is a buy unless you think it's going out of business. And every stock is a sell
regardless of how amazing the company is because it becomes overvalued. So on running in their IPO
raised about $750 million. And at the time, the Swiss brand had an estimated market value of about
$7 billion. One month after the IPO, and now has roughly a $10 billion market cap,
according to Bloomberg. The 11-year-old company is still a relatively small player
in the shoe market. For context, Nike is worth about a quarter of a trillion, $240 billion,
and Adidas is around $50 billion. And I think that's one of the things that people like about
On is that the problem with self-expressive benefit brands like a car, your phone, your
shoe, your clothes, it says something about you or we think it says something about us.
And the moment your mom is wearing Nikes, you decide you don't want to wear Nikes.
And that's the problem that a lot of these brands face is they become so ubiquitous that
it's hard to, they lose some of their self-expressive benefit if you value being seen as different or someone in the know. The company posted, this is Ahn, 614 million in sales
for the 12 months ending in June 2021. Ahn's enterprise value is 17 times its sales for that
period. So just to give you a sense for that, its enterprise value to sales is 17. Enterprise value
to sales on Warby is 12, another great specialty retail.
Nike is 5.6, obviously not growing nearly as fast.
And Lululemon is 10.
And Lululemon is considered literally the gangster of all gangster specialty retailers.
The gross margins are 59%.
They're the same at Warby.
Nike's lower at 45.
And Lululemon's 58.
So this company has incredible momentum, incredible
sales. The net sales grew at 85% compound annual growth rate from the company's inception through
2020, 80%. Their total sales grew more than 80% from the first half of 2020 to the first half of
2021. Gosh, that's crazy. And gross margin, as we said, is about 60%. And the pandemic
accelerated its DTC business with revenue from that segment increasing 141%. Some more facts,
Onn's direct-to-consumer business accounts for 38% of revenue. In my view, if I were advising
the company, I would tell them they need a lot more. They need to get to 50% to 60% direct-to-
consumer distribution. I think this company wants to be a luxury brand.
It kind of wants to be the Bottega Veneta, the La Roche-Posay of shoes, something really special.
And they should have a much higher price point, not much higher, a higher price point, and take more control of their distribution.
They're doing 38% online.
They need to get that to somewhere between 50% and 60% by complementing it with great brick-and-mortar distribution.
So in sum, absolutely love the company. Absolutely love the product. I mean,
and I've been wrong on this. I'm a boomer around valuations. It just feels kind of rich.
It just feels kind of rich. If you were going to buy it, I'd say you'd want to hold onto it for a
long time because it feels with these growth numbers, it could grow into the valuation and then start growing again. But gosh, I mean, 17 times enterprise value of 17 times sales. Wow. Look out below. That
is very thin air. Anyways, thanks for the question. Love the company. And best of luck to you, Perry,
from New Jersey. Next question. Hi, Prof G. My name is Rene. I'm calling in from Denver, Colorado. When are you going to drop your first NFT? Because I am going to buy it. Here's my actual question. I just accepted a job with one of your former employers, Morgan Stanley. I'm going to be a VP of product over there. And I also just completed your brand strategy class with section four.
My question to you is, it seems to me that a lot of established players in the financial services industry and in wealth management are really struggling to reinvigorate their brand.
And it seems that the way to bolster your brand these days is to eliminate other brands,
Schwab acquiring TD Ameritrade and Morgan Stanley acquiring E-Trade.
So in your opinion, if you look ahead five or ten years, what is going to be the brand attribute or the quality cue, if you will,
that will set a winning brand apart in financial services, investment banking,
wealth management, whichever vertical. I'm curious to hear your thoughts, whether that is going to be
more likely an incumbent or a startup or a disruptor. Love everything that you do. Keep it up.
Thank you so much.
Thanks, Rene from Denver. And you'll be the first to know if I have an NFT. I still cannot wrap my head around NFTs other than knowing they're signaling. But you'll be the first to
know if I do an NFT. I can't imagine the shit I would get. I might have to pay people to buy it.
Anyway, I want to talk a little bit about Morgan Stanley. It was my first job, and I'll use this as an excuse to talk about my favorite subject, me.
I graduated from UCLA.
I got a job at Morgan Stanley.
God knows how I got that.
And I was in fixed income, and it was a fantastic training for me.
And that is it taught me a lot of the discipline and rigor that I didn't pick up at UCLA because I was smoking pot and watching Planet of the Apes kind of four of the five days a week, and then on weekends playing sports and drinking.
And Morgan Stanley was just a great bootcamp. It was a mildly abusive culture, but I didn't
mind the abuse. I was sort of, I didn't mind the abuse. I guess it wasn't abusive, he didn't mind
it, but I needed to get my ass kicked. I needed to work 18 hours a day or 16 hours a day and have kind of
these demands of perfection. I remember investment banking, jobs are usually one of two things.
They're usually very rewarding, but a lot of pressure, or they're boring with no pressure.
And investment banking was this unique combination of an incredibly dry, boring material with a ton
of pressure placed on it. I remember being at the printer. We used to print prospectuses for IPOs at the printer.
And my job was to go through the prospectus and read it forwards and backwards. And if I got an
apostrophe out of place, that was literally cause for dismissal. Everything had to be perfect. And
I really benefited from that rigor. It was sort of my bootcamp, Marines, whatever you want to say
about it. And I think these firms have great cultures. I think they're smart. In terms of
your question around how could they signal more kind of aspirational brand equity, kind of think
it comes all down to their app and their presence on your phone. And that is, I also bank with Northern Trust. I have an advisor there who I
love, who is a neighbor, she's super thoughtful, but their online offering is literally,
it's not even AOL, it's CompuServe. And every time I'm on it, I think, Jesus Christ,
these people just don't get it. Or if I want to do a wire, I have to call,
they have to get two people on the phone to get a verbal confirmation. Whereas Goldman
sends me a notification, pushes me a notification on the app. I pull up the app
and it's pretty elegant. It's got UI, UX. And then I go on some of these, I've seen some of the
design of, I mean, look at Airbnb. Airbnb has basically said, let's push all our investment,
let's push all our capital into the online design and the interface between our core
constituent, our consumer, and their phone. I don't even think it's their computer.
And when you think about Goldman Sachs and Wells Fargo and Morgan Stanley, they're still pushing
the majority of their innovation and compensation through wealth advisors or brokers or bank branches. So Goldman is making a real effort with Marcus.
I don't know how the Morgan Stanley app is, but I think these companies, if I were them,
I would try and get some momentum around online investing, maybe acquire, Robinhood's too
expensive, but maybe acquire one of the smaller ones. Disclosure, I'm an investor in public. But I would try and get out ahead of the curve and
start acquiring these online banks, double down on digital. I think a lot of them are doing that.
Bank of America describes itself as a tech company with a backend that's financial services. I'd
double down on payments, I'd make some acquisitions. And more than anything, I would try and lean into
content marketing and start distributing a lot of great content around financial literacy on emerging
platforms, specifically TikTok. You always get a bigger pop to your brand equity than you deserve
if you can lean into and really show skill and deftness and agility around an emerging platform.
A lot of luxury brands were kind of built on the backs of an emerging Instagram. You're going to see, I think, a lot of information-based companies, specifically
consulting firms, whether it's McKinsey or financial services firms such as Morgan Stanley
and Goldman. One of them is really going to lean into financial literacy content on TikTok
and get a huge return on investment in terms of brand equity. These guys have to show everyone they're
not their father's bank. I've already graduated from Northern Trust into Goldman. Goldman has
me for the next few years because I think they're outstanding at what they do. But who's next? Is
it Goldman or is it the new, new thing? But I think it all comes down to the app design, digital,
some acquisitions, leaning into emerging mediums. Thank you for the question
and congratulations, Rene, on your job at Morgan Stanley. It was a great experience for me. I hated
it at the time. It was like being in the Marines. You're glad you did it. Past tense. Good luck, Rene.
We'll be right back.
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Welcome back. Question number three.
Hey, Professor Galloway.
My name is Jonathan from Redmond, Washington,
and I have a question about college brand recognition.
You recently talked a lot about the power of brand recognition that colleges have
and how NYU, UC Berkeley, and your alma mater, UCLA, have gained greater recognition by increasing
selectivity while accepting more Pell Grant applicants. As an undergraduate student at UC
Davis, whose school just broke into the top 20 universities rated by Forbes, while accepting a student class that is made up of 32% of students receiving federal scholarships.
What else should a school like UC Davis do to increase their brand recognition without drastically decreasing selectivity?
Thank you for your time, and I want to say your podcast and the one you share with Kara Swisher has educated me and kept me hopeful this last year and a half.
Thank you.
Jonathan, that is so nice. And thank you for the nice words. If you DM me on Twitter and give me your address, I'll send you some signed books. Thank you for saying that. That makes me feel
nice. I get pissed off when people say mean things about me. I'd like to think it just
rolls right off of me. But the upside to that is it is meaningful when people say nice things about me.
So DM me and I'll send you some signed books.
So look, what you're referring to is there's a tectonic shift, I think, underway in the
world of graduate education as it relates to brand equity.
And simply put, the primary pulse, the primary signal. It's like take the Academy Awards times
10, take the Pro Bowl list, take the MVP, whatever award or third-party accreditation or third-party
certification that different leagues give people or different organizations give people. If you're
a journalist and you've won three Pulitzers, you can pretty much get a job anywhere because you've
been certified by a third party. Take any of these times 10, and now you're talking about the business school rankings,
kind of pioneered by Businessweek. And they've ended up being terrible for graduate education.
Why? Because they included in their rankings an input around exclusivity. And that is the way to
get up in the rankings, and everybody studies to the test. Now, why does everybody study to the test? Why are these rankings so powerful?
Because young people are very brand sensitive.
To ask a 17-year-old to decide between Michigan, the University of Wisconsin, and Georgia Tech, and Boston College, he or she doesn't know what the fuck they want.
So people defer to the prestige of the ranking.
And unfortunately, so do corporations. We always say that the prestige of the ranking. And unfortunately, so do corporations.
We always say that the student is the consumer. No, they're not. The students are the products
of higher ed. Our consumer are corporations. And when corporations show up to an increasingly elite,
tighter band of universities based on their brand equity, because I think that's the way to select,
they only recruit. Someone brought up UCLA or Morgan Stanley. I was the first analyst and the only analyst in my class at Morgan Stanley
from UCLA. Solomon Brothers recruited at UCLA. But when I got into Morgan Stanley,
they were only recruiting at Stanford and Berkeley. They hadn't started recruiting at UCLA yet,
because they saw UCLA as outside of the top 10 or top 20 universities. Anyways, the brand equity is so important and powerful because brand is a shorthand for diligence.
And when you don't have the skills to do the diligence, i.e. you're 18 or you're parents,
you just defer to what is the most prestigious brand.
And you know that the chances of you getting more job opportunities because more and more firms,
the better firms recruit at the top tier
schools, you think, great. And then the ranking is so important. And then unfortunately, the ranking
in large part is dependent upon exclusivity. A long-winded way of saying, we lost the script
and we turned into luxury brands. And the thing I don't agree about the premise in your question
is the way UC Davis and the way the Regents of the University of California can dramatically improve is to dramatically expand their admissions rates. So when I went to school, UC Davis was still a
great school, but I bet its admissions rate was 50, 60%. Now I bet it's closer to 10 or 15.
UC Davis is impossible to get into. You have to be freakishly remarkable to get into UC Davis right now. I
don't think that's a good thing. I don't think being freakishly remarkable is a forward-looking
indicator of your citizenship or your success at the age of 17. Yeah, you have to be good.
There is a correlation between how impressive you are as a young man or woman, but in terms
of a forward-looking indicator, it begins to flatten.
It's like happiness and money. There is a correlation. Middle-class people are happier
than lower-income people. Wealthy people are happier than middle-class people. But once you
get above a certain amount of money, there's no correlation. I think the same is true of young
people. People who are in the top half, top third of their high school class that have demonstrated excellence, rigor, discipline. They are more likely to be successful in life,
professionally and personally. But the difference between the person that's in
the 80th percentile in your school at that point and the person who's in the 98th,
based on the metrics we've established for 17-year-olds, there isn't a lot of correlation
there between people who go on to be successful,
very successful, and not successful. So we need to move back to letting in a lot more kids.
It just disappoints me that when I go to these conferences, we celebrate companies that are
able to scale at 40% or 60% a year, and yet we haven't been able to scale UC Davis 2% a year.
So only the freakishly remarkable get in.
So we want better brands, better society,
better opportunities, more on ramps to great lifestyles.
We want to be able to fill these amazing jobs
with amazing applicants
for which there are a shortage of employees
or a shortage of applicants.
We need to dramatically expand
the admissions rate and the capacity. And this is
exciting. The University of California has decided to do this. They've committed to adding 20,000
freshmen seats over the next 10 years, which is like, I believe, adding another UC Davis.
But my brother, your brand is fine. UC Davis and the University of California,
the fact that you got into UC Davis, quite frankly, Jonathan, means you're an impressive
young man. There's this full stop, you're an impressive young man. We need to let in more
impressive young men and women, and maybe people who are in the 90th percentile in their class,
not the 99th. That's okay. The difference between 90 and 99, we don't know which of those
two is going to go on to be a senator or build wells in Africa or come up with the next patent
for a vaccine. We don't know that. Anyways, your brand is on fire. We need to transition some of that
incredible aspirational brand equity into not only prosperity, but progress from a societal
viewpoint and let in more kids. Long-winded answer. So we've had people from Redmond,
from Denver, and from Sydney. Is it only people that value quality of life
that call into the Prof G Show?
Where are the people from San Francisco
living in that overpriced hellscape?
Where are the people from...
I'm worried about insulting a city,
so I'm not going to say anything.
I'm not going to say anything.
Anyways, thanks for the question,
Jonathan from Wedman, Washington,
and congratulations on being at
Davis. Good to be Jonathan. Good to be Jonathan. Davis. Davis. That's all for this episode. Again,
if you'd like to submit a question, please visit officehours.profgmedia.com.
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