Recently two perennial brands filed for Chapter 11 under the bankruptcy laws – Kodak and Fuller Brush. A third constant – Sears – announced a plan to close 1200 stores. Another brand that is puzzled because of apparent disregard by the market is Berkshire Hathaway. This got me thinking about the value of brands.
Brands have come to mean consistency of quality and expectations, a continuance of benefits and assurance of worth or value. However, in the marketplace nothing seems to be forever and some brands lose focus, direction or excitement, have stalled growth or just simply fail to adapt to changing times.
Over the years, major brands have disappeared. Woolworth became Foot Locker. AT&T is the adopted name of SBC, a spinoff of the original AT&T. Studebaker, AMC, Oldsmobile and Mercury are some major brands that now only exist in classic auto shows. Whatever happened to Diners’ Club?
Currently some major brands command high values for their traded securities – Apple, Coke, Intuit, McDonalds, Amazon, Nike, Starbucks and Google. This is supported by growing revenues, continuing profits, and new products their customers want and are willing to pay extra for. But can they sustain the market values for their companies? If they cannot, then the portion of their value attributed to their brand will eventually shrink to the level of commodity-priced companies.
Investing is a long-term endeavor and companies are not forever. Understand the value drivers of the companies you invest in and their sustainability and evaluate how it will translate into continued growth and profits… And company value!