Episode 90: Why Interest Rates should Stay High, the Power of Loyalty Programs, Club Med’s Comeback, Cettire Victory Lap, LVMH’s Struggles and Adir’s Boycott
The guys discuss why interest rates shouldn't get cut, AMP's new Qantas points account, how Club Med reinvented itself, Cettire's share price, LVMH's reign, and Adir's bookstore heartbreak.
The Contrarians catchup
If you’re wondering if you missed episode 89, you might’ve! The guys recorded an extra episode that you can find here: Ask Us Anything: How to grow the Aussie Tech industry + Can Aussie businesses succeed overseas?
Adam and Adir recorded episode 90 over Easter because Adam hates Easter, “not because of the religious element but because it’s four days off”. Adir said he’s there because Adam forced him.
The guys chat about LVMH, the self-proclaimed “world leader in high-quality products”, whose share price is up 42% the last five years, but down 40% the last 12 months. Did you know the Louis Vuitton store in Chadstone does around $115M a year in revenue?
Adir uses Instagram for one purpose: to see the ads. And he was surprised to see an ad for a Hermes scarf, opening up a discussion of whether running Instagram ads is good for the Hermes brand.
The guys discuss the balance of Israel-related books in progressive bookstores, which turns into a discussion about ‘Curb Your Enthusiasm’, which turns into a view of Robert F. Kennedy Jr. (he’s married to Larry David’s wife from the show).
Adir to Adam: “You know how people say never work with children or animals? I feel like your name could be added to that list.”
7 Powers: The Foundations of Business Strategy
If you’ve ever listened to an episode of The Contrarians, you’ll be familiar with Hamilton Helmer’s book, ‘7 Powers: The Foundations of Business Strategy’. The guys reference it weekly, but let’s first clarify what those seven powers are:
Scale Economies - A business where per unit costs decline as volume increases.
Network Economies - A business where the value realised by a customer increases as the user base increases.
Counter Positioning - A business adopts a new, superior business model that incumbents cannot mimic due to the anticipated cannibalisation of their existing business.
Switching Costs - A business where customers expect a greater loss than the value they gain from switching to an alternate.
Branding - A business that enjoys a higher perceived value to an objectively identical offering due to historical information about them.
Cornered Resource - A business that has preferential access to a coveted resource that independently enhances value.
Process Power - A business whose organisation and activity set enables lower costs and/or superior products that can only be matched by an extended commitment.
[Listen in to whether or not there should be an eighth power, and what the guys think it should be.]
Adir’s LinkedIn pet peeves
Adir believes that his posting on LinkedIn in support of Western liberal democracies, slash Israel, has resulted in a throttling of his reach, but “speaking against myself, I wouldn’t want that controversy on my platform.”
Besides his freedom of speech concerns, Adir lists two things that drive him crazy on LinkedIn: AI-generated action figure profile pictures and paid ads trumpeting capital raises.
Adir: “I find human beings so baffling so much of the time. Someone does something and then a few more people do it, and then everybody wants to do the same thing. I just fundamentally don't understand that emotion because I'm such a contrarian on stuff.”
Adam: “Surely the VCs would say ‘hold on, guys - don’t use my cash to talk about my cash’.”
Adir also had an interesting customer service experience where he was given the option to pay a small fee to go to the front of the line.
Adir: “I absolutely love the chance of being able to do that. I didn't need to skip the queue, but my God, if I need to skip that queue I would absolutely do it and I would be grateful for the chance to do it. But if I were the chairman of this company, I'd be very hesitant about this because it felt like they were trying to milk me a bit. Even though I liked it.”
Adam: “I have no issue with it. Obviously it depends on the business. A business like Luxury Escapes relies on repeat purchases and loyalty, so it doesn't work and you’re going to annoy people too much. But I think it's the old school give 20 bucks to the bouncer to get inside the night club.”
Your bank account: Interest v frequent flyer points
Adir is fascinated by a new offer by AMP Bank, which instead of generating interest, rewards you with 10 Qantas frequent flyer points per dollar per month, up to $5M.
Adir’s question: Is it worthwhile dumping $5M of cash into a no-interest account to earn 6M points a year? Assuming you can earn even 4.5% interest on this money, it’s giving up $225,000. That would equate to 3.75c a point, but you’d be taxed on the interest and so only keep around half, whereas points are tax-free. That means it’s roughly 1.88c a point.
Adam: “So if you're in the highest tax bracket of 50%, you're getting double essentially if you value these points at 3c a point, that's 7.2% interest essentially in points. If you value the points at 5c a point, there's like 10% assuming the full tax benefit.”
Luxury Escapes launches new loyalty program
Luxury Escapes launched Société, a new loyalty and rewards program designed to be the travel sector’s most accessible rewards program, allowing members to earn and burn points on almost all travel products on Luxury Escapes.
The tiered loyalty program will allow members to earn two types of rewards across a wide range of travel products: Points and Status Credits.
Members will be able to earn Status Credits on eligible purchases and as these credits move them into higher tiers, they’ll gain access to more exclusive benefits including guaranteed room upgrades, airport lounge access, private airport transfers, priority customer support, discounts and hidden offers. Points can be used like a currency to save on future bookings, giving customers a tangible return every time they travel.
Adam: “I'd rather be giving our customers a great discount than paying Google.”
Should interest rates be cut?
The Reserve Bank of Australia has flagged that interest rates could be cut again in May after the federal election. The RBA’s preferred measure of underlying inflation is likely to decline below 3% in the March quarter, when the consumer price index is published on April 30.
The central bank said households’ debt servicing payments were at around their highest levels since 2012 as a share of disposable income, but this would start to ease as a result of the recent interest rate cut, which could help lift consumer spending.
Adam: “We're inflating off a higher base now, which is the real insidiousness of all this. We are at ridiculous levels of inflation in Australia, things are crazy expensive for people who aren't living in the eastern suburbs of Sydney working on reserve bank boards. But we've got all these economists saying we've got to lower rates because of this tariff thing, which may or may not even happen. What is going on here?”
Adir: “I’ll tell you why you'd be a great politician, ironically. Even when we're in total agreement, you make these very powerful, passionate, emotional, and very coherent speeches putting forward your position. And it really makes me look like we've disagreed and you've got this great argument. But the thing is, we're in total agreement.”
Five other stories worth following:
The final phase of Google’s antitrust case regarding search dominance continues as lawyers for the government want Google to stop paying third-party phone providers a premium so that it is set as the default search engine on devices. Hopefully this doesn’t mean more Apple Maps users out there!
‘Owen Nowhere’, an animated children’s show about a teenage content creator from production studio We Ghosted Media, will debut on the metaverse. The project will come to life on Web3 company Lamina1’s platform, where users can build their own AR and VR experiences, allowing them to collect digital items and contribute to the series.
OpenAI founder Sam Altman responded to a post on X that questioned if adding “please” and “thank you” to ChatGPT prompts raised the company’s electricity costs. Altman admitted it does, but that it’s “tens of millions of dollars well spent” because “you never know.”
In a race advertised as the first half-marathon for androids, 21 humanoid robots raced against human runners in a half-marathon in Beijing. The winning robot finished in 2:40; the men’s race victor crossed the finish line in 1:02.
Private collectors have snatched up 71 of the 141 scientifically useful T. rex fossils in existence, according to a Palaeontologia Electronica study. Researchers say the private fossil trade has significantly hindered the scientific record, slowing research and blocking new hypotheses.