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Libey Incorporated
Economic Outlook
Secrets of the Catalog Master
Vol. MMVI No. 6
December 2006
The 2007 Markets Outlook
Cherry Hill, New Jersey
Des Moines, Iowa
Donald R.
Libey, Editor
Re-merchandising
by Donald R. Libey
The Emerging Niches
For over twenty years, I have been compiling a bi-annual look at emerging markets and market niches in an attempt to encourage direct marketers to expand their horizons and to constantly reinvent their businesses. For some who have followed this advice, there has been great success. Back in the early 1990s, the founder of USA BlueBook, the catalog that would rapidly come to dominate the municipal fresh and wastewater equipment and supplies market, heard my presentation on water being my pick for the number one industry over the next decade and he had the vision to start a targeted catalog serving water engineers. The catalog sold recently to Home Depot Supply, Inc. for a great deal of money. Other entrepreneurs heard the same speech, but were unable to translate the prediction into vision and productive action. Well, it’s that time again. Let’s see who can get rich this go around.
Water
I know. I’m tired of saying it, too. But that doesn’t make it any less promising. This is the twentieth year that water has remained at the top of the list of opportunity markets. We just crossed the 300 million population mark. Every single one of those U.S. residents use thousands upon thousands of gallons of water annually. And globally, the scarcity, deteriorating quality, disappearance, fragility, cost and demand for water simply skyrockets year after year. If you think oil has become untenable, wait until the global water crisis hits home. As we come to a global population of 8 billion people by 2025, stop and consider this frightening fact of elementary science:
Matter cannot be created or destroyed.
All of the water on Earth was created at the time of the Big Bang.
There will be no additional water created.
The existing water supply will only be recycled—forever.
The conclusion of this is simple: Water becomes scarce and expensive.
What sets water apart this time—as a direct marketing niche—is the emergence of boutique markets for water and water-related products. You are now happy to pay $2 for a small bottle of water from Fiji or from glaciers in Greenland. You are now happy to pay $500 a year for pool chemicals delivered to your door. You are now happy to spend $2,000 for a salt water aquarium. You are now happy to install a $10,000 Japanese waterfall and pond in your gardens and stock it with $130 koi. Any product that contains water or is made with water is going to be valuable and in demand extending forever into the future. Water, oxygen and food are the base products of existence and that existence is becoming crowded.
Focus on the cleanliness of water. Filters, testing, treating, cleaning, all suggest a plethora of product. Pumping, irrigating, spraying, hosing, flooding, all suggest another vast array of product and demand. Storage and delivery bring to mind other products. Water exploration creates even more products and supplies. Desalinization has its own unique product needs. All of these are boutique sections of the massive water market.
Water has created a bonanza in property values. Lakeside, oceanfront, riverside property values have exploded over the past 30 years and will continue to create value. And all the things that go with that property—docks, rip-rap, decks, boats, fishing equipment, fountains, lights, pumps—all become water-related boutique niches with long term growth potential.
Agricultural use of water and the growing scarcity of water for farming create market demand. Irrigation for boutique crops, such as grapes, rhubarb, fruits, seeds, melons, salad greens, herbs, flowers and other artisanal crops, creates opportunities for drip system equipment, water recovery equipment, spray heads, and heat-sensitive valves.
Spas feature water and water-borne products as therapy, especially to an aging population. Bathe in water; drink water; watch water; hear water; perhaps worship water. Water is a life force.
No matter how deep into the subject of water you dive, it always comes up a logical winner. You can’t lose with a market plan centered around water demand. You simply have to find a manageable niche that is underserved. Who is doing a catalog and online business with the thousands of municipal water parks that have sprung up all over the country? Who is targeting sod growers? Who is taking a multichannel approach to fish farming or hydroponic gardening or water publishing or water gardens or car washes?
Whether market development, product development, business development or long-term investment, water will not let you down. This is truly one niche where you don’t have to worry about taking a bath.
Organics
My second most promising market concerns anything that is organically grown or produced, and this is not limited only to food products, but extends to clothing and household products. The word ‘organic’ is much more than just a ‘green’ agricultural term; it is representative of a life choice. The key market attribute is natural. In this high-tech, high-wired world, the desire for natural, unspoiled and uncontaminated is on the rise. More boutique markets are going to develop. While high-tech fabrics are being rushed to market through the miracle of chemistry, there is a growing boutique market for natural cottons. Products that appeal to the natural enjoyment of living, as well as luxury, will find a ready market in the years ahead.
Non-polluting household products are taking a larger share of the global wallet. As the proliferation of brands turns consumers away from uniform product solutions, boutique applications and semi-custom exclusivity takes root and creates organic “communities” of users.
The organic revolution will break down huge, uniform brand markets into smaller, boutique brands with appeal to communities of consumers with similar interests. This creates space for multiple products serving a market that once was served by only a handful of mass merchandised products. Another meaning of the organic market is a natural market. It has nothing to do with pesticides, rather with holistic niches. As an example, you don’t want to be in the general apparel market, but you do want to be in the bow tie niche, or the custom socks niche, or the hypo-allergenic underwear niche. These are holistic segments of the market that can be focused on and developed in an organic manner in order to achieve a dominant position with loyal and discerning customers.
The ultimate niche approach to organic markets will be in the proliferation of highly profitable, micro-markets such as limited production, highest quality and nutritionally advanced organic tropical and salt water fish foods, or semi-custom nutraceuticals for people with specific genetic predispositions, or a variety of year-round organically grown tomatoes, vine-ripened specifically for target cuisines, such as southern Italian, Moroccan, or Pacific Northwest fish cuisines. The concept ‘organic’ becomes as much a term for natural production as it does for usage and application of the products in differing life style choices.
A few promising markets for the organic revolution include, knitting and fabric wearables, nutritional supplements, gardening aids, beneficial insects, oils & vinegars, energy alternatives, publishing and teaching, organizations, seeds, soaps, scents, alternative transport, coffees & teas, spices, pastas, baking supplies, lubricants, fiber ropes, toiletries, bedding, furniture, and dozens of other product concentrations.
Biomass
Biomass is plant-derived material usable as a renewable energy source. While corn-to-ethanol projects are receiving huge investments, other projects exist, as well. Wood energy renewal, involving hybrid poplar and willow trees, soybeans, animal waste, stover and even fallen leaves are all being converted to non-fossil fuel energy. Along with this technology comes huge opportunities in equipment and supplies for servicing the production needs of these biomass plant operations. Each step of the conversion process has testing, filtration, quality measurement, reagents, chemicals, containers, tubing, plastics, labeling, capping, and other unique product applications. Again, a niche similar to that exploited by USA BlueBook exists; a $100-200 million business is available for the conversion from traditional supply to multichannel direct supply. It only remains to see who will capitalize on this undeveloped niche.
A branch of non-fossil fuel energy development similar to biomass is geothermal energy. This is a clean and renewable technology that harnesses energy directly from the Earth’s magma core. Within the technological and construction aspects is a sizeable equipment and supplies business unique to geothermal temperature control. To date, this is a specialist industry and not one that has been developed by the online/catalog multichannel world. It is another huge niche opportunity.
Existing alongside the geothermal opportunity are similar opportunities in the areas of solar, wind, ocean, hydro, and hydrogen energy. Each of these alternative energy sciences have specific applications requiring specific equipment, measurement, control and transmission factors, and each have similarly unique supply components. That translates into multichannel opportunities for those willing to invest in and develop the markets. Logic tells us that these market niches will inevitably expand and, likely, rapidly given the current global warming, oil price, Middle East turmoil, and the multinational needs for energy independence.
Geriatrics
If it involves aging, health care, assisted living, hospice, chronic health problems, retirement homes, or quality of geriatric life, there is opportunity available for new market penetration. In the U.S. alone, the population age 65 and older will double in the next 25 years. By 2030, the U.S. will have 72 million people in this age group. More significant, only 10 percent of that population will be classified as living in poverty; 90 percent will have adequate financial resources to meet their needs. That is a market.
The opportunities for mobility, assistance and medical products will be enormous. Similarly, the demand for home services and supplies relative to health care will be equally large. Convenience services and automated re-supply of consumables will increasingly be demanded as this convenience- and consumption-trained generation ages.
The opportunities lie in small, boutique slices of the aging market: multichannel businesses targeting niches such as diabetic testing supplies, diabetic socks and footwear, memory care (as dementia or Alzheimer’s is now known), physical therapy, bathing aids, hygiene supplies, dental supplies, ostomy supplies, visual aids, and many other related product lines. There are numerous medical supply catalogs and websites, but full selections and sizes in diabetic socks, shoes and slippers are fairly rare. As a boutique concentration for market penetration, they have not really been focused on, as yet. And, that is where the opportunity lies.
EuroStyle
For many Americans, the attraction to all things and styles European is beginning to emerge as a growth area for the future. Whether food or furnishings, apparel or apples, the Euro stylings are taking precedent. Perhaps this is a cyclical trend, or perhaps it is an attempt by Americans to blend into the world at a time when anti-American sentiment is rising; who knows. But, for those in the kitchen furnishings and cookware, home styles, artwork, clothing, lighting, bed linens—and hundreds of other slices of the multichannel direct universe—this next decade is seen as the Euro Era.
This breaks down into sub-niches such as Scottish food and liquor products; Italian oils and spices; Spanish wines and leather goods; German styling in autos; English heritage; Scandinavian tableware; and other cultural-centric spins on the EuroStyles.
For a jaded U.S. market suffering from not just a short attention span, but no attention span, there is little excitement left in San Francisco style, Monterey style, Texas style, LAX style, or even New York style. That has all been done and we’ve seen it and bought it. Now, we want new experiences of places we may have never been. We want the tastes, visuals, and aesthetics of the Italian cinque terre region, and we are willing to seek it out and pay for it, particularly when it is delivered to us in small, boutique slices of fully furnished vertical niche markets easily found by search inquiries. I no longer want Scottish salmon; I want Isle of Skye salmon. I no longer get excited by pashmina scarves as gifts; I get excited by Outer Hebridean, Isle of Lewis tweed scarves woven by the sixth-generation weavers of the Ross family on 200 year-old ten-treadle looms. We are evolving into micro-niches, and the aggregation, control and innovative merchandising of those niches will determine who wins in the direct channel wars.
Play
2007 is the first time I have singled out this unusual and scary market niche. Play is almost bi-polar as a market niche. It is positive in that it is pleasurable, but it is negative in that it replaces vocation. Americans appear to be slipping further into escape; reality is often too mundane or depressing to bear; play becomes the soporific that dulls the senses and induces mindless lethargy.
For many, the Internet has become an alternative reality. MySpace, Second Life, the hot alternative virtual environment, and millions of blogs are, essentially, play. They accomplish the needed mind numbing in an increasingly Dilbert-driven reality. The young spend countless hours in coded instant messaging—play. Parents are wired and connected, not only to their children through cell phone umbilical cords, but to their similarly ‘helicoptering’ friends who are hovering above their children’s every move and waking hour. This is—for all it accomplishes—a form of play.
Gamers—whether nerds living at home with the folks at age 34, spending their meager resources on mega-computers and Sony PlayStation, or the festival of oddities sitting around the Texas Hold-Em table—all are playing. So are the scrapbookers and the grannies with quilts, and the old guys with a basement full of high-power woodworking tools. The nation is playing a good part of the day. And about 40 percent of the work day is consumed by surfing the net and reading instant-breaking drivel and blogs.
And this isn’t going to get better. When the last investment account is closed and the last American manufacturer is bronzed and set up as a statue in Erie, Pennsylvania, the games will be going on. And there will be stadiums full of half-dressed people with blue and red faces, wearing cheese hats, pumping the air and chanting the international gamers’ cheer: “Whuu, Whuu, Whuu!”
But—this is a market that is going to get very big.
Play is so filled with opportunity as to be mind-numbing itself. Play covers the hobby markets, collectibles, arts and crafts, sports, all state-sanctioned (and budgeted) gambling of every kind, computer games, alternative reality, movies, anything that is opposite from day-to-day reality. Now, that’s a niche! And, it has almost everything going for it that you could ever want:
- Americans will buy anything.
- They have money.
- They need escape.
- They have money.
- They don’t have to think about this very much.
- They have money.
- They have been encouraged from birth to play, and many are still about six years old.
- They have money.
- You can sell it through the channels they are addicted to already.
- They have money.
What we have here is an almost perfect storm of opportunity swirling around a center eye of guilt. Escape through play is vying for as much time and dedication as the lengthening work day and week and the increasing dissatisfaction of that resulting work. There are no known figures, but I would venture that at least one-third of the Gross National Product consists of some form of play. There are niche markets to be developed and dominated, and the opportunities are near-endless, in the cavernous world of play. Those niches—like vice—are almost always easy to sell and quite profitable. They exist for the taking.
Downloadable Content
You may think there is nothing left to publish in an online format or that people will not pay you for information. I believe the opposite is true. The assembly of information is only beginning and people will pay for assemblies, not components of information and knowledge.
Back in the early 1990s, I spoke often at a national conference on alternative education. These were large conferences and attracted people from what was then called “Learning Exchanges” and other local, often free learning projects. My prediction was that the infant Internet (1989-1991) would one day open the ivy-covered, hallowed halls of Academe to anyone who wished to download knowledge, and it would change the concept of education. What followed was the University of Phoenix and all of the online universities and colleges that we have today.
Most of our business-to-business marketers have niches and industry positions whereby they could actually teach courses. DEMCO could teach library archival techniques, or space planning. ULINE could teach pick-by-light technology and pallet stacking technique. NEBS could teach business and financial records retention and management. Everyone of our businesses has a specialized body of knowledge that can be organized and sold as adjunct training for our customers in our industries. C&H could train fork lift operators. National Business Furniture could train business workspace designers. Northern Safety could train high-rise harness safety courses and rigging techniques and technology.
As the globalization of the market continues to play out over the next decade, the margin erosion and pressure will be enormous. Those companies that take on the training and education responsibilities for individual customer companies will emerge as knowledge leaders as well as product leaders. All of that knowledge component translates to an online format that can be accessed on a fee basis.
If I were interested in another business to develop, grow and sell over the next 10 years, it would be content-for-fee based. By and large, the content is free. Its aggregation, assembly and formatting requires the skills and software of publishing. Its merchandising and channel delivery is online. For the correct niches, the demand would be high and the profitability exceptional.
Already we are seeing the logical outcome of the consulting profession. Blogs are, by and large, morphing (in some instances) into consulting resources. When critical mass is reached, these “mines” of knowledge are shifted to subscription or fee-based services and—voila—consulting becomes a remote, expert, online educational service, born from the energy, phenomenal reach and deep penetration of blogs and viral marketing.
Density Living
If you look at much of new construction—and new home ownership—it is town homes and multiple unit living. Yes, traditional homes are still dominant, but the trend for younger buyers—and most older buyers—is towards homes in associations and communities where maintenance, services and landscaping is furnished. It appears more and more Americans are enjoying freedom from home maintenance, especially as the hours spent working increase. In short, leisure is a pursuit and it creates market niches.
Density living will influence lawn care, gardening, do-it-yourself home projects, and other lifestyle factors. The time previously spent on lawn care and gardens and landscape maintenance will be replaced by other interests and activities. Coupled with aging, this presents an incredible number of growth niches in the years ahead.
One of these is bird watching. This is a popular and very large hobby and it is going to get even bigger. It is a truly relaxing activity and it involves nice people with shared interests. It is inexpensive; indeed, free. This allows an above average expenditure for equipment (binoculars, cameras, tripods, spotting scopes, etc.). The reference books and record keeping requirements stimulate new products constantly. My own recent favorite is a gift of six CDs with all of the bird calls and songs recorded for identification. That is a $70.00 plus item. My spotting scope was over $300. The binoculars (several types for different viewing) range from $40 to $200. And, the beauty of the niche is that if there is one bird watcher in the family, there are almost always two; it is a shared interest among older couples. The bird watching industry is remarkably fragmented; only a few dominant catalogs serve the hobby. And it is only one example of a niche market driven by the changes in density living trends.
Another niche market driven by density living change is home theater. In England, a thriving catalog company concentrates on highly specialized connecting cables for audio equipment, cables that deliver the highest quality sound without distortion. The niche that has emerged within the leisure market is one of true audiophile obsession. Plus, these buffs have money and are willing to spend lots of it for the purity of that leisure time obsession. Similarly, NetFlix has made it so simple to immerse oneself in the movie culture; demand for high quality DVD and HD products, as well as sound delivery systems have fueled this niche. Other sub-markets, such as artist supplies and gaming, exist that satisfy the changing needs stemming from the density living evolution. One must look at the change and see what is taking place and how it influences peoples’ choices, and then ask, “What if . . .?”
Infrastructure
If it involves infrastructure, it probably is going to need to be renewed, rebuilt, reengineered, redesigned, redirected, rerouted and reassembled. Those are all market and product opportunities and they cover everything from road building to new plumbing.
Most of the major U.S. infrastructure was created post-World War II. It’s old and crumbling. It must be replaced. If you choose a small portion of infrastructure and drill down, you can emerge with the dominant share. For example, reflectors for highways, or high-temperature light bulbs, or corrosion-resistant valves, or dust filters, or fasteners, or high tensile-strength coil springs. Wherever massive infrastructure needs exist, find the specialty niche and dominate it through classic direct marketing.
I’ve always said I want just a small piece of a major market. I don’t want the road construction market, only the batteries for the blinking lights on the traffic barriers, or the reflective tape, or the ice-water buckets on the back of the pick-ups, or the double-sided “Slow/Stop” signs they use to control one-way traffic. A catalog and website called Traffic Control would be exciting, to me.
If I were to pick winners for business-to-business, it would have to be water, infrastructure and downloadable content in that order. For consumer, it would be geriatrics, play and organics, also in that order.
Perhaps the most important observation about these future growth opportunities concerns what I have observed from the present and the past. Very few direct marketers know where they will go for their next market. Fully half of my consulting practice over the past 20 years—and a good part of my corporate career—has been concerned with new market development and market expansion. Recently, I have seen no less than five significant companies that are losing their niches due to change, and not one of those companies had a definitive plan on where to go to replace that market share.
These opportunities are only representative. Your individual market is where you begin. What is changing? How is it going to change your business? What new market demands are being called for by your customers? How can you adapt? Those are the baseline questions that need to be answered. Once you know the answers, the solutions are self-evident.
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