Thursday, January 20, 2022

Luxury Brands and Ethics: Expectations and Reality

(This is the fourth in a series of articles about the Luxury Market. The previous three may be found on my blog at Are the Roaring 20’s Back?, Meet the HENRYs and Gen Z. The previous three covered the nature of the luxury market and its target customers. One clear point that emerged from those articles is that the luxury customer demands a certain level of social responsibility and ethics from their brands. This article explores the picture of ethics among luxury brands and the customer’s expectation profile. )

In a Forbes article from January of last year entitled, “Luxury Turns From Conspicuous to Conscientious in 2021: Challenges and Opportunities Ahead,” the author explores the role ethics will play in the customer’s purchases and loyalty.

The author, Pamela Danziger, states that, regarding expectations, 

“Once luxury consumers emerge, they will dig deeper into the meaning and purpose of brands that they choose to connect with, looking for brand values that match their own. 

It means more than just brands taking a stand on the environment, sustainability and socially-responsible business practices, along with support of cultural values like gender, race, sexual orientation and income equality.” 

That said, luxury brands are starting from behind in terms of customer expectations regarding social responsibility and ethics. Danziger further states:

“As good as these ideals sound and important as they are, there is an inherent disconnect for an industry that at its roots is made for the ‘haves’ to suddenly be concerned about the ‘have nots.’” 

A 2019 scholarly article in the Journal of Cleaner Production by Elsevier goes deeper into this situation by conducting a study of luxury customers based on hypotheses that sing the same tune. They state that luxury brands are perceived to be less ethical than “sincere” brands and carry a “sophistication liability.” 

However, regarding luxury brands’ social responsibility efforts, they state that “companies invest more in CSR activities to improve consumers' perception regarding brand ethicality and attain their support.”  But, if consumers suspect this, they dislike this practice and will not reward the brands with their purchases or loyalty.

So, are luxury brands like Kering and LVMH being treated unfairly, the victim of an inaccurate social perception? What is the truth about their CSR activities? 

First let’s take a look at what they might say. Here is quote regarding human trafficking, debt bondage, forced labor from their 2021 Human Rights Policy:

“Forced labor, human trafficking, debt bondage and other forms of slavery are strongly prohibited in our supply chain and are considered breaches for which we have zero tolerance. The unlawful practice of forced or compulsory labor constitutes an element that would nullify any business relationship between Kering and its Houses and a business partner.

In particular, we expect that our business partners do not retain workers’ identity documents, do not withhold wages, prohibit recruitment fees paid by workers themselves and do not impose restrictions on workers’ freedom of movement. 

Vulnerable groups, such as international or internal migrants or illiterate workers, are particularly exposed to these risks and require special attention.” 

The report clearly outlines some of the most critical human rights issues in the supply chain: Forced labor, labor bondage and recruitment fees, abuse of vulnerable groups. While the report claims to advise follow up on the status of these policies, in my view it clearly puts the responsibility on the supplier in this and other sections by repeated use of phrases like “we expect.” Do they carefully investigate these issues before doing business? After engagement, do they monitor the social compliance of the supplier? Or is it to easy to excuse the supplier’s bad behavior by saying “we told you what we expected?” How about, instead, saying that “we will thoroughly vet our supply chain and not do business with any resource who either engages in or probably engages in these practices?”

It seems that Luxury Brands don’t follow up on their words, and don’t make it a priority to vet and monitor their supply chains. The 2021 Apparel and Footwear Report by KnowTheChain provides clear evidence of this.  

The report establishes two indices of apparel companies’ human rights efforts in the workplace. The first is a “benchmark score” on a scale of 0 to 100 which documents known efforts by the company to become involved in and remedy the key issues; the second is a “worker-centric” score which are “the indicators that focus on due diligence processes based on worker participation and on concrete outcomes for workers.”

The results of their work are particularly disturbing, but they take the time to point out that luxury brands as a group are not at the top of the list; in fact, they may be at the bottom. They state in particular:

“Luxury apparel companies score particularly low, at 31/100. Italian luxury fashion house Prada’s score has worsened over time, scoring a mere 5/100, while peers such as the French luxury goods company Kering (41/100) and the German brand Hugo Boss (49/100) have improved significantly since 2016. Also among the bottom five companies in the benchmark is US-based Tapestry (16/100), the owner of Coach and Kate Spade. No luxury company disclosed a process for responding to allegations and only two disclosed outcomes of remedy for workers in their supply chains, including reimbursement of recruitment fees.” 

Combining the two indices, the report lists the total scores of the companies it studied. The top of the heap is populated by brands that are not luxury brands by any stretch. The top four are Lululemon at 89, Adidas at 86, PVH at 74, and the Gap at 70.

The best showing for a luxury brand is Burberry at 53, followed by Hugo Boss at 49. Going down the list, Kering is at 41, Hermes is 24, LVMH is 19, and Prada is a 5. 

As a group, luxury brands average 31 against a 43 for Footwear and 47 for Apparel Retail. 

Further, they make the point that companies in general with market cap >$50 billion were particularly deficient in supply chain transparency, citing the fact that “LVMH and Hermes disclosed little to no information on the locations of their supply chains.” 

So where will luxury customers turn to satisfy their aspirations and prosocial goals? My view is that the winners in the future will turn to a different breed of luxury brands, startups and those whose social goals are part of their DNA.

A January 2021 report entitled “The 26 Most Sustainable and Ethical Luxury Brands” points out companies that are a different breed of cat. They were founded to market artisanal, environmentally-friendly luxury products and that is the core of their business model. Some examples are: 

So Good to Wear, which designs cashmere garments made by a fair-trade factory in Nepal. “Its knitters are well-trained, well-compensated and work under fair and safe labor conditions.” 

Another that practices transparency in their supply chains is Maggie Marilyn, who 

“prides itself on being transparent and shares on its website details of all its makers, suppliers, and where possible, farmers.” 

Granted that these brands are small, infinitesimal compared the LVMH of the world. So what good does their presence serve to solve the huge problem that exists and which is not being addressed by the giants? Two answers: 1. As they grow, their DNA will not pivot to where the others are; and 2. The more of these ants start to prosper and gain the attention of customers, the more the big brands will have to take note. Nothing, repeat, nothing, will get the attention the big luxury brands except the realization that their customers are going elsewhere.

Understood that may take some time to happen, or it may not—that is an unknown unknown; but if we believe it will-and I do—it becomes a known unknown. Not if, but when.

What really will push the timeline along is if some global brand gets the point and starts really making some efforts that will get the attention of its competitors. The same Ecocult report praises Gucci (Kering) and says, “The brand is committed to environmental benchmarks and guarantees that it will make 95% of its raw material traceable. Gucci is also committed to the sustainability objectives set out by the parent company Kering, which states several sustainability strategies including reducing its environmental footprint and choosing responsible and well-managed supply sources. “ And the best part is it offers some advice: “If you’re looking for a recognizable luxury logo that is more ethical than the rest, then Gucci would be the way to go.”  

There is an incredible amount of work to be done before anyone can claim that luxury brands as a group are ethical and that their impact on their supply chains is positive in terms of human rights. But, in the meanwhile, Danziger in her Forbes report offers one piece of advice which I think is a critical marketing point: We started this journey with the realization that consumers have a built-in negative attitude toward ethics in the luxury world. So, if your logo and brand on display in a garment, handbag, or shoes screams greed and irresponsibility, why not tone it down? 

She says, “True luxury whispers. It doesn’t scream.” 

That is really good advice. Let’s see who follows it.

(Not done yet. Lots more to write about luxury. Watch this space for my next piece)

©Michael Serwetz 2022


Tuesday, January 11, 2022

Gen Z: Up Next, Bigger than Ever?

But not without issues

(This is the third in a series of articles about today’s Luxury market and consumer. My last article, “Meet the HENRYs” focused on the Millennials as a luxury market consumer. Now we turn to GEN Z, who will follow Millennials into the workplace. Will they surpass Millennials as a target consumer segment?)

In 2015, Goldman Sachs issued a report entitled, “What If I Told You?” which as one of the “tells” said that “Gen Z will be larger and more influential than Millennials.” Numbers for this generation have ranged as high as 90 million, but there are unique attributes, which we will review below. 

But first, let’s be sure we all agree on the generational delineations. Starting points for Gen Z and ending points for Millennials have varied a year or two, but here I use the latest data based on Pew Research Center’s work:


So why should we be excited about Gen Z and what questions are there about their consumption habits?

To begin, Gen Z were “born connected.” In 1997, the internet already existed and was quickly turning to a viable business mode (Amazon started in 1994). After the dot-com crash of 2000 (the oldest Gen Zers were only 3), those survivors formed the core of today’s online marketplace. By any assumption of when Gen Zers started to use the internet for social media and shopping (let’s say 10 years old for arguments sake), the medium was already thriving. So they grew up with a device in their hand and they know how to use it. This is not to say that they are addicted to online shopping (we also know they love the shopping experience, as we will see later), but having a device in their hand all day is in their DNA.

An addiction which represents an opportunity for marketers but a troubling trend for Gen Z, is their mental health based on 5-6 hours or more online every day:


Gen Zers were born into a troubling world, and are growing up with phenomena like the above and COVID-19. Does the plethora of social media opportunities make them feel part of a global community and that they are an important part of it? Apparently not:


This troubling trend extends to a disturbing increase in suicide rates, especially among girls. CNN reports that “Starting in 2007, the rates of suicide for girls 10 to 14 increased 12.7% per year, compared with 7.1% for boys the same age. A similar trend was seen for teens 15 to 19, with rates of suicide going up 7.9% for girls and 3.5% for boys.” The report also points out that girls may be more vulnerable to the negative effects of social media and cites a JAMA report, saying that “’Compared with boys, girls use social media more frequently and are more likely to experience cyberbullying,’” 

So how does the above influence Gen Zers as customers, given that there sheer numbers are so large and that they will doubtless enter the HENRY ranks in the near future? Some trends in their purchasing outlook continue the trend that was begun by their Millennial elders, but with more emphasis.

Let’s begin with the social profile of Gen Zers. 

They are the best educated: 59% of Gen Zers were pursuing college in 2017, as opposed to 53% of Millennials in 2002;

They are more racially diverse than Millennials: 48% of Gen Zers were nonwhite in 2018, as opposed to 39% of Millennials in 2002; the percentage of whites in the age group went from 61% in 2002 to 52% in 2018;

One in four Gen Zers are Hispanic; these numbers increase in the Western US;

The median household income where Gen Zers live exceeds that of older generations when they were young, at $63,700;

They tend to be more liberal than earlier generations and vote in greater numbers.

So here we have a customer who is more diverse, is more educated than older generations, totally connected and sometimes unhappy. How does that affect their purchasing outlook and power?

To begin with, in addition to becoming a consumption powerhouse on their own in the near future, Gen Zers influence the spending of their households now.  The Shelf reports:

“Gen Z commands a remarkable $143 billion in buying power. That’s almost 40 percent of ALL consumer shopping — crazy, huh? Ninety-three percent of parents say their Gen Z children influence their household spending. Another 70 percent of parents ask their Gen Z kids for advice before making purchase decisions. That’s A LOT of influence.” 

Some more highlights from that report:

Gen Z values Privacy and Security, being more wise to the power and the reach of the global connection;

Gen Z is willingly loyal to brands who meet their product, price and social expectations;

Gen Z is working earlier and more than Millennials did at the same age;

Having grown up during a recession, they are thrifty. But they don’t want fast fashion that disappears into the trash—hence the explosion of the RealReal  and other second hand web sites.

They are passionate about social issues, hence would look down on companies that exploited workers as in Modern Slavery;

They prefer authenticity and transparency in marketing;

While they are at home with shopping online, 81% of the Gen Zers surveyed by The Shelf preferred shopping in store. They are a perfect example of the value of ROPO (Research Online, Purchase Offline) psychology because they value the in-person shopping experience, which makes them the perfect candidate for luxury brands. 

While we have so far focused on the US statistically, we should remember that this is a globally connected marketplace and the purchasing power of Gen Zers in Asia is huge, which will account for 50% of luxury spending by 2025. 

The fact that Gen Zers have grown up with some insecurity makes them even more of a passionate candidate for luxury brands. According to a Crobox report, the Gen Zer fits the psychographic profile of the luxury consumer:

Luxury purchases are hedonic, releasing dopamine and making the buyer feel good about themselves. For the moment.

They are impulsive, as gifts or “treats” making the purchaser feel they “can do it;”

Luxury shoppers give the purchaser a feeling of financial power (even if they don’t actually have it or have it yet);

Luxury consumers demand that their brands be “woke” in terms of sustainability, ethics, etc.

Further, the luxury customer falls into one or more of the following clusters, all of which appeal to Gen Zers:

The Need for Uniqueness- I am not just a number on social media

Costly Signaling and Status- Showing others you can spend it

Building the Self and Self-Narrative- Who I am and who I want to be.

Troubled, concerned, and passionate. This profile of the demographics and psychographics of the Gen Z customer has me convinced that they will surpass their Millennial elders as the bedrock of the Luxury business in the near future. The time is now for brands to start cultivating and following them.

© 2022 Michael Serwetz

Friday, December 31, 2021

Facebook 2021: A,I can’t help you A,I won’t help you?


Company over country; profit over propriety. These were the key points made in the recent book An Ugly Truth, and the documentary The Social Dilemma. Facebook (aka Meta) has been exposed to a staggering amount of bad press which included a whistleblower, Frances Haugen, federal lawsuits, and accusations of pandering to children at a time when suicide among the very young is startlingly increasing.

Yet, especially despite all of the above, Facebook’s numbers are dazzling. Yahoo! Reported on November 24th of this year:

“Meta's third-quarter 2021 earnings of $3.22 per share beat the Zacks Consensus Estimate by 0.6% and increased 18.8% year over year.

Revenues of $29.01 billion missed the Zacks Consensus Estimate by 1.8% but increased 35.1% year over year. At constant currency (cc), the top line improved 34%.

Geographically, Asia-Pacific, the United States & Canada, Europe, and Rest of World (RoW) revenues grew 29.1%, 34.3%, 36.3%, and 49.1%, on a year-over-year basis, respectively.

Average Revenue per User (ARPU) in RoW, Europe, the United States & Canada, and Asia-Pacific grew 41.4%, 33%, 32.1% and 17.2%, on a year-over-year basis, respectively.

Advertising revenues surged 33.2% year over year to $28.28 billion and accounted for 97.5% of third-quarter revenues. Other revenues surged 194.8% year over year to $734 million.

The tech giant’s RoW, Europe, the United States & Canada, and Asia-Pacific advertising revenues grew 49.6%, 35%, 31.1% and 28.5%, on a year-over-year basis, respectively.

Ad impressions served rose 9% and average price per ad increased 22% from the year-ago quarter.

User Base Continues to Expand

Monthly active users (MAUs) were 2.910 billion, up 6.2% year over year.

MAUs in Asia-Pacific, RoW, Europe, and the United States & Canada grew 9.6%, 4.7%, 2.4% and 2.4% to 1.28 billion, 949 million, 423 million and 261 million, respectively.

Daily Active Users (DAUs) were 1.930 billion, which increased 6% year over year and represented 66% of MAUs.

Asia-Pacific DAUs were up 10.7% year over year to 805 million. DAUs in RoW and Europe grew 4.9% and 1% to 622 million and 308 million, respectively. The United States & Canada DAUs were unchanged at 196 million.

Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Meta, Instagram, Messenger and/or WhatsApp) on a given day, were 2.81 billion, up 10.6% year over year.” 

Scott Galloway’s New Algorithm of Value is surely at work here. (What it basically says is the bigger you get, the more data you can gather; the more data you can gather, the bigger you get). Can Facebook and Mark Zuckerberg be held responsible for anything that happens, whether intentionally due to their AI or as a result of it?

The Economist recently reported in a piece called “Accounting for algorithms,” that a UN report published in 2018 attributed a “determining role” for Facebook’s platform in the Rohingya genocide. According to the article, on December 6th of 2021 a letter was delivered to Facebook’s offices in London and California. The suit will seek “at least $150bn in compensations for “wrongful death, personal injury, pain and suffering, emotional distress, and loss of property.” The suit is predicated on being able to apply Burmese law for harms done in Myanmar. 

Most importantly, the article points out that, “The current lawsuits argue that Facebook is both manufacturer and, to some extent, messenger: its algorithms decide what people see. Whether and how the firm is liable for what its algorithms do will now be tested.” 

That is just the point: If Facebook can create algorithms and media that facilitate this kind of hate and tragedy, do they not have the power to create algorithms that don’t, even if it costs them revenue? For example, with today’s algorithms, if you like to see hate posts or fake news, revolutionary or destructive posts, Facebook’s algorithms will show you more of those. Whatever changes Facebook says it has made to better control that sort of thing, how far has it gone? Has Facebook demonstrated what its algorithms will be in the future so it can capture the positive aspects of a global media app and eliminate the negative and tragic? 

Will the US Government succeed in taking Facebook to task in court, as they have tried to do and failed? I think not. Why? Because Senators, Congressmen, all politicians cannot get elected without Facebook. So why kill their golden goose?

Does getting elected take precedence over protecting the electorate?

After showing my students the above documentary and their reading the book, they said they were “trying to cut down” on social media time (like trying to quit smoking—never works). And, when asked the question as to whether someone who chooses to advertise on Facebook is also responsible for its ills, their answer was—silence.

Mark Zuckerberg has proven to be the Teflon Don to a degree that John Gotti could not even dream of. So if we accept the fact that Facebook is too big and too much a part of everyone’s lives to control, we can only hope that he sees the light at some point and makes the changes that will address all these recurring issues. If he does, the case might be that Facebook does not lose users; it may gain back those who (like me) have abandoned it and its avatars.

Friday, December 24, 2021

Meet the HENRYs- Your New Target Customer


(This is the second in a series about today’s luxury market and customer. If you read my first article, “Are the Roaring 20’s Back?” you would already know that focusing on the luxury market is a key strategy for 2022 and beyond)

What’s a HENRY? Or rather, who are the HENRYs?

HENRY stands for High Earners Not Rich Yet. What does this mean? According to the Wise Marketer, they are mostly Millennials (born between 1981 and 1996, which means they would have been between 25 to 40 in 2021) but overall a household under 55 whose income ranges between $100 and $250K and who have not yet amassed investable assets of $1M.

Many of these HENRY customers have cleared college loans and dependency on their parents or family, and are in a rising income mode; while the Millenial HENRY has not totally done so, their spending is nonetheless rising. With that rising income comes a rise in discretionary spending, more than the Gen X or Baby Boomer HENRYs. 

Let’s look at the entire Millennial generation first. According to Goldman Sachs, they are the largest population cohort: 92 million vs 61 Million Gen X (1965-1980) and 77 million Baby Boomers (1946-1964) and the first generation of Digital Natives.  That said, their debt burden is higher than those of its predecessors, but the Pandemic has started to reverse that.

So why focus on the Millennial HENRY? 

First, they spend more than the other generations within the HENRY group. According to Wise Marketer, Discretionary Spending peaks at age 40, and begins to decline at age 50.  The report cites $86K for Millennial HENRYs as opposed to $67K and $60K for Gen X and Boomer HENRYs. 

And that is only going to get bigger as the younger Millennial HENRYs reach their peak spending years.

What is the customer profile of the Millenial HENRY?

So Millennial HENRYs are a particular bunch with particular requirements which are different from their older HENRY cohorts. How so?

1. Mobile-First Marketing- There have been different numbers at different times, but Millenials make the majority of their purchases on their smartphone and, if you add laptops and tablets, that about does it all.

That said, the luxury market is and always will be a sector that is oriented toward physical stores, due to the price, the service and the overall experience. BUT, digital marketing is becoming a key tool for a ROPO (Research Online, Purchase Offline) or a Showrooming (the opposite of ROPO) strategy, which many luxury customers prefer. Either way, digital presence is key to success in the luxury market as well as all the others.

Millennial HENRYs are ideal luxury customers, but with their own style and conditions. To HENRYs, brands have to fulfill their Aspirational Self; their view of who they are and who they want to be. As well, their Prosocial Signaling and their need for Uniqueness. This certainly applies to luxury fashion, but also determines where they eat, which car they drive, and where they vacation.

More, the Millennial HENRY is comfortable with new technology and adopts that as a signal of who they are. 

Ethics and Sustainability figure for the Millennial HENRY, where they were not a factor for their predecessors.

Make me look good, feel good, feel special about myself and my association with you, brand. And follow my needs, or someone else will.

This is one of the biggest differences between the Millennial Luxury Customer and their predecessor generations: brands have to follow them, not the other way around. Even the big iconic brands like LVMH and Kering are learning that.

For the Millennial, the sacred Four P’s of marketing have become the Four E’s:

Product >> has changed to >> Experience

Place >> has changed to >> Everyplace

Price >> has changed to >> Exchange

Promotion >> has changed to >> Evangelism  

On Strategy explains:

Experience: Where marketers used to focus on their product, now we must think of the entire customer experience- what does a customer encounter related to purchasing and using your product/service?

EveryPlace: Today, place has become everyplace- there’s just SO MANY methods for conveying your message: IM, SMS, countless social media websites, video games, product placement in places like TV, Movies, internet video clips- the list goes on.

Exchange: With so much on the web being offered for free, pricing has become much different. Words like Freemium, describing how premium services pay for free services offered by the same company would have boggled marketers minds a few years ago.

Engagement/Evangelism: Promotion isn’t enough any longer. With so many more message channels, we can’t just bombard people with messages and hope they’ll pick them up. Companies have to figure out how to get consumers to allow them into their attention spans.

Brands better pay very close attention to the entire experience, from Awareness to Advocacy, or someone else will be glad to do it for them. This is especially important, as well as difficult, in the digital space. 

What happens as Millennial HENRYs get old and start to peak spending? 

Everything they believed and their approach to spending is geometrically multiplied by their followers, Gen Z.

But that’s another subject. Watch this space.

©Michael Serwetz 2021

Friday, December 10, 2021

Are the “Roaring 20’s” back? Yes, but not how you probably think.

There she is- the common image of the Roaring 20’s symbolized by the beautiful Mia Farrow.

An age of joy, abandon, unprecedented riches and living in the moment—until the moment fell apart in 1929.

There has been a lot of talk about this type of wild consumerism coming back post-Pandemic. And maybe it will. But not everyone will attend the wild party.

In 2021-22, the Roaring 20’s WILL dominate the retail scene. But not the era, the income group; the top 20% of earners has grown dramatically, while the bottom 20% struggles with necessities and paying bills.

Let’s take a look:

It is clear to see from the above that the top 20% has lots of wiggle room between their necessities expense and discretionary spending; however, if the bottom 20% wants to spend on something they don’t need, they have to dip into the pot that funds their necessities.

And this:

The combined wealth growth of the top 10% was $17.3 trillion; if we include the top 50%, it was $23.4 trillion. This compared to $1.2 trillion for the entire bottom 50%. So, in terms of wealth and discretionary spending, it will come from the top 20% plus the wannabes and aspirants from the top 50%. The HENRYs (High Earner, not rich yet- typically between $100 and $250K annual income).

So what does this portend for retail?

First, tremendous growth in the premium and luxury sectors. Not just the iconic brands, but the hundreds of new brands that have positioned themselves with the hope of joining the luxury fraternity.

Second, what has come to be known as the Bifurcation of Retail will become more exaggerated. The bottom 50% has to be concerned about price in everything they do; retailers that emphasize and are devoted to the price strategy like Walmart, TJX, Amazon will be their go to shopping destinations.

The top 50% will look for individualistic, higher quality product from the above iconic and emergent premium and luxury retailers.

What is missing here? The middle. Traditionally populated by “balanced” department stores. It looks like they are and will continue to find themselves irrelevant in both high- and low-end consumers retail plans.

Can the department stores reinvent themselves to be the true moderate middle again? To do so, will they give up the 25% because of this plus another 25% because of that and 25% more because we like you to fill their floors with quality, well-merchandised goods that represent fashion and quality at a moderate price point? Even if they want to, do they have the merchants who can do it? Back in the day, we NY department store buyers were good to great merchants who trekked to Paris and Tokyo, and knew what they wanted to buy or develop; the sales floors were not overcrowded or overassorted—they represented our statement of what we believed in. Sound familiar? This is the way Inditex (Zara biggest division) runs its business.

My word is not as good as the facts. Let’s take a look (the following two graphics are from the Deloitte Insights Report (2018). They are even worse (or better, depending on who you are) today:


      And this:

The Deloitte report was exposing something that had started to happen years before the Pandemic. We all know that the Pandemic served as the Grim Reaper for many retailers, most in that moderate middle.

Conclusively, the report said, “The great retail bifurcation is the apparent low-end and high-end retailers in accordance with the consumer’s economic situation and, more importantly, in accordance with a close understanding and response to what needs the consumer is expressing.” 

According to the same report (pre-Pandemic), the bifurcation represents an opportunity, a Renaissance, for retailers, big or small, apparel or any industry, who want to pay close attention to the evolving requirements of their target audience.

Such as ethics and sustainability- but that’s another subject. (Author’s note: this is the first in a series of articles about the luxury retail sector in 2021 and the future. Watch this space for more.)

© Michael Serwetz 2021

Thursday, July 29, 2021

Another Ugly Truth: Facebook's Moat

 Another Ugly Truth: Facebook’s Moat


“An Ugly Truth” is the name of a recent book about Facebook, authored by Sheera Frenkel and Cecilia Kang, reporters for the New York Times. The book is an eye-opening, stomach-churning account of Facebook’s history from its birth in 2006 through its role in Trump’s election in 2016, up until the recent history of the attack on the Capitol on January 6, 2021. After reading the book, I considered: Why does Facebook have a Teflon coating, and just keeps growing despite all its missteps, misses and company-first decisions with significant global impact?


First, to understand the book’s point of view, present tense, stated in the last paragraph, let’s read it here:


“One thing is certain. Even if the company undergoes a radical transformation in the coming years, that change is unlikely to come from within. The algorithm that serves as Facebook’s beating heart is too powerful and too lucrative. And the platform is built upon a fundamental, possibly irreconcilable dichotomy: its purposed mission to advance society by connecting people while also profiting off them. It is Facebook’s dilemma and its ugly truth.”[i]


What the book chronicles is exactly the above: As Facebook got bigger (by acquisitions and users) and became more relevant in people’s lives, thus more irresistible for advertisers’ money, the more it became a platform not only for people wanting to say hi to Grandma, but people wanting to overthrow governments, influence elections, and spread misinformation easily to the world’s biggest audience. Of course, the known examples are Trump’s use of the platform before and after his election and defeat (he was at one point Facebook’s biggest advertiser), the Cambridge Analytica scandal, and the insurrection of January 6. How to balance hate being spread on its pages with “free speech” (Oliver Wendell Holmes may be doing spins in his grave) and pissing off users when you take a stand for or against something that may influence their lives (Trump’s BS) or even get people killed (Myanmar), which might lead to loss of users and revenue?


Facebook’s “Battle for Domination” becomes a battle to walk the tightrope between revenue and principle- in the public and government’s eyes, with revenue the clear and simple goal. Frenkel and Kang leave no doubt that, to Zuckerberg, the algorithm was and is “Company over Country.”[ii]


Fast forward to today, July 27, 2021. Two recent news articles about Facebook reveal the road that Facebook has chosen to walk, at least up to now. The first is, as reported by Reuters, that Facebook will restrict targeting of users under 18 according to their behavior on other sites (they still can be targeted, but only based on their activity on Facebook/Instagram/Messenger).[iii]


The other is an article in the New York Times by the same Cecilia Kang entitled, “The F.T.C. asks for an extension to refile its Facebook antitrust suit,” which was thrown out by the District Court in D.C.  and given 30 days to refile (good luck with finding something in the next 30 days that they didn’t find before).[iv]


For those who are thinking (again) that altruism and social responsibility has become the mantra at Facebook over moneymaking, ask yourself if Facebook is doing this because they want to protect our children, or because they want to protect themselves? The same question must be asked about Apple’s IOS 14.5 (which gives the users the right to opt out of companies selling their info to other companies) and Google’s new Privacy Policy. 


And, I believe the answer to this question for three of Scott Galloway’s Four Horsemen[v] is the same: when they have more to lose than gain, only then will they consider compromising any activity that contributes to revenue.


Why can they get away with this and why does their business keep growing significantly (Facebook’s share price has increased 61.44% in the last year[vi])? The simple answer is the same as for every other company- Their Moat.


For those of you who are not familiar with the term, an economic Moat is, put simply, a barrier to entry for any threats to the enterprise- be it another company, economic issues, governments or Pandemics. The wider the Moat, the safer the company is to continue its mission and prosper. 


Morningstar Investments, the famous investment research company, defines four types of Moats:


1.    Switching Costs- The financial and/or emotional cost of switching from one brand/product/service to another

2.    Intangible Assets- Brand image, patents, trade secrets, customer perception

3.     Cost Advantage- Based on:

1.    Economies of scale- eg., Amazon Prime-wide

2.    Process advantage- Be cheaper eg., Payless Shoe Stores, Kmart-narrower

4.    Network Effect- Value grows as people use the brand or service more and more-self perpetuating[vii]


Let’s look at each as regards Facebook:


1.    Switching CostsSure, you can switch social media apps, but a. you want to be where everyone is, is the soul of social media, and b. If you did switch from Facebook, your likely choice would be Instagram, which is—Facebook. Yes, you can go TikTok or Reddit or Snapchat but in the 6+ hours the average teenager spends on the internet, which social media app is where the action is? And what would it take, if it were at all possible, for the invaders of the moat to be a real alternative to Facebook? Switching costs are both financial and functional. And advertisers know that.

2.    Intangible Assets- Facebook is a brand that has withstood governmental attacks, hackers, invaders and their own greed and inability to respond in a timely and correct manner-but it is still—Facebook. And advertisers know that.

3.    Economies of Scale- In this case, Scale above all is reach. Half the world outside of China is on Facebook. And advertisers know that.

4.    Network Effect- Why Facebook keeps getting bigger and bigger. The huge trove of data feeds the monster and it perpetuates itself. And advertisers know that.


Is there anything that can readjust the balance between social responsibility, actually protecting users from hate and misinformation, and the constant flood of increased revenue without overbearing government control, which would taint the experience? 


Well, as Frenkel and Kang have aptly stated above, if there is an answer, nobody has found it yet. Even if government is successful in breaking up the company, it will be broken into pieces so big that they may be able to regenerate to an even bigger tomorrow. But yet, given the absolute fact that our children are digital-native and are influenced more and more by what they see and hear on social media, where they may spend most of their day, it is a problem that must be solved for the good of society. Will today’s teenagers and young people demand more social responsibility of companies they deal with? I have polled every class I teach about this, and they all say yes. 


But, the question really is, are they the influencers or the influenced?


And Facebook, with the rest of the Four Horsemen, goes on.


Author’s Note: An Ugly Truth is a well-written, totally engaging, at times stomach-turning, book that everyone should read, if they live anywhere in this world.


[i] Sheera Frenkel and Cecilia Kang, “An Ugly Truth: Inside Facebook’s Battle for Domination,” (New York: HarperCollins, 2021), p. 300.

[ii] Ibid., p. 117.

[iii], “Facebook will restrict ad targeting of under-18s,”

[iv], “The F.T.C. asks for an extension to refile its Facebook antitrust suit,”

[v] Scott Galloway, “The Four: The hidden DNA of Amazon, Apple, Facebook and Google,” (New York: Portfolio/Penguin, 2017) p. 2. 


[vii], “Types of economic moats,”

The American Responsibility Act

 The American Responsibility Act


Since he took office, President Biden has been promoting Rooseveltian legislation aimed at bringing America up to speed in many ways. Such acts as the WPA-like American Jobs Plan, For the People Act, and American Families Plan are not forward-looking legislation so much as they are playing catch up ball with what we messed up or neglected in the past. Is it too little, too late? Now, it can only be too little, but it could be too late if Congress play games with the needs of the American people. Could happen.


Good for President Biden for taking this direction; it is urgently needed to offset years of inaction. Or, in some cases, hundreds of years. Let’s see some examples:


·      Infrastructure- We basically built our last interstate highway in 1956[i]. The total of 46,720 miles was surpassed by China in 2011 with 52,800 miles and China main highways stood at 100,040 miles (161,000km) in 2020.[ii]

·      Computer Chips- Only 12% of the world’s computer chips are made in the US,[iii] with China positioned to become the world leader by[iv] 2030.Taiwan Semiconductor and Korea’s Samsung are two of the market leaders. Even Intel, the leader by volume, makes some of its chips in China.[v]

·      Taxes- It has become embarrassingly clear that billionaires like Jeff Bezos probably pay less taxes than you or I do. The income inequality level in 2019 reached its highest level in 50 years. Economist Larry Summers has estimated that if the US had the same income distribution it had in 1979, the bottom 80% would have $1 trillion (or $11,000 per family) more and the top 1% would have $1 trillion, or $750,000, less.

·      Political Gridlock- Our United States Congress is anything but united. Now we have partisan gridlock on just about everything; when something does get done, it becomes like food that tries to please everyone, but ends up pleasing nobody.


Let’s move on to social issues. For a country that has a Statue of Liberty still standing in its gateway, and E Pluribus Unum (From many, one) on every bill, we are sadly NOT living up to that image. Some prime examples:

·      RacismBlack Americans- Slavery was abolished in 1865, 10 of the first 12 American Presidents were slaveholders, then Martin Luther King was assassinated in 1968 campaigning for civil rights, yet on May 25, 2020 we had George Floyd’s murder. And many more incidents up until today. 156 years after we passed the Thirteenth Amendment into law, we passed Juneteenth as a national holiday to celebrate it.  Why? Because racism is in our cultural DNA. And in many places little change of attitude has taken place over the centuries. Case in point is that the state of Mississippi did not certify the Thirteenth Amendment, thus actually banning slavery, until 2013.[vi] Don’t believe me? Look it up.

·      Racism-Anti-Asian Hate- This has always existed in the United States and been promoted and protected by law. IN 1882 The Chinese Exclusion Act was passed, which was not officially reversed until 1965.[vii] Of course, in 2020 Anti-Asian Hate was promoted publicly by the President and his staff. So what is the result? In 2021, anti-Asian hate crimes increased by 223% in New York and 140% in San Francisco, two cities with large Chinese populations.[viii]We cannot write this social disease off to “a few people;” it has had official sanction for most of our history. 


Think about it, and it gets worse. We have in this country anti-black racism, and anti- Asian hate, not to mention prejudice toward other groups. Along with many other immigrant groups like those from Europe, Chinese, Black, Latino and other countries, immigrant groups have built this country and still stand as some of its most sturdy pillars. If you accept this, and you must if you are not in denial, then please explain why there are no Anti-Italian or Anti-Irish hate spikes? Is it because all of those facing prejudice and racism look different? I am afraid so.

Worse, are we teaching our children to hate or fear anyone who doesn’t look like them? Yes, we are. This is our Xenophobic reality.


The most popular excuse, and it is just that, today is to blame China for our ills. Does this make sense? OK, did the Chinese take our jobs in building their economy? Did they build all those roads and metros against our will or were they just doing what they should do?


China did not take our jobs, fellow Americans; we handed them to China, gladly. As income inequality grew and our standard of living plummeted, we happily gave up competing in basic industries, and eagerly shopped at Walmart so we could get more for less. I remember back in the 80s when I reached out to American textile and garment owners asking them to compete with overseas industries by using automation and efficiency, they either ignored me or called me traitor for suggesting that we were losing the action to yellow and brown people. At that time, I was just one lonely voice. Maybe I still am, but I haven’t given up telling the Plain Truth.


But, why do so many Americans think like Trump? Or like Trump? Because politicians, good ones without a soul, are the most highly skilled at making people think the way they want them to think. Which, in every single case, never serves the influenced but always serves the influencers. Hitler was a master at that. We haven’t had a Hitler yet, maybe we survived a doppelganger, but we need to admit that those in Germany and in this country who are influenced by unscrupulous politicians are usually willing victims.


So now we come to the title of this Article- The American Responsibility Act. I am not suggesting that President Biden introduce legislation of this sort; this is because, as I have suggested in all my writing, that legislation cannot solve embedded racism; it can suppress it, but not solve it. To purposely demean the deception that Xenophobics resort to, it is like when a kid gets caught doing something bad; he or she never admits to it, but seeks every creative way possible to deflect the blame, usually on someone less fortunate—the little brother or sister, the dog, etc.


The hallmark of emotional maturity is when a person learns to admit their own mistakes and learns from them; they also learn that admitting the truth to yourself is a prerequisite to solving the problem—unless, of course, the continuing existence of the problem is of benefit to you. That isn’t the case for most of us.


So, as an individual, what I am proposing you do is the other meaning of the word act. In addition to being a piece of legislation, an act can be something that you do, which goes to the next level and speaks louder than words. 


You do something about racism, prejudice and the unfairness of our system; you speak up for spending whatever is needed to bring our economy up to speed. You don’t let the soulless politicians speak for you. How? By taking responsibility as an American for where we are and not blaming China or Chinese, or Asians, or Blacks, or Latinos. Why? Because youhave a soul. An American Soul, that resonates with the intent of our Constitution which we need to turn into the Acts that define our daily lives, and what we will pass on to our children.







[i], “The US Interstate Highway System,”

[ii], “Expressways of China,”

[iii], “Why the US doesn’t make chips,”

[iv] Ibid.

[v], “Semiconductor Industry,”

[vi], “Mississippi Finally ‘Bans” Slavery,”

[vii], “Chinese Exclusion Act,”

[viii], “Anti-Asian Hate crimes surged in early 2021, survey says,”

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