Content Published Week

1. Enterprise: Costco: Multi-Vendor Mailers & Merchandise Margins

2. TransDigm: Esterline Acquisition & ScioTeq Spin

3. Kinsale Capital: A Wholesale Broker's Perspective

4. Costco Taiwan & Korea Market & Growth Opportunity

5. HEICO & the Value of Vertical Integration

6. Burford Capital

7. Danaher: Implementing DBS in the Sales Process

Upcoming Content in July / Aug

SHEIN

Credit Acceptance

CSI / Altera

Commercial aero aftermarket value chain

Essentra: UK spinco

Carvana and Carmax

Spotify

Mainfreight

Dino Polska

Surgical Science / ISRG

Costco: Multi-Vendor Mailers & Merchandise Margins

Costco is possibly the only business where senior leaders get punished for earning too much margin. A core tenet of Jim Sinegal’s philosophy was to limit its product gross margin to ~14%. This policy underpins Costco's unwavering focus on offering the most value to customers.

In an interview last year, a Former Senior Executive at Costco suggested Craig Jelinek’s pricing philosophy was drifting from Sinegal’s original principles. We recently interviewed a Former EVP at Costco, who also worked closely with both Sinegal and Jelinek, to further test the hypothesis that COST’s pricing philosophy has possibly drifted.

This analysis shares the history of Costcos MVM coupon program and how Jelinek’s pricing philosophy has drifted from Sinegal’s original principles.

Craig has worked with Jim since the FedMart days and knows what's expected, sticking close to the Costco way of doing things. He is more liberal in terms of marketing and other aspects compared to Jim's old-school approach. They still look at things like mailers and marketing, and Craig is probably more liberal in that aspect. In the past, we were strict about having sales at a lower price than our everyday low price, but that changed as we started to leave vendor money on the table. - Former EVP, Costco

TransDigm: Esterline Acquisition & ScioTeq Spin

This interview with a Former VP at an Esterline opco is an interesting glimpse into how TDG operate companies post-acquisition. We’re currently researching Transdigm’s operational capabilities to understand exactly how it adopts its 3 value drivers post-acq. We will be publishing Enterprise Research on both the Esterline and Calspan deal soon.

One consistent insight that comes up throughout our work is not necessarily how aggressive TDG is in pricing, but how ineffective most aero suppliers are at aftermarket pricing. If a supplier hasn’t raised prices in a decade, is it ‘aggressive’ if TDG hikes prices to catch-up and even surpass inflation?

Similar to CSU.TO, TDG typically has 1 large catch-up price hike with inflation+ hikes thereafter. This interview provides an inside glimpse at the challenges opcos face hiking prices post-acq:

We went to court and had meetings there. Sometimes, we reached a compromise just two hours before the hearing or the evening before. It was often quite aggressive…some of them barred us from entering their buildings beyond the visitor's meeting room. In the past, we could walk around and talk to R&D, but that was no longer allowed. Some customers were very upset. - Former CEO of ESL Opco

Costco Taiwan & Korea Market & Growth Opportunity

Following up from our recent work on COST’s international opportunity, we interviewed a Former Senior Leader of COST in APAC who was heavily involved in building the footprint in Korea and Taiwan. We’ve now covered various different markets for COST globally:

1. Enterprise: COST UK & Europe: History, Economics, and Store Opportunities

2. COST Taiwan and Korea Market & Growth Opportunities

3. Costco Canada Growth and Margins

4. COST Australia and China Growth

This interview explores the history and potential long-run store count in Korea and Taiwan.

HEICO & the Value of Vertical Integration

HEI owns PMA’s, repair shops, and a distributor to move OEM and PMA parts through the value chain. HEI first acquired an MRO shop in the late 90’s with a clear strategic rationale:

Owning a repair shop meant they could potentially increase the incorporation of PMA into more units. However, it turned out that the airlines still have to approve the use of PMA; a repair shop can't unilaterally decide to use it. - Former VP at HEICO

This interview with a Former HEI VP explores the value of vertical integration in the commercial aerospace aftermarket and why it may not have lived up to Heico's expectations. The question is how this may change with the Wencor acquisition?

Kinsale Capital: A Wholesale Broker's Perspective

Kinsale Capital is a fast-growing specialty insurer trading at a punchy multiple of book. The company states its pricing speed and effectiveness is a key attraction for wholesale brokers to work with Kinsale despite lower commission rates. This Current Executive at a leading wholesale broker discusses the relationship with Kinsale Capital relative to competitors:

From an underwriting perspective, results matter. What's important to me when working with carriers is their speed and efficiency. What can they do? What kind of risks can they write? Are they able to communicate effectively, answer my calls promptly? Can we discuss an opportunity, reach a mutual understanding quickly, and then proceed? Accessibility and product consistency are key. - Wholesale Broker working with Kinsale

Burford Capital

We explore how we originally came across BUR in 2016 and why we’re still following the company. This is a free audio podcast that explains our work on litigation financing and our approach to our recent Enterprise Analysis work on the company.

We cover:

1. Why Muddy Waters' short was perfect timing

2. Litigation finance as an asset class vs other alts

3. BUR Management team

4. Risks with the business and investment case

To follow all our free content, please add our podcast to your player with the buttons on the header of this email.

Danaher: Implementing DBS in the Sales Process

This interview with a Former VP of Danaher explores how the company deploys DBS into its sales organisations. We discuss the most effective tools and examples of where most companies struggle in sales:

People usually err in the conversion process. They fill up the top of the funnel with many wishful opportunities that may not materialize. Secondly, they don't follow through to make them happen and they don't abandon opportunities that are just smoke. Funnel discipline will force you to challenge your salesperson. For instance, if an opportunity has been in your funnel for three months, it's likely not going to happen. - Former VP at DHR