re: unnamed west coast retailer

[JCNorthway]

Related to recent comments about pre-arrivals at a certain west coast retailer, I noticed they made the New York Times.

http://www.nytimes.com/2015/06/07/your- ... =RecEngine

[AKR]

When The Grey Lady deigns to snoop into something, its officially A Problem.

[AlohaArtakaHoundsong]

"outraged 1 percenters" made me laugh. I suppose the Haggler is not down with Paulson's donation to Harvard.

[JimHow]

So the way John Fox describes it, they do not buy wines they do not have.
If I'm reading his expiation correctly, they are buying wines that actually exist and to which they have a right from the outset, and that the problem is delays in shipping.
So… again… why did The Haggler not ask the question then: "WHY is there such a delay in shipping, and WHY can't it just be resolved with a simple phone call or two?" The article does not clear up that question, even though he had one of the co-owners on the phone for an apparently extensive interview.

[DavidG]

Nothing about the PC business model is clear. I don't feel a whole lot more educated about it after reading John Fox' explanations in that NYT piece.

I think Arv has deduced the most likely scenario, posted either here somewhere or on another board. Most of us do not believe that they own/have purchased all of the wine that they offer for pre-arrival sales at the time that they make the offer, even if they say they do on their website. Perhaps they have some sort of deal to acquire the wine. That seems more likely than their claim to own it all prior to offer, and also more likely than PC successfully speculating that they can source the wine cheap enough to make a profit at the discounted price.

I also thought that a good many of these super-low prices seem pretty limited in quantity, so maybe they are loss leaders. But there are soooo many bottles that appear to be outstanding on CellarTracker, it would be hard to believe that all of the good deals are loss leaders. Then again, it looks like PC does plenty of business on in-stock wines that get delivered right away, so maybe the outstanding pre-arrivals really are a small part of their business. Someone did an analysis of CT data, as imprecise as that may be, and PC had a pretty high percentage of "pending deliveries" compared to everyone else.

[JimHow]

Hey look at all their in-stock Burgs.
I wonder if they're responding to the WSJ article.

https://bay182.mail.live.com/?tid=cmIFk ... id=flinbox

[DavidG]

A quick search on their site shows 212 Burgs in stock. Is that a big increase? I have completely stopped buying from them. As noted above, I'm too old and impatient for pre-arrivals, and I unsubscribed from the mailing list because I have too much fn wine as is. So they are below my radar except when someone posts a good deal on the board here. Fortunately for my bank account in most cases, they are sold out by the time I respond.

[DavidG]

Here's an interesting theory posted elsewhere. What do our financially savvy members think of this?

No opinion on (or knowledge of) PC as a specific business entity. Comment is only to temper the math dissonance people have expressed, as they notice PC bouncing checks and continuously selling large amounts of wine futures at impossible prices, presumably to pay off immediate debts PC couldn't otherwise settle.

Even pro-PC arguments overcomplicate the issue at times, imagining PC to have some sort of unique deus-ex-machina relationship with a network of suppliers who will sell wine to PC at a cost basis no one else has access to, like the underwriters for a late-1990s Nasdaq IPO. Not the tidiest explanation, and not necessary. Trying to figure out the lowest possible global cost basis for DRC, for example, is a red herring.

• PC contracts for $5MM of wine to get absolute lowest possible cost basis, whatever that is.

• Over the next two years, PC sells four-fifths of the wine in this contract at 15% margin = $4.7MM = $6.5k/day average. NO ONE NOTICES, because the price is really good but not impossible.

• Repo Man comes to collect, PC is $300k in the hole and can't pay. PC has to scramble, maybe bounces a check or two in the process.

• Over the next week, PC sells the remaining $1MM of wine from this contract at 30% BELOW absolute lowest possible cost basis = $700k = $100k/day average. EVERYONE NOTICES, because the price is impossible and the volume spikes 1,500%.

• Cherry picking fallacy says omgponzi, PC pays off Repo Man and nets 8% ROI on the contract.

Even more likely is that PC only sells $0.5MM at the impossible price — just enough to settle the immediate debt — then continues to drag out the last tenth of the contract at $6.5k/day (and tapering).

One of many contracts, one of many Repo Men, adhering PC to one of many payment terms. More contracts = more complicated, but if PC keeps combing the hair, it won't get tangled. It all hinges on the $6.5k/day background noise and on the owner's discipline — in this case, whether he rushes out to buy a $500k Patek that he can't afford, or whether he's disciplined and waits to buy the $400k model that he can. You can't tell by appearances. Both owners have a flashy watch.

Also likely that PC doesn't say "duck, duck, goose" for all contracts. Goose in the beginning to kickstart, goose in the middle for Christmas, goose if and when the situation dictates or entices.

Now this may or may not be how PC as a specific business entity operates, and it doesn't explain other elements of anecdotal bad faith on PC's part that have been asserted here. However, the act of continuously selling a disproportionate volume of impossibly priced goods for future delivery, to settle a tide of impending debts, while bouncing checks in conjunction with those massive sales, is not a de facto math issue, and requires neither a deus-ex-machina cost basis nor a spiraling influx of capital to sustain. "Feels" wrong, but the arithmetic is solid.

[JimHow]

Have they really bounced checks?

[DavidG]

Yes, they've bounced checks. Occasionally, here and there, over many years, not on a massive scale, and then covered them. At least as best I can tell from watching the various threads.

[JimHow]

That's bad.

[DavidG]

Yes it is. I was happy that I had no undelivered wine when I first heard that. Felt a little better when I heard they'd made good on them, but still happy to have nothing pending from them.

[AKR]

I think they've got a couple of 'ways to win'

After they sell the futures

a) they can hope the wine goes down in value, they seem to have figured out how to harvest the premium people pay around ratings, critics review, WOTY etc.
b) they can hope the currency goes down in value
c) they can delay until the above happens

If a,b,c are not working they can coax the customer into

d) taking a cash settlement, value to be haggled over
e) maybe they get lucky and get a 15% restocking fee
f) offer in stock wines in exchange, where they effectively get to sell at fairly rich high profit prices, versus the store credit which reflects a cheap low profit price. Realistically anything in stock there, rarely has an attractive price.

However working against those ways to win are the business problems that have emerged especially in the last half decade:

Are existing customers buying?
Where are the new ones coming from if winesearcher has tossed them?
Are there trade creditors willing to extend them terms?
Will private sellers / wine consultants provide access to aged cellars given the stories of payment delays?
Staff turnover can sometimes be a cue to other issues

This was a place that had a client list that wine stores dream about.

PS: DavidG I think your doppelganger DavidZ had the best assessments on the other boards.

[AlohaArtakaHoundsong]

Hey they delivered my Talbot futures in real-time. What's up with that? Am I a duck or a goose?