Could priceline (PCLN) be hurting the Dials (DL) - Get Report and the Procter & Gambles (PG) - Get Report? Could priceline be whacking the Kelloggs (K) - Get Report and the Millses (GIS) - Get Report and destroying Unilever's (UL) - Get Report margins?
I first heard this thesis while on a
call not long ago, a call where it seemed as if the analysts were waking up to the notion that if priceline gains traction, somebody has to lose. That somebody might be the brands.
When we on Wall Street speak of protracted declines, we use the term secular, as to be distinguished from cyclical. A cyclical decline gets followed by a cyclical upswing. But a secular decline gets followed by oblivion. The talk among Wall Street pros right now is that there is a secular decline in the power of the brand.
I saw this same kind of worry at the beginning of the previous decade when the knock-offs were roaring, and people talked up the generic industry. But just when I thought brands were an endangered species, P&G took on the off-brands with price reductions, volume discounts and aggressive cost-cutting. At the same time, the economy, which had been weak, spurring generic competition, got stronger. The result was a total kibosh of the generic industry. Fortunes were lost in it.
This time, though, the economy is booming, so generics aren't at the root of the weakness. What I wonder is whether the whole name-your-price philosophy doesn't strike at the very heart of what the brands do best: make you pay up for quality. If priceline catches on everywhere, how do these brands avoid the vicious spiral of price-cutting and margin erosion?
Someone is betting they can't. Take a look at the declines in Dial, Colgate,
. They are mind-numbing.
The whole market could be wrong. It was in the early '90s when the generics ruled.
But I don't like betting against the whole market. Which is why we are not adding to our Procter position on weakness.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Procter & Gamble. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at