1995

Click here to read the letter.

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🧠 Key Takeaways

• It’s hard for a retail business to have any lasting competitive advantages. Whatever edge they might have today—whether it’s price, convenience, or product selection—can usually be copied, and can be copied fast.

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✍️ Memorable Quotes

“Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way into bankruptcy. This shooting-star phenomenon is far more common in retailing than it is in manufacturing or service businesses. In part, this is because a retailer must stay smart, day after day. Your competitor is always copying and then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants. In retailing, to coast is to fail.”

Basically, what Buffett is saying here is that it’s hard for a retail business to have any lasting competitive advantages. Whatever edge they might have today—whether it’s price, convenience, or product selection—can usually be copied, and can be copied fast.

That’s why retail businesses demand constant reinvention. Your margins are thin, as is your customer loyalty, and your competitors are watching everything you do.

From an investor’s point of view, that makes retail a tough business to get into long term. You can find exceptions to what Buffett is talking about here—like Costco, for example, whose membership model builds stickiness—but they’re a special breed.

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