Debate Magazine

And How Much of This is Just "rent"?

Posted on the 23 October 2014 by Markwadsworth @Mark_Wadsworth

From City AM:
FITBUG, a little-known Aim-listed firm that makes wearable fitness trackers, saw its shares rocket more than 350 per cent yesterday, after revealing that Sainsbury’s and a leading US retail chain would begin stocking its products next month.
The Fitbug Orb, which retails for £49.95 and connects to a smartphone app to track daily routines and nutrition, will be sold in 293 Sainsbury’s supermarkets from 9 November and all 1,800 Target stores in the US.

Fitbug’s shares soared from 0.37p to 1.7p yesterday on news of the deal, the company’s largest distribution deal to date, pushing its market valuation from £630,000 to over £3m.

We know from the recent Tesco episode that supermarkets charge new entrants a fee to stock their goods, in other words, the supermarkets are renting out shelf space. If the "internet" (i.e. glorified mail order) were really such a threat to bricks and mortar retailers, then clearly this wouldn't happen.
We don't know how much Fitbug paid Sainsbury and Target, if anything, but as the market capitalisation of the company went up by nearly £3 million, so in theory, those two chains could have charged Fitbug a signing on fee of £2 million or so.
And whether or not a signing on fee was paid, the lucky shareholders have made an overnight gain of nearly £3 million.
Is that really all earned income? It can't be, because that's the net present value of the additional future profits. Emphasis on "future" - it hasn't been earned yet, somebody else has to do the earning.
And being a shareholder is like being a mini-monopolist. Although there's nothing to stop other people developing and manufacturing these fitness gadgets, there is a limited number of Fitbug shares, and Fitbug have stolen a march on their competitors by being on the shelves first.
And so on.

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