25 years ago, a juggernaut didn’t know it was on the verge of extinction. Its death holds lessons for today’s real estate investment managers.
Circuit City was a titan in U.S. electronics retail.
From its 2000 Annual Report...
"I am pleased to report that fiscal 2000 produced the most successful year ever for our Circuit City business." – CEO
"The digital product cycle is becoming reality... feature-rich products with often complicated functionality—an ideal fit for our high-service store format."
[Circuit City thought it had a huge advantage.]
"We also saw record VCR unit sales."
[VCRs?!]
"We are focused on maximizing sales in our Superstores."
[Doubling down on physical stores on the eve of the digital explosion.]
Then in 2001, Circuit City partnered with Amazon.
Amazon’s electronics business was unprofitable, but its customer experience and logistics were miles ahead. Circuit City handed over online sales (and customer relationships) to Amazon.
Customers got used to one-click convenience. Circuit City never built a sustainable direct-to-consumer engine. Within seven years, it was gone.
---- Why this matters now ----
Insurance companies are handing off investment responsibilities to alternative asset managers, somewhat like Circuit City'a hand off to Amazon.
$500B+ in insurance assets have moved to firms like Blackstone, Apollo, and KKR just in the last few years.
Guardian Life just announced that it is shifting nearly $50 billion to Janus, but you probably didn't hear about it. Last year it handed $30 billion to HPS. Before that AIG handed Blackstone $200 billion.
The investment management industry is consolidating with loud booms (traditional M&A) and off-the-radar shifts (like those in this chart).
Insurers aren’t dying. But their investment platforms are changing fast, especially in commercial real estate lending, where they hold ~20% of the market.
---- Key takeaways ----
1) Consolidation on multiple fronts: M&A isn’t the only path to control. Apollo and KKR bought insurers to lock in capital, while Blackstone is scaling through fee-based mandates, avoiding balance sheet risk.
2) Fewer critical paths: Fee streams, origination, and liability management are centralizing. The gap between firms that own their future and those that rent it is widening.
3) Haves and have nots: We’re heading toward a world of investment haves and have-nots. The winners will probably look more like Amazon and will grow in surprising ways.
PS -- Want to stand out to an investment manager? Insurers are outsourcing investments to get better service at lower cost. "Winning" isn't about luck or networking, it's about skills. Our upcoming bootcamp breaks down the 8 fundamentals of commercial real estate investing. DM us if you want to know more.
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