In 2011, at the TED conference in Long Beach, surgeon Anthony Atala demonstrated an early-stage experiment that could someday solve the organ-donor problem: a 3D printer that uses living cells to output a transplantable kidney. Dr. Atala and his team take an image of a kidney to create an exact 3D image of the organ, then print the kidney layer by layer based on the patient’s kidney using their own living cells. In seven hours, you have an exact replica, ready to transplant. Given that 90% of the people who are on the transplant list in this country require kidneys, it gives new meaning to supply and demand. Out of all the presenters at TED that year, Dr. Atala made the biggest impression on me. 3D printing is a revolution that will transform our society in ways we can’t even imagine. It will give rise to thousands of new businesses, new ways of distribution, new processes of intellectual property management, and create an entrepreneurial and financial tidal wave that will dwarf the Internet in its scale and disruptive power. [Read more...]
The number of emails in my inbox alerting me about sales is seemingly infinite, and frankly, I’m losing interest.
The funniest was Cache’s “our sale’s on sale.” Really?!?! Bloomingdale’s and Macy’s regularly have fine jewelry on sale and clearance, a practice which undermines one of the category’s perceived competitive advantage, that of stored value. Blue Nile’s founding in 1999 was a harbinger of the category’s deterioration as it provided transparency and comparison shopping across the diamond supply chain. With Amazon having entered the competitive fray, the typically unquestioned pricing practices and thus, the luxury underpinnings of fine jewelry, could be further damaged. [Read more...]
Many of the most successful rebranding efforts of the last year, the most forward-facing of them all, have all used the same weapon of choice: their archives. Brands as highbrow as Dior, to as proudly lowbrow as Levi’s, have looked to the creative history of their designers to add a layer of narrative and credibility to the contemporary context of their brands. And while this type of endurance-branding may be partially a result of The Great Recession, Millennials. Are Eating. It. Up.
This is because Millennials are natural researchers; many of us were somewhere between 18 and 8 when Google arrived in our homerooms. While we haven’t always had smartphones, we have always had access. I don’t need to tell you how this has manifested in our shopping habits online. But much less is known about the compulsive way many Millennials forage online archives for stylistic inspiration. Think Netflix “binge-viewing,” or better yet, a “Google K-Hole” (an allusion to a Special K or Ketamine bender, in this case resulting in days lost to Googling). Online archives such as Getty Images or Google Image Search welcome us, for free; which is why it is easier than you may think for an influencer Millennial to pick up an obscure Fellini reference. We are such active researchers that we tend to forget what we saw, where. We can get to the point that we have to rely on our browser’s history tab over our own brand fidelity and crowded memory. [Read more...]
There’s a growing disparity in the way some economic data have moved since the recession. On the one hand we have employment and income figures, which tell the story of a sluggish U.S. recovery with a long way to go to pre-recession prosperity. On the other hand, healthy retail sales and consumer spending have rebounded to, and even surpassed, pre-recession levels.
According to the Bureau of Labor Statistics, the population of working-age people has grown by more than 5 million since the beginning of 2008. The labor force has increased by only 1.5 million, and the total number of employed has decreased by 2 million, resulting in a steady decline in the labor force participation rate (see Chart 1).
That doesn’t jive with the brisk pace of consumer spending (Chart 2), according to Bernard Baumohl, Chief Economist at Princeton, NJ-based forecasting firm The Economic Outlook Group, who noticed the sudden divergence between total personal consumption expenditures and the labor force participation rates that began during the Great Recession.
The stubbornly high unemployment rate makes even less sense in light of retail sales which, according The Department of Commerce, have been growing by 3-5% per month over the last two years on a 12-month smoothed basis, as shown in Chart 3 below. Sales of durable goods have been particularly strong.
This is consistent with an unemployment rate much lower than the current rate of 7.3%, according to Baumohl, who noted: “… Not since the government first released retail sales on a monthly basis have we seen retail sales grow at such a vibrant pace with the unemployment rate so high.”
All this has been going on while, according to the Bureau of Labor Statistics, median household income has been on a steady decline (Chart 4).
As it turns out, being unemployed doesn’t necessarily mean not working. According to research by Professors Richard Cebula of Jacksonville University and Edgar Feige of the University of Wisconsin-Madison, a significant part of the U.S. population participates in the shadow economy, an estimated $2 trillion underground market in the U.S. These folks are doing everything from giving piano lessons to running retail stores. They’re being paid off the books in cash by their employers and/or customers, and either not reporting or underreporting their income.
We’re not just talking about mob bosses or drug dealers here, but about millions of people, some (but by no means all) of them undocumented immigrant workers, with everyday jobs, many in service businesses such as child care, landscaping, and construction. Much of the underreporting of income starts as a way to make ends meet after being laid off, but ends up becoming a lifestyle.
According to Professor Cebula, the underground economy has been around for as long as income tax. Its participants range from hardcore criminals to people whose lousy bookkeeping skills cause them to accidentally underreport their income. His research shows that in the last 10 years, the ratio of unreported and underreported adjusted gross income to reported AGI has ranged between 22% and 24%. Most of the underground income, says Cebula, is earned by people in the lowest income brackets.
To uncover this trend, Cebula and his colleagues simply followed the cash. Despite the proliferation of credit cards, debit cards, smart phone payment apps and bitcoin, currency in circulation with the public totals around $3,000 per capita, hardly the trappings of a cashless society. The Federal Reserve reports almost double-digit increases in currency outstanding over the last few years, to almost $1.2 trillion, compared to $800 billion six years ago (Chart 5).
The evidence is everywhere: people pulling out wads of cash in stores to pay for big-ticket items; small stores who “don’t charge you sales tax” if you pay them cash (which means they’re not reporting the revenue to the IRS); soaring demand for prepaid debit cards (which you can buy anonymously and use to pay utility, rent and other bills); the rise in underbanking and nonbanking. According to the FDIC, in 2011 the number of U.S. households with no bank accounts was 8.2%, up from 7.6% in 2009.
Why is the economy’s dirty little secret not getting more air time? Well, for starters, it’s neither politically correct nor expedient to go after the little guy. It makes government look boorish, and after all, many of the people perpetuating this fraud are voters, so politicians have every incentive to turn a blind eye.
A more important factor, however, is that much of the $2 trillion ultimately goes into cash registers, and might have kept the real economy from tanking a few times during the recovery. Which means retailers aren’t exactly unhappy about it.
The U.S. is not the only country experiencing this trend. The shadow economy in Europe will total $3 trillion dollars this year, according to an A.T. Kearney/Visa report. In Italy, where the top personal income tax rate is 45% and tax evasion is practically a national pastime, it represents a massive 21% of GDP.
So is the shadow economy a good thing? Unless you’re a fan of felony tax evasion, of course not. The impact on government revenue is staggering, with an estimated $500 billion in lost federal income tax, money that could close the budget deficit (and possibly even create a surplus), reduce the national debt, help pay for improved infrastructure, and provide public services to people. Many of the people working off the books also collect unemployment or disability, go on Medicaid, and use food stamps, multiplying the fraud.
Of equal concern is the fact that the rapid growth of the underground economy since the recession might be a result of deeper and potentially more damaging trends: an underlying distrust in government; a feeling that regulations are too stringent and complicated; a lack of confidence in financial markets; declining confidence and hope. These feelings weren’t exactly soothed by the most recent government shutdown.
The Economic Outlook Group’s Baumohl feels that although impossible to quantify, the size of the underground economy could be as high as 10% of GDP. If legally accounted for, this $2 trillion would add another 10% to disposable income data in the U.S., and add a whopping 25% to government tax revenue.
Cebula feels that it would be impossible to collect tax on these transactions, however. First, because these transactions leave no paper trail and, in many cases, are done by people that the government doesn’t even know exist, it would be hard to find them. Second, even if uncovered, the taxation would be very short-lived. “In theory, if we were to tax it,” he added, “the behavior would stop, so there would be nothing to tax. And many illegal immigrants would just leave.”
In other words, trying to go after these people wouldn’t necessarily boost tax revenues very much, but would help curtail illegal activity and reduce the illegal immigration problem? Sounds like a step in the right direction.
However, Cebula’s argument fails to take into account the fact that plenty of the underreporting is done by businesses and households who, rather than get caught and pay penalties, might decided to improve their reporting record. That includes the dog groomer or handyman who doesn’t charge you tax if you “make the check out to cash.” He’s not going to turn away business; he’ll just do more of his business on the books. Maybe his prices will go up a bit in the short run, but they’ll eventually settle at what the market will bear, or he’ll find another line of work. So, theoretically, some of the tax gap will be at least partially recouped.
People who work off the books are hurting themselves in both the short and long terms. They’re not paying into Social Security or receiving health benefits. They can’t report abusive employers to authorities. They don’t participate in financial markets to build up investment income nest eggs. This is ultimately a drag on economic growth, which will hurt the retail industry.
The underground economy disfavors law-abiding people and shifts liabilities to future generations. Allowing businesses to get away with cheating makes it harder for legitimate ones to compete. The reduction in workforce participation puts upward pressure on labor costs, and places honest retailers, who collect and remit sales tax and abide by employment laws, at a price disadvantage.
The IRS claims to lack the resources to go after the tax cheats, which only makes the problem worse. When there are fewer police cars on the roads, more people speed. But how could it not be cost-effective to enforce compliance? When such a huge amount of owed taxes is not being paid, it shouldn’t take long for an IRS agent making $60,000 a year to earn the agency back his salary. We can’t afford to not force compliance. If successful, it might eventually lead to lower income tax rates for all which, as we know from history, tends to stimulate economic growth.
We need fewer regulations and red tape for businesses and households who employ people, and better enforcement of (simpler) tax laws. We need politicians to worry less about getting re-elected, and more about increasing government efficiency. And we need a level playing field that rewards success and honesty, punishes criminals, and helps people who really need help. Without these things, neither the free market nor democracy works.
Like Abbott and Costello Meeting Frankenstein
If you read “Bargain Fever: How to Shop in a Discounted World,” by Mark Ellwood, you will roll on the floor belly laughing until you read “The Age of Oversupply,” by Daniel Alpert. Then you’ll understand the cause of consumers’ addiction in Mark’s ‘discounted world.’ It will not only make you start weeping, it will also scare the hell out of you. Kind of like Abbott and Costello giggling about those goofy consumers on Black Friday, pushing and running over each other to get their “fix.” When lo and behold, they round a corner and who’s staring them in the face? That would be Frankenstein.
Indeed, “The Age of Oversupply” is a global Frankenstein of our own making. And ironically, if we hadn’t over-stored, web-sited, over-stuffed the world, and printed money by the trillions — yes, if we hadn’t built an age of over-supply — Mark would not have had anything to write about. Alas, he has essentially been able to turn a truly horrific and deleteriously vicious cycle into kind of a comedic landscape of a compulsive and obsessed culture of consumerism with dysfunctional shoppers in a collective addicted frenzy to hunt down the best and biggest discount “rush.” And most often, the drug of choice is simply the “deal” itself. It’s become pretty clear that people really don’t need yet another product or service in our over-supplied world. But they can’t help themselves. Mark calls the addictive drug, “buyagra.”
In my opinion, the notion that the discounted price is, in fact, the drug, (not the product, which they don’t need), is why $5 billion in revenues “walked” out the door at JC Penney in 2012, locked away in consumers’ pocketbooks. And it’s why it didn’t “walk” across town to Kohl’s, Target or Macy’s. The revenues exited the JC Penney stores and disappeared because JCP got rid of the “drugs” (discounts). The disappearing $5 billion is a story deserving its own blog.
Anyway, with a wry sense of humor, Ellwood spews forth with one hilarious story after another, and pretty much runs the gamut of consumers’ rabid and nutty searches for every possible form of discounting drug known to mankind (with an enlightening historical narrative along the way). And of course, we also get a good look at the “drug lords” (retailers), supplying the fix, creating an equally bizarre array of discounting schemes.
For example, there’s the pastor’s wife who marshals an army of stay-at-home moms to help run her coupon-brokering business, netting more than $1 million a year. Or the socialite-only sample sale ‘Fight Club’ where discounts are secretly offered to an elite group, and membership is rescinded if you tell anyone about it. Not to mention the gas station operator that silently uses dynamic pricing offering discounts at certain times of day. Or the fact that Chanel, upon attempting a “liquidation” of some of its handbags via Neiman Marcus’ Last Call outlet stores, discovered they ended up on eBay. This begs the question: is this process just a new form of business-to-business discounting? If eBay can’t get rid of it, where does it go? Perhaps it winds its way down to one of those luxury “swapping” sites, or flea markets, or one day, maybe in 7-Eleven or Dollar stores?
And yet, as one crazy anecdote after another unfolds through eight chapters and about 200 pages, the underlying horror of reality begins to emerge for those with even half a brain in the retail business and just a modicum of interest in discounting’s ultimate impact on the overall economy. So I suggest you read the book. And, if and when you can see through your chuckles to Mark’s irony and the emerging head of Frankenstein, then pick up “The Age of Oversupply” to understand why retailers began such deleterious discounting in the first place, and why they are doomed to continue it in perpetuity just to survive.
From a macro-perspective, author Daniel Alpert’s thesis can be summed up with key points outlined in his introduction, as follows: “Via extraordinary monetary-easing measures, the developed world’s central banks have turned trillions of dollars of financial investments into so much cash that it is metaphorically bulging out of the pockets of banks and other investors. Yet it is not getting lent and it is not getting invested in new capacity. Why?
“In a nutshell, the reason that the enormous ocean of liquidity is not being deployed is that there is so much global supply and excess capacity of labor, plants, equipment, and goods and services relative to present demand that there is little reason for private-sector investment in the development of additional capacity to produce additional supply.
“What we have on our hands is a supply-side nightmare scenario.”
Alpert goes on to speculate that all of this “throwing easy money” at the problem simply creates valueless “bubbles” that pop into recessions (as we’ve witnessed), with the “Great” one being a forewarning of the “Apocalyptic” one that is sure to come.
Looping back to the micro-perspective and retailing, the discounting of goods simply began because of, well, over-supply. By default, it became the weapon of choice to undercut the price of hundreds of equally compelling competitors’ products. And perversely of course, retailers have now “hooked” consumers into their addiction, and thus, the race to the bottom perpetuates itself.
Furthermore, if you are savvy enough to understand the dynamics and futility of this conundrum, and the full-on global impact of “The Age of Oversupply,” you will also realize this is a death dance that will end badly, very badly. In fact, global economic collapse,“badly.”
And, in my opinion,(and perhaps the good news), since the world is now so financially and economically integrated, such a collapse would drive the ultimate “backs-against-the-wall” moment, thus, forcing some worldwide collaboration to create a new global monetary and financial structure based less on the profit and material growth motives of capitalism (which no longer works, even in its “managed” form, and essentially drove us to our current quagmire), but, more on some mechanism that will incentivize sustainable improvement of human living conditions based on some balance of nature. This may sound a little esoteric. However, I would cite the Patagonia apparel brand as a very real example of a business that eschews growth in favor of sustainability to the point where they would rather repair an item for one’s further use than selling a new one. And, every other aspect of their business focuses on reigning in reckless consumption and accommodating a healthy environment.
Anyway, I do believe if some form of this kind of transformation does not happen, we will surely devour the planet or destroy our species while doing so.
As always, have a nice day :)
Perhaps the Dayton family should have come up with another name for its discount department store start-up back in 1962 if it wasn’t prepared for the inevitable – and as-it-turns-out endless – questions raised by retail observers, competitors, suppliers and, oh yes, customers, about whether the store was on Target, had missed the Target, or otherwise was involved in some Target-related activity.
Be that as it may, those are valid questions to ask, more so than ever when it comes to the country’s second-biggest general merchandise retailer’s home furnishings offerings and its new marquee program called Threshold. Officially rolled-out this past spring after some soft teases over the prior months, Threshold is the single-largest private label program Target has ever introduced, and is no doubt being counted on to carry much of the merchandising load for the retailer in the months and years ahead. [Read more...]
Why do customers visit brick-and-mortar stores when it is often easier and cheaper to buy online?
It’s obvious…because consumers want to see and touch the product, experience the brand, interact with people with the hope of solving a problem, or simply to feel better. For brick-and-mortar retailers, this in-store customer experience IS the competitive advantage. So why don’t front-line employees seem to know this? Why don’t they have the urgency and skills to make shopping experiences consistently good? Creating a consistent ‘performance improvement culture’ IS within the reach of most retailers…IF they take the right steps!
From my perspective, answering these questions starts at the top. Progressive retail executives realize it is no longer enough for store employees to simply complete tasks and operate stores. They know they need to get more from their large annual labor investments. They know it is no longer enough if employees only ‘fluff and puff’…they must also interact with customers to positively impact the in-store experience and drive sales. But how? [Read more...]
Are they Nuts?
Could it be that that Lidl executives have taken leave of their senses? Maybe so. They’ve announced plans to plant a large number of stores in the US, notwithstanding its overseas industry peers’ wretched record of failure in the States.
Lidl is the mammoth discount food retailer based in Germany. There can be no doubt it’s a formidable force in European food retailing. With annual revenues of roughly $80 billion and about 10,000 stores in more than 20 countries in both Eastern and Western Europe, it’s probably the largest pan-European food retailer of all.
Yet, the failure of other European food retailers in the US surely must give Lidi executives pause. The most recent downfall came when UK-based Tesco threw in the towel and decided to cut short its five-year-old bid to establish its Fresh & Easy format in the western US. Tesco lost in excess of $3 billion in startup and operating losses. Tesco isn’t alone. Other European operators have tried to enter the US without any success. They include Carrefour, Auchan, Leclerc and 3 Guys. All are long gone. [Read more...]
Unless you’ve been living under a rock, you’ve heard the National Security Agency vehemently denying that its spy program is trampling on the constitutional rights of citizens, while privacy advocates bellow about the rise of Orwellian dictatorships. They do love trotting out the 1984 metaphors.
Frankly, there are hypocrisies on both sides. But retailers using data mining and loyalty programs, could get caught in the wringer if they don’t police themselves and those that gather the data. More disturbing is what I’ve heard in retail circles recently about reining in customer analytics for fear of incurring the wrath of privacy activists.
I sincerely hope that government surveillance is more concerned with terrorist plots than people’s personal proclivities. But surveillance isn’t new. It just went electronic with George Orwell’s vision of an authoritarian utopia and the Internet has simply made it easier. [Read more...]
For more than 40 years, I’ve been making the pilgrimage to the greenhouses on the campus of Wellesley College. Named for the eminent Horticulturist Margaret Ferguson, the 16 interconnected greenhouses contain some 1500 different types of plants. The Brooklyn and Bronx Botanical Gardens may be bigger in size, but they cannot match the solitude and accessibility of this facility. It is as fast and inexpensive a world tour of nature as you can pack into 7200 square feet. As a troubled teenager in Massachusetts, I’d visit the “tropics” on a cold winter afternoon and experience the rich smells of my youth spent living in Asia. It was as close to the sentiments of The Mamas & the Papas in California Dreaming as I could get.
The greenhouses, then and now, contain rare collections of caudiciforms, mangroves, floating aquatics and my favorite, carnivorous plants. The Desert, Tropic, Hydrophytes and Fern greenhouses are distinctly different climate zones where the look, scent, feel and touch are as sensual and distinctive as any environment I’ve ever experienced. Each is a temple to the synergy of contemplation and botany. [Read more...]
Conventional supermarket retailers can’t catch a break — even sometimes.
Conventional operators — Kroger, Safeway and the like — face a vast array of competition developing on all sides. That includes food purveyors such as deep discounters, mass merchants, membership clubs and restaurants, just to cite a few. Competition is always evolving with new strategies and new players, but one constant is that shoppers demand good value for low prices, and are quick to change stores if they think that’s not happening.
Regrettably for supermarkets, the battle for the low-price prize isn’t in their favor, and not just because of increased competition. The looming threat is really information: thanks to increasingly sophisticated online price-comparison websites and mobile apps, it’s getting easier for shoppers to take a look at several retailers’ price lineups before leaving home, or while in the supermarket.
Up to now, most online services compared prices among competing supermarkets in a defined geographical area so shoppers could make a convenient shopping choice or decide to patronize more than one local store in their quest for low prices. [Read more...]