Americans Go Into Spending Rehab
The U.S. consumer is recovering from a 20-year debt-fueled shopping jag.
“I don’t think we will live the same way for 10 years,” says Howard Davidowitz, chairman of New York-based retail consultant and investment bank Davidowitz & Associates. “People are so scared they’re starting to save.”
The concept of our citizens putting money into savings is not a condition that has been seriously considered any time recently by American retailers. Riding a bifurcated wave of prosperity and debt-fueled consumption, the industry has ballooned to outrageously unsupportable proportions, blanketing our nation and the developing world with malls and storefronts that are unlikely to be of much further use in their current orientation.
Don’t get me wrong, I like a good cup of coffee as much as the next guy. But until quite recently, Starbucks, the Seattle mega-coffee retailer, was reported to have been operating 17,000 stores in 94 countries. God bless the guys who figured out they could sell $6.00 cups of coffee on even a small scale. Now layoffs and store closings are the order of the day. Under what economic system was expanding to 17,000 boutique coffee shops considered a viable long-term business plan? Apparently the American one.
Laissez-faire capitalism helped created the retail circus that America has been running in all three rings for the past two decades. OK, so McDonald’s has more than 31,000 outlets in 119 countries, but Ray Kroc’s brainchild sells hamburgers in a volume that can only be understood by Timothy Geithner, and they have a pre-school indoctrination program that the Democrats would like to get their hands on. In fact, McDonald’s profits were reported to have increased 80% in 2008.
These remarkable numbers were produced in the teeth of a recession that is decimating over-extended companies like Starbucks. And the overreachers are legion. The signs beneath the McDonald’s arches have become a piece of genuine Americana and might even reach “One Trillion Sold” before Obama’s deficit does. Starbucks, if it is to survive Barackonomics at all, needs a lot more than a face-lift. Financial bariatric surgery is more likely in order. This fits Davidowitz’s retail analysis:
Narrow specialties (Sprint’s cellphones) and high prices (Starbucks’ coffee) are tough sells as the consumer mood turns thrifty. What plagues Starbucks will also affect other upscale goody chains like Mrs. Fields’ Cookies, and causal dining outlets like Applebee’s and Cheesecake Factory. Any of the neighborhood outlets for those restaurant chains could be a casualty this year. For too many customers now, it’s McDonald’s or bust.
Now the nearly 20 year-long expansion is spent and the painful retraction is tearing through retailers like peanut butter and salmonella sandwiches through a retirement home.
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Ralph Alter blogs at Right on Target.
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24 Comments
1. Valerie:There’s another side of this slump. Intemperate expansion sometimes yields amateurish production.
Today’s Wall Street Journal has a headline about Mattel posting an “surprise” profit drop.
Maybe the parents looked at the boxes and saw that “made in China” label. Our companies have not exercised anything remotely resembling quality control, most particularly on plastics, paints and electronics, and our government can’t do it. Consumers can. Today I am repackaging and sending back a $125 birdbath that is supposed to have a thermostat and all sorts of safety features in it. I ordered from an American company, paid a fancy price, expecting to get something that should work: thermostats are not rocket science. I saw the “made in China” label on it. It failed in the first cold snap. This follows the expensive lighting fixtures that burn out the light bulbs, the new curly, “long-lived” light bulbs (in other, more stable fixtures) that burn out very readily, the socks that can’t survive the second washing, the Kitchen Aid appliances with knobs that crumble, shelves that fall and silverware nets and baskets that crumble in ordinary, expected use.
It’s not just that times are tough. The goods we have been buying are crap. We don’t have to buy crap.
Feb 3, 2009 - 3:49 am 2. Craig:“Retail expansion to the point of nine Starbucks locations in my hometown of Carmel, Indiana (population 68,000), creates the corporate personification of the law of diminishing returns.”
Sounds familiar. In Long Beach CA, we have a 1/2 mile strip of shops in Belmont Shores. 4 coffee shops with a Starbucks at EACH END.
Feb 3, 2009 - 4:25 am 3. Larry J:The irony is that a reported 2/3rds of the US economy is based on consumer spending but fear of losing jobs has caused people so hold on to their money. The less they spend, the more jobs are lost. It’s a vicous cycle. The same thing happened in Japan during their very long recession.
For too long, individuals, corporations, and governments have acted as if it were possible to borrow your way to prosperity. They’ve taken on way too much debt and now they’re waking up to reality. Unfortunately, they’re also dragging down those of us who didn’t borrow and spend recklessly to the point where they’re demanding we pay for their stupidity.
Feb 3, 2009 - 6:01 am 4. tommyd:The headlines shout American consumers spending less, retail sales down ect ect..
So what. This is a bad thing? for who? the merchants? So more Americans are keeping money in their bank account and thats a bad thing?
Feb 3, 2009 - 6:55 am 5. deguello:Oh I realize the impact of lower spending on jobs, businesses ect,
The hardest hit will be those that sell or produce the useless crap that no one really needs. Who cares,
Like Americans don’t have an over abundance of useless B.S. in their lives, The economy will get over it , it will adjust to it and move on, That is if dumb assed politicians let it. The well run needed businesses will survive.
Let ‘em stew in their own consumerist misery;the idiots,attempted to substitute buying junk, for having real experiences;in the process, they’ve replaced communities with malls,thought with pointless cravings,and freedom with overtime to pay for their junk. To top it all off, they voted in a demagoguic thug and Chavez wannabe to rescue them form their stupid fecklessness and irresponsibility!Turn ‘em over,theyr’e done!
Feb 3, 2009 - 7:18 am 6. deguello:Where are the industries that could once have hired hire this wave of unemployed baristas? Permanently exported to China,that’s where.
Feb 3, 2009 - 7:26 am 7. Anton:The Chinese will the first to suffer from this reduction in consumer spending. They have built their economy on making the crap that fills the shelves of the aimlessly overbuilt strip-malls. Too bad there are some things that just aren’t made in USA any more, try to find a US made TV or toaster. Maybe a home-grown appliance industry can hire those GenY types, God knows nobody else will.
Feb 3, 2009 - 8:46 am 8. BackwardsBoy:As far as Starbucks goes, I could care less, $6.00 for a cup of bad coffee always struck me as stupid.
I’ve watched my good-paying job in manufacturing get exported to Mexico and then to China. You can’t sell something to someone who doesn’t have any income, or has reduced income due to downsizing or outsourcing. The laws of economics just don’t work that way.
Feb 3, 2009 - 9:51 am 9. Newmarket2:Maybe, just maybe, this experience will serve to kick-start us into believing that American jobs for Americans are a good thing. Rewrite NAFTA and the WTO treaties to favor us first and keep us economically free and prosperous. The rest of the world be damned.
Quality will win out. The marketplace works – but only when people have to think about what they are buying. When there is too much money floating around, it doesn’t matter if you buy crap – you can handle it. Now, the story is different and companies that can produce quality goods that people really need or want and at a decent price/profit will flourish and the others will die.
Feb 3, 2009 - 9:51 am 10. Joseph:I think the reason this has been such a drastic fall is that we’ve spent 30 years avoiding pain. 5% unemployment was trumpeted as a “crisis”. Recessions were to be avoided at all costs. So, the government pumped up credit, pushed banks to make bad loans, and people of all nationalities took the existential leap into overspending. 30 years and “no problem, man”.
But the market cannot be denied and if you don’t go on a diet for a decade, you wind up obese – not just fat.
Time to cut back on the fat, start that exercise regime and shop like there IS A TOMORROW!!
“For too long, individuals, corporations, and governments have acted as if it were possible to borrow your way to prosperity. They’ve taken on way too much debt and now they’re waking up to reality.”
If only they were all waking up to reality. The government is still trying to borrow its way back to prosperity. I fear that we have much further to fall before our government learns that we can’t achieve financial success through fiscal irresponsibility.
Feb 3, 2009 - 9:54 am 11. MindlessObamaWorshipper:No. This will not do at all. It runs counter to the propaganda…I mean truth that this is all President Bush’s fault and thus must be ignored. Surely our glorious leader will command the press to undermine this seditious idea.
Hail to our glorious leader.
Feb 3, 2009 - 11:14 am 12. Kevin:Fear not citizens, if Obama nominates 5,820 people a day for his cabinet for the duration of his term our government can pay cash for the stimulus plan! (5,820 X 1460 days X $100,000 avg back taxes owed = 850,000,000,000)
Feb 3, 2009 - 12:19 pm 13. Bill:I’ve got plenty of income. I just don’t spend it on crap. Bad crap that is. I only buy good quality crap. LMAO
Feb 3, 2009 - 1:11 pm 14. Kurt:It’s pretty amusing seeing all you free-market fundamentalists suddenly waking up to the reality that sometimes the market does *not* know best. The “Bush Boom” was built on cheap oil and cheap credit; some of us on the left saw the proliferation of WalMarts and strip malls and ticky-tacky McMansion projects and determined that it was unsustainable.
But just try convincing any conservabot that the American retail/service economy is essentially a mechanism for taking money (borrowed from China) and sending it back to China while creating mountains of garbage and destroying countless small-town economies in the process, and you’d inevitably be called an America-hating socialist Marxist communist etc. Because, as the prevailing orthodoxy went, what was good for WalMart was good for America. For example: unions are evil; WalMart is a bulwark against unionism; therefore WalMart is on the side of God and Jesus and the flag and apple pie.
Now, to forestall the inevitable accusations that I’m some sort of Obama-worshipping pod person: I took strong issue with his inaugural statement about “not apologizing for our way of life”… it bears far too much similarity to Bush’s earlier declaration that “our way of life is not negotiable.” Guess what, kids? The endless post-war suburban expansion — which was and still is the very definition of our “way of life” — is over. Maybe Obama realizes that, maybe he doesn’t, but either way, it’s a truth that Americans don’t want to hear. Like the man said, we can’t handle the truth!
Feb 3, 2009 - 1:52 pm 15. kastaco:# 1 Valerie
Your talking about the “Wal Mart” effect. Wal Mart squeeses their suppliers to the bone. In fact, Wal Mart demands their suppliers sell to them at a loss in some cases (i.e Rubbermaid). Wal Mart then pursues effiency in the supply chain with religous fervor, and is able to keep consumer prices cheap and sell huge volumes with low marginal profit. Since Wal Mart sells such a huge volume, many companies have been grown to supply that volume so the chioice is to meet the price demands or shut down. To do this many companies will make identical products that have been significantly cheapened (Remington Fire Arms) or will move to China for cheap labor or both. Alas many other retailers have began to buy an Wal Mart prices and sell and up scale prices. Also, I agree that NAFTA and other free trade agreementsw are flawed Wal Mart and other retailers are also responsible for the loss of manufacturing jobs
Feb 3, 2009 - 3:26 pm 16. Bill N:Kurt:
I couldn’t agree with you more:
The liberals’ environmental policies (e.g., no nuclear power) had no effect on our dependence on terrorist-owned foreign oil.
Their policy of setting wages based on union extortion rather than increased productivity had no effect on exporting jobs to China.
Their policy of redistributing the working people’s money to the layabouts had no effect on the willingness of the workers to keep on working, to say nothing of exerting themselves further. Neither did it cause any sort of banking crisis when they demanded that the banks participate in massive wealth redistribution on pain of being called racist if they insisted on fiscal responsibility.
Their policy of open boarders did not cause millions of illegal immigrants to flood the country, drinking our water, overwhelming our medical system, demanding free services from our educational, police and fire services. This massive influx of slave labor did not take away any jobs from Americans because Americans would rather take welfare handouts than work for low wages.
Oh, no, it was not the Democrats’ fault. Not at all. It was Bush’s fault. Down with capitalism! Socialism is the way to go! The government knows best. Put your life in the hands of the Messiah and all will be well. Hallelujah!!
Feb 3, 2009 - 3:55 pm 17. john from cinncinatti:when i die i’m taking all my stuff with me! 2 or 3 thousand years from now when they dig up my grave they are gonna say this must have been royalty, cuz they buried him with a whole lot of shit. 3 or 4 giant U-haul trucks behind the hearse, i’m good to go. or sell it all at the swapmeet and bury me with a check.
Feb 3, 2009 - 5:38 pm 18. Cybergeezer:I can’t wait ’til “We The People” see the article; CONGRESS GOES INTO SPENDING REHAB. (I can daydream if I want to.)
Feb 3, 2009 - 6:12 pm 19. Cybergeezer:14. Kurt:
Feb 3, 2009 - 6:19 pm 20. Kurt:It takes people like you to elect an Obamanation;
And some one like you couldn’t start a business without a huge Small Business Loan, and continued assistance.
You’re inexperience shows, but you shall suffer the consequences with the rest of us.
Never knew small business and enterpreneurs were your friend, did you?
“Put your life in the hands of the Messiah and all will be well. Hallelujah!!
See, I knew you couldn’t resist — despite the very clear anti-Obama statement in my last paragraph.
Bush had 8 years to fix all those things. Why didn’t he?
Re: unions, they currently represent a whopping 12% of American workers. So let’s say we de-unionize completely, and those 12% consequently receive a pay cut and reduced benefits. This will help the economy how?
Feb 4, 2009 - 11:16 am 21. myth buster:Unions are parasites. All they are good for is intimidating workers into handing over a cut of their wages and intimidating employers until they can’t afford to stay in business. Why do you think membership is down to 12%? It’s because my generation understands that unions are not looking out for anyone but the union bosses. They will take your money and use it against you.
Feb 4, 2009 - 8:16 pm 22. Cybergeezer:Sorry Kurt; My bad. Speed reading, not speed comprehension.
Feb 5, 2009 - 5:19 am 23. Cybergeezer:The use of sarcasm, directed at liberals and Democrats makes them think you’re one of them.
Feb 5, 2009 - 5:24 am 24. peter j:Has it dawned on anyone that…We should be glad that failure is an option. That’s what happens in a free society. it’s ok. it’s part of learning. Without failure…we would have no freedom. Duh.
Feb 5, 2009 - 4:24 pmOh, you want responsibility?? Try ..if you pay taxes…you get to vote. if not your of course free to live here…just not to dictate to taxpayers how to spend the money. That ihncludes fat cats who avoid taxes ..no vote. As well as the paper boy who does..he gets to vote. If you support society you get a voice in the fiduciary responsibilities. What a concept!