We got several emails about the ongoing discussion of high levels of spending by affluent people on luxury goods, and what the implication is for the larger economy, where more people than ever might be classified as “have-nots.”
MNB user Steven Ritchey wrote:
The story about luxury spending reminds me of some of what went on during the Depression era, wealthy people had lavish parties while the soup line got longer and longer.
It also reminds me of a line from Robert B. Parker’s Spenser novel “Bad Business,” when Spenser’s CPA has audited Kinergy’s books (Kinergy is remarkably like Enron) and has discovered vast legal and ethical problems. When Spenser asks if the Board of Directors doesn’t have to approve all of this, the CPA replied, “As far as I can tell, the board would approve mandatory pederasty if they were urged to.”
Parker did have a way with words and I will forever miss his writing.
Another MNB user wrote:
If the affluent are the only consumers fueling the economy, it won't be enough. With 70% of our GDP driven by consumer spending, the middle class needs to be a part of the "shopping spree." The "haves" may be feeling fine now, but the reality is that our economy is heavily reliant on both the wealthy and the disappearing middle class. High end manufacturers may be satisfied with these numbers, but none of us should be because until the less affluent start spending again, we will not be on solid economic ground.
And, from an other MNB user:
KC – I like your point regarding top executive salary increases are a kind of hoarding, given the trend in compensation disparity between executives and people on the “front lines”.
So, it’s such a wonderful thing when the affluent spend money rather the hoard their bounty and it helps to keep people working but here’s the rub. How many expensive parties are they going to throw per year? How many mansions are they going to build in their lifetime? How many yachts are they going to buy and maintain? How many private jets will one person own? How many restaurant dollars and food dollars are they going to spend, do they eat more than 2 or 3 meals a day?
Although any dollar the affluent spend helps keep people working I don’t believe there are nearly enough of them to improve our economy. Case in point being that if “trickle down” economics actually worked, it would have been happening already and we wouldn’t be in the situation we are in now. BTW, there was a little “trickle down” economics experiment in this country back in the 1890’s only it was more aptly named “Horse and Sparrow economics”. It held the exact same ideals which was ‘feed the horses more and they will leave more in the streets for the sparrows to eat’. Guess what? It didn’t work then and it hasn’t worked in the 30+ years the experiment has been tried since then. Overall the haves will always hoard more than they will ever spend and hey who could blame them? They are only human.
The reality is the affluent will never be the fuel that keeps our economy rolling down the road. It won’t be the big parties, mansions or yachts. It will be the other 95% of the population’s ability to make enough money to keep a roof over their head, food on their table and clothes on their backs. So, it’s not about $1m parties it’s about the front line people making enough to meet basic needs and maybe even being able to spend $16 to go out to a movie once in a while. And in order to do all this and thereby fuel the economy, the compensation front line people need to receive for their labor has to at least keep up with the increase in the cost of living each year.
As I said the other day, I’m not sure this is something that government can or should fix ... and I’m not sure that private industry has the stomach to do so, either. Which puts us betwixt and between.
Whatever you think about the current and admittedly disorganized and unfocused protest movement, this is the disconnect being addressed. And I suspect that the movement will get more focused as time goes on. It does not seem likely that it will disappear.
Here’s one question that perhaps they ought to be asking:
Should any company’s annual report ever have the words “layoffs” and “salary increases” within pages of each other?
Regarding Walmart’s competitive issues, one MNB user wrote:
It’s ironic in light of these operational issues that Bill Simon, CEO of Walmart Stores in the US, had served as Walmart’s COO and prior to that was a senior executive at Brinker International, one of the most respected operators of chain restaurants in the world. No question their sense of urgency regarding same store sales has caused the culling of the workforce and heavy-handed, top-down approach to cost reduction at the store level.
I frequently shop at Walmart and I can attest to the scarcity of associates on the sales floor. One of the elements of Sam Walton’s unprecedented success was the culture at Walmart, where store employees took great pride in “my Walmart” and wanted each guest to have a positive experience. It’s difficult to find that spirit any more. While in New Orleans a few weeks ago, I was shopping at Walmart for supplies for my daughter’s dorm room. I slipped and nearly fell on a puddle of laundry detergent from a jug that some shopper had knocked off of the shelf. I went to find a Walmart associate to report the spill so that nobody else would slip as I did. Mind you, this was a busy afternoon and the store was full of shoppers. I must have walked half the floor looking for an associate and found none. I went back to the detergent aisle to see if the puddle was still there, and it was. Some Walmart associate had placed a “danger, wet floor” sign near the puddle and left it there. Where is the pride, the spirit of Sam Walton?
There’s nothing special about Walmart anymore, not the lowest prices, no friendly associates, no pleasant surprises. Just another business run by the numbers. We went from Lee Scott’s ingenious “Save Money, Live Better” –which galvanized the organization and created a shared sense of purpose—to today’s “We’ll match any competitors’ prices.” Where is the vision, the leadership? Company culture can be a powerful strategic advantage (e.g., Trader Joe's, Wegmans) or it can be an albatross around a company’s neck.
I think Mr. Sam would be gravely disappointed.
From another reader:
It’s a business model run by processes, not people. That is the problem! More people need to be monitoring the processes and their results! Then the shelves would be full of items and more importantly "items the customers want". Every retailer wants to complicate a simple business. I say follow GTCWTW. GIVE THE CUSTOMER WHAT THEY WANT!
And, another MNB user offers:
One persistent irritant associated with the Walmart shopping experience hits me before I even enter their store.
Terrible Shopping Carts!
Good luck finding one that’s semi-clean.
Good luck finding one that has…round wheels. Clunk, Clunk, Clunk.
I think Walmart buys the cheapest carts available, then let’s them fall apart.
And, from yet another MNB user:
Our organization is so concerned about out of stocks that we track “zero sales.” Either through shrink or theft the system can create “phantom” inventories that prevent automated ordering. By managing their zero sales we have been able to react more quickly to out of stocks and their true inventory levels reentered into the system to keep the machine running. I was shocked to see how pervasive this issue really is.
These automated systems undoubtedly save many man hours but at what unintended cost?
MNB user Steven Ritchey wrote:
The story about luxury spending reminds me of some of what went on during the Depression era, wealthy people had lavish parties while the soup line got longer and longer.
It also reminds me of a line from Robert B. Parker’s Spenser novel “Bad Business,” when Spenser’s CPA has audited Kinergy’s books (Kinergy is remarkably like Enron) and has discovered vast legal and ethical problems. When Spenser asks if the Board of Directors doesn’t have to approve all of this, the CPA replied, “As far as I can tell, the board would approve mandatory pederasty if they were urged to.”
Parker did have a way with words and I will forever miss his writing.
Another MNB user wrote:
If the affluent are the only consumers fueling the economy, it won't be enough. With 70% of our GDP driven by consumer spending, the middle class needs to be a part of the "shopping spree." The "haves" may be feeling fine now, but the reality is that our economy is heavily reliant on both the wealthy and the disappearing middle class. High end manufacturers may be satisfied with these numbers, but none of us should be because until the less affluent start spending again, we will not be on solid economic ground.
And, from an other MNB user:
KC – I like your point regarding top executive salary increases are a kind of hoarding, given the trend in compensation disparity between executives and people on the “front lines”.
So, it’s such a wonderful thing when the affluent spend money rather the hoard their bounty and it helps to keep people working but here’s the rub. How many expensive parties are they going to throw per year? How many mansions are they going to build in their lifetime? How many yachts are they going to buy and maintain? How many private jets will one person own? How many restaurant dollars and food dollars are they going to spend, do they eat more than 2 or 3 meals a day?
Although any dollar the affluent spend helps keep people working I don’t believe there are nearly enough of them to improve our economy. Case in point being that if “trickle down” economics actually worked, it would have been happening already and we wouldn’t be in the situation we are in now. BTW, there was a little “trickle down” economics experiment in this country back in the 1890’s only it was more aptly named “Horse and Sparrow economics”. It held the exact same ideals which was ‘feed the horses more and they will leave more in the streets for the sparrows to eat’. Guess what? It didn’t work then and it hasn’t worked in the 30+ years the experiment has been tried since then. Overall the haves will always hoard more than they will ever spend and hey who could blame them? They are only human.
The reality is the affluent will never be the fuel that keeps our economy rolling down the road. It won’t be the big parties, mansions or yachts. It will be the other 95% of the population’s ability to make enough money to keep a roof over their head, food on their table and clothes on their backs. So, it’s not about $1m parties it’s about the front line people making enough to meet basic needs and maybe even being able to spend $16 to go out to a movie once in a while. And in order to do all this and thereby fuel the economy, the compensation front line people need to receive for their labor has to at least keep up with the increase in the cost of living each year.
As I said the other day, I’m not sure this is something that government can or should fix ... and I’m not sure that private industry has the stomach to do so, either. Which puts us betwixt and between.
Whatever you think about the current and admittedly disorganized and unfocused protest movement, this is the disconnect being addressed. And I suspect that the movement will get more focused as time goes on. It does not seem likely that it will disappear.
Here’s one question that perhaps they ought to be asking:
Should any company’s annual report ever have the words “layoffs” and “salary increases” within pages of each other?
Regarding Walmart’s competitive issues, one MNB user wrote:
It’s ironic in light of these operational issues that Bill Simon, CEO of Walmart Stores in the US, had served as Walmart’s COO and prior to that was a senior executive at Brinker International, one of the most respected operators of chain restaurants in the world. No question their sense of urgency regarding same store sales has caused the culling of the workforce and heavy-handed, top-down approach to cost reduction at the store level.
I frequently shop at Walmart and I can attest to the scarcity of associates on the sales floor. One of the elements of Sam Walton’s unprecedented success was the culture at Walmart, where store employees took great pride in “my Walmart” and wanted each guest to have a positive experience. It’s difficult to find that spirit any more. While in New Orleans a few weeks ago, I was shopping at Walmart for supplies for my daughter’s dorm room. I slipped and nearly fell on a puddle of laundry detergent from a jug that some shopper had knocked off of the shelf. I went to find a Walmart associate to report the spill so that nobody else would slip as I did. Mind you, this was a busy afternoon and the store was full of shoppers. I must have walked half the floor looking for an associate and found none. I went back to the detergent aisle to see if the puddle was still there, and it was. Some Walmart associate had placed a “danger, wet floor” sign near the puddle and left it there. Where is the pride, the spirit of Sam Walton?
There’s nothing special about Walmart anymore, not the lowest prices, no friendly associates, no pleasant surprises. Just another business run by the numbers. We went from Lee Scott’s ingenious “Save Money, Live Better” –which galvanized the organization and created a shared sense of purpose—to today’s “We’ll match any competitors’ prices.” Where is the vision, the leadership? Company culture can be a powerful strategic advantage (e.g., Trader Joe's, Wegmans) or it can be an albatross around a company’s neck.
I think Mr. Sam would be gravely disappointed.
From another reader:
It’s a business model run by processes, not people. That is the problem! More people need to be monitoring the processes and their results! Then the shelves would be full of items and more importantly "items the customers want". Every retailer wants to complicate a simple business. I say follow GTCWTW. GIVE THE CUSTOMER WHAT THEY WANT!
And, another MNB user offers:
One persistent irritant associated with the Walmart shopping experience hits me before I even enter their store.
Terrible Shopping Carts!
Good luck finding one that’s semi-clean.
Good luck finding one that has…round wheels. Clunk, Clunk, Clunk.
I think Walmart buys the cheapest carts available, then let’s them fall apart.
And, from yet another MNB user:
Our organization is so concerned about out of stocks that we track “zero sales.” Either through shrink or theft the system can create “phantom” inventories that prevent automated ordering. By managing their zero sales we have been able to react more quickly to out of stocks and their true inventory levels reentered into the system to keep the machine running. I was shocked to see how pervasive this issue really is.
These automated systems undoubtedly save many man hours but at what unintended cost?
- KC's View:
