Wednesday, April 16, 2008

A year ago, if somebody told me they were moving their business to a new location, it was a new, improved and larger location. This year, it's to save money.

A year ago, if somebody told me they were moving to a new job, it was a because it was an advancement, with better pay. This year, it's because it's the only job they can find.

A year ago, if I asked a furniture salesman, or a spa salesman, or any other kind of sales business, how they were doing, they'd say, "Great!" and mean it. This year, they tell me it's horrid. And mean it.

And so on. I think it has begun to sink into people's consciousness what is happening. Faster and deeper than even I expected. I've been cutting back on expenses for almost a year now. I can't imagine how the new businesses are going to be able to cut back quick enough if they're only starting now. I can count on one hand the number of business owners downtown who experienced the last major downturn in the 1980's. They are going to be stunned and shocked.

Last fall, I mentioned that I thought it was important to set a benchmark in advance. I do this in my business planning, because it's too easy to rationalize away results of the moment, or conversely, make too much of them.

Selling less than 100 houses in March, was the benchmark I mentioned back in November as a sign we are in deep trouble. We sold less than 100. It's possible over the next three months we may sell a bit more than that, but we really needed to sell bunches and bunches more than that.

Actually, I think the number of houses for sale is under reported, the prices are over reported, and the under the table deals, desperation sales are happening completely unreported.
Of course, most businesses aren't going to say a word. Most are like the business of a competitor of mine last year who was talking big, but who I found out yesterday closed at the beginning of March. I'm sympathetic. I could wish people wouldn't listen to the media or cut back at all.

Still, I started this blog with the intention of being real. I suppose, if I was really hurting, I probably wouldn't post this. I did have to sleep on it. I thought about just storing it, and then springing it six months later saying, "Look! I was right!" But then, the opposite possibility is there that I don't post it because I was wrong, and that seems a cop-out to me.

If I'm going to do this blog at all, I need to say what I think. The entire context of everything I might say about Pegasus or Bend or my own personal circumstances come from what I really think. If I was anonymous, I wouldn't think twice about posting this. And the clincher, I'm making my decisions based on these conclusions, so I may as well share them. Otherwise, nothing will make much sense.

I think the Heloc removal has turned out to be a good thing, if unsettling. I really thought I was going to be immune to a downturn. (Silly me. I forgot one of my rules of thumb; downturns hurt everyone.) It has really firmed up my suspicions, and made me act more aggressive toward cost cutting and debt removal.

I think a whole lot of 'back up' capital is going to be spent this spring and next fall to keep up appearances. (And of course there will be many exceptions; businesses that do well despite everything.) So you may not see much cracking on the outside, but behind the scenes.... I am already hearing customer after customer tell me they've been laid off or their hours have been cut. And this is the busy season for the housing market, and we're headed into the busy season for the tourist business.

I still get pretty good tourist business -- after all, most of the north of the U.S.A. doesn't have it as bad as Bend, Las Vegas, Arizona, California and Florida. It's going to hit the valley too, eventually, though not as bad as here.

And I still get the customers with steady jobs. Any of you folk ready this who have solid jobs, just ignore this entire post!

My sales are down, but not more than I predicted and allowed for. More alarming to me is that I'm seeing volatility I haven't seen in years. Horrid day, followed by gangbusters day, followed by average days, followed by gangbusters, followed by horrid....followed by gangbusters....like that. The averages are still there, but it's a bit more stressful getting there. The thing that is encouraging is the broad range of stuff I'm selling -- just like I hoped and planned.

And I really want to emphasize that Downtown is really proving out. The foot traffic we get downtown is so high, that it can take a downturn and still be much higher than anything I am used to. It will probably be the last place in town to feel it. Yes, the rents are high. But, then again, we actually get customers.....
I'm totally psyched that my diversification efforts over the last five years are really paying off. Having 10 product lines, fully stocked, has fueled sales that simply wouldn't have been there before. This is the situation I've been planning for. But it is getting a big ragged around the edges, enough for me to think it will get worse. I've adjusted my orders accordingly.

As I've said before, knowing in advance that someone is going to sock you in the jaw, doesn't make it hurt any less. We'll work our way through, but it will be work.

I want to emphasize that I think Pegasus is going to weather this just fine. Remember, I always talk this way --have for the last 28 years. This is the most solid we've ever been. I just hate to see us have to cut back at all. One way to put it: While sales are down, profits are actually up. It's weird that way. I'm more or less harvesting the fields already tilled, rather than planting new crops. When things are good; I tend to expand as much as possible, increase sales as much as possible; in preparation for times like this.

So, not only do I think we'll be fine, I think some opportunities are going to open up. I know how to do this; it feels really familiar. Not so much because of past recessions, but because at least 4 or 5 times, I've seen major product lines completely dry up overnight.

Part of the trick is recognizing and accepting that it's really happening. I've hedged my predictions until now; I wanted to hold out hope. I was afraid of looking foolish if I predicted a severe downturn, and then it didn't happen. But so far, every prediction I've made, no matter how negative, has been undercalling it. I may be wrong -- I hope I am wrong-- but I think this is the real deal.

So I'm calling it. The country may be in a mild recession, but we in Bend are headed for a deeper one.

If I had to pick one factor that I think is unavoidable, I'd have to say that the inexorable declines in California and Vegas and Phoenix and Florida are going to have consequences to places like Oregon and Colorado. I don't see how we can escape that.

That's why I think all these people who are still spouting the Pollyanna lines of "Bend is different. People want to live here" are going to pay a steep price for not being realistic. I'm not mad at them. I feel sorry for them.

I think Bend is already getting it worst than the rest of Oregon. And it's happening two full seasons before I expected it. (I was thinking it would really sink in this Fall.) I don't think we are headed for Road Warrior territory, as Bilbo would have it, but an occasional vacancy, that lasts more than a few months..... Look at Greenwood, which went from almost no vacancies to about 16 big vacancies over the last year..... (Obama just filled one, for the next few months....) Landlords are having the same problem as house owners in adjusting their rates downward.

So yeah, I think we are losing jobs at a rapid rate. I think locals are already cutting back. I think we are already beginning to lose population. And I don't care what the statistics are saying, I'm seeing and hearing it every day. Tighten your belts, folks.

If I was involved in the real estate, building, or financial services business in any way, I'd be looking around for a way to supplement my income. Because, I'm beginning to think that our feeder market from California is going to grind to a halt; and the majority of sales we'll be seeing are short sales and foreclosures. (Which don't profit anyone but the buyer, I believe.) It will, as I said, obscure the truth.

I know how it feels. Years ago, I would have a decent looking month on the balance sheet. But I'd look back and see the Perils of Pauline; making a lucky sale, here; cutting a deal there; doing an aggressive sales pitch here; giving up a prized product for less than it's worth there.

You make what you need, and from the outside it looks fine. But it isn't the same as just asking and getting the price you want.

That's the kind of market I think we're headed for. I wouldn't mind in the slightest being wrong. But if it's like I think it will be? Thank god I've had lots of practice....

12 comments:

Duncan McGeary said...

Reading this, it sounds like: "The Lady Doth Protest too Much."

But I've learned over the years that I really have to bend over backwards, because people think if you talk this way, you've got problems.

Whereas, I've always thought it was the guys who don't talk about it that you have to worry about.

Jeff said...

Interesting post. But I don't think you're going out on a ledge. No one's going to walk in and call you 'chicken little'.

Anyone with the slightest awareness knows what's happening -- at least deep down.

The amazing thing, by contrast, is that you operate a retail business but freely admit that you are a "non-consumer". Kind of like if Henry David Thoreau had opened a jewelry store in Manhatten. The rest of the retailing world is set on encouraging sales, don't you think? :)

BilboBend said...

Dunc,

The whole thing honestly is far too negative that said, that said we both know that 'Bend' is 18 months behind.

I saw a complete collapse in sales for most of my businesses back in May of 2007.

In the past week, I got more orders ( all international, and mostly from Australia, Taiwan, and Israel ), more orders than I have seen in the past six months. All in one week!

Why? Because the dollar is now so fucking cheap.

Now back to Bend, I call the recession back in May of 2007, as I know which of my businesses are the best bell-wethers. I don't think that our 'Bend' will really admit 'recession' until this fall, and then it will last two years.

I think that given the order strength I'm seeing right now, and that the past week sales is the same as I saw in the prior six months, ergo I'm now good for the next six months. The INTL folk were the first to bail, on the US scene they stopped doing National purchase orders back in the Spring of 2007, and there was a little in Fall of 2007.

I expect US military to ratchet up spending in 2009.

Bend will be FUCKED big time for the next two years. Our economy as you well know is all tourism, which will ditch as the US tourist does so on HELOC & VISA.

The INTL tourist will NOT come to Bend, not even to see the pregnant man with a beard.

Diversify DUNC, Diversify. SETUP a website, and let the INTL world know what you have, biz in Bend is going to be dry for the next few years, and if you sit and wait for them to walk in you'll starve, I'm sure you'll survive, but why?

Given how much FUCKING time you waste on BLOGGING, if you spent 10% of that energy on a INTL website marketing your 'hard to find product', esoteric shit, ... You would/could sail this recession. Don't put all your eggs in the BEND basket, because they next 2-3 years is going to be fucking Pathetic.

Getting back to 'negative' I have long wanted to go contrarian on Bend, as its now clear that everyone and their chipmunk know its coming down. Trouble is the deer are in the headlight all waiting for non-existant cali's to buy their crapshack, or hot-tub, or TV, ... or comic books. They're NO longer coming.

Do more 'comic' blogging on the INTL level, plug your product, and let folks INTL know you got shit, they got money, and the dollar is cheap. Their has NEVER been a better time to buy USA shit. Explain to people the history, put your creative work into marketing yourself on the INTL level, that is the future, you'll go the way of the dinosaur if you wait for Bend or USA customers.

Publius said...

I think your sky-is-falling attitude is both overly pessimistic and inaccurate. From what I can see Bend is doing very well. Within a block of my house two homes are being built and another is being remodeled. The stores I shop at are busier this Spring than I've ever seen them. Traffic today, a mid-week weekday, was more congested than on a summer weekend. Where I work we're overwhelmed with business. Bend is booming and prospects are good.

Duncan McGeary said...

Thank you for your view. I think it's interesting that there are people who think that way.

Heck, you might be in the majority.

Duncan McGeary said...

publius

I'm not being facetious or sarcastic when I say, I hope YOURS is the prevailing view.

Duncan McGeary said...

Bilbo? YOU think I'm too negative?

Wow.

Now I know this post went too far....

Duncan McGeary said...

But this is how I see it, and this is how I'm playing it.

Duncan McGeary said...

This may take a couple of years to know whether I'm right or wrong. I figure, to be effective in my planning, I have to choose a course of action and stick to it unless there is clear evidence that I'm wrong.

In the absence of clear evidence, I've learned to follow my gut.

If it turns out I zigged, when I should have zagged, then I'll pay the price.

But I've got a couple of decade of guessing right, and when I've guessed wrong it was ALWAYS because I went with the prevailing wisdom instead of my gut.

So....a couple of years ago, I'm guessing the game industry is due for a correction, and that it will be very difficult for a game specific store to survive, and I start stocking up in games. Everyone said, no we're doing great. Everything's fine.

A couple of years ago, I figured the card industry had hit bottom, and was going to bounce along the bottom for awhile, and that it was going to become difficult for a card specific shop to survive. I started restocking cards.

In both cases, no one thought anything was going on but me. In both cases I was right.

These were cases of guessing an opportunity.

Today, I'm guessing that betting on the negative is a safer bet, pulling back and conserving cash and not expanding and so on.

Sure there will be plenty of activity over the next year, year and half, and even into two years. People are pretty good at putting up a front.

But I have to make a commitment to a strategy right now. By the time it is clear that I was right, (or wrong), it will be too late to change.

If I'm too negative, I might miss a few sales -- though I'm pretty good at avoiding that. I might have a few -- vanishing small number of people -- think I'm too negative and avoid me.

But if I'm too positive, and go against my instincts, if I choose to believe Bend is "booming and prospects are good" then I could spend the rest of my career in debt.

I'll follow my gut.

So, I guessing I see it much worse than anyone else.

Duncan McGeary said...

And finally, I'm talking Bend. I'm talking downtown. I'm talking my own business.

It doesn't matter to me if it's booming somewhere else, or other businesses are booming, or other districts.

I'm specifically guessing effects on MY store. I'm pursue every opportunity, but cannily and not by going crazy ordering.

I'll conserve costs, and try to look for opportunities. I think that this may be a once in a lifetime opportunity to zig, when everyone else zags...and be right.

Duncan McGeary said...

I hope this doesn't sound arrogant. Especially, if everyone else disagrees with me. I kind of think that's a good sign that I'm right.

In my business diary about two years ago, just before I began writing my blog, I made a prediction that all four local competitors would be gone by summer of 2008.

One was gone in a few months, one was gone by Jan. 1, 2007; one by June 1, 2007; and one by Jan. 1 2008.

Why? Because I was involved in each of the industries they were in. I knew what was happening in my store, and what I was hearing about elsewhere. I knew what I knew about Bend, roughly what rents and COG's and employee wages were. I knew that the business cycle was turning down for all of them, and none of them were aware.

I wasn't wishing them bad luck. I just knew the cycle had turned.

I can bet you that almost none of their customers saw it coming.

Why should they? It isn't something they are paying particular attention to.

But I am. I'm watching it every day. I know Bend, I know my industries.

In some ways, I'd be better off if everyone saw it the way I did. Rents might come down.

But I can very easily envision the next two years as being tough for my store and me, and not seeing any signs of distress anywhere around me.

But that won't mean distress isn't happening. Just that it won't be evident until its over.

I can also foresee a scenario where the average consumer in Bend really doesn't see it, but over a two or three year period many stores fold or sell or move, and others simply take their place and it will look perfectly normal to those who aren't paying attention.

To some extent, that already happens. More stores fail than anyone really notices, but they fail over time, in different ways, and are quickly replaced.

But I'm wanting to survive this -- so I don't really care one dot whether there are just as many thriving stores in downtown a year from now (even though many of them may be new.) I care that I'm still around...

From the average citizen's perspective, every store downtown may look equally viable.

From my perspective, I can say; this one's new, this one's having trouble; this ones well established, this one's approaching retirement age, this one spent too much money, this one isn't spending enough; and so on.

So I'm saying that there is enough of a downturn in Bend, even if only so far as it's already gone, that it's created internal distress.

As I've said before, the customer is the last to notice. I still have people who think I sell lots of Pokemon, though its been sliding down since Christmas 2000.

It took at least 8 years for the slide in sports cards to become noticeable to the consumer. There seemed to be as much product as ever. But that didn't mean it wasn't happening.

Just a couple of months ago, I had a customer come in and tell me that a store in a neighboring town was selling xxx dollars worth of a certain product.

I just said, "No, they aren't. That's impossible."

"Why would they lie? I've seen them sell xxx dollars, just while I was standing there."

"Sorry. Not possible. I don't believe it."

"Well, they are. And they're doing great."

Guess what I found out yesterday? Said store closed in March.

And so it goes....

Stores try to cast an illusion. You aren't going to walk into them, and the clerk go running over saying, "Quick. Buy something before it's too late!"

No, the illusion needs to be maintained by both the store and the customer.

But that doesn't mean, I should be fooled.

I can't think of a single case where I was feeling either an upsurge or a downturn, that it didn't turn out to be true everywhere else --despite what may be said or done.

It is my job to think for myself.

Duncan McGeary said...

Here's where I probably lose anyone who's still listening.

Even if 90% of the people believe something, it doesn't mean it's true.

Even if every expert believes something, it doesn't mean it's true.

So, Duncan, You think you're right and everyone else is wrong?

I prefer to believe that it doesn't mean I'm right, just that everyone else is wrong. Subtle distinction.

I've told the story of asking other merchants in the Mountain View mall if they thought the mall was dying and not having any of them them agree. "What are you worried about?" said the owner of H20 Sports. "We're having our best year ever!" I sold the store, because I was convinced I was right. Five years later, they tore the entire mall down.

Another example. At the height of the comic boom, I was making April orders and realized that my orders were twice the sales level of the year before. I called a high mucky muck in the Diamond hierarchy, and told him I thought we were in dangerous territory.

"What are you complaining about? Everyone else is happy."

Sure enough, the market collapsed, taking 3/4rths of the existing shops with it.

Group think is a hugely powerful thing. After the sport card collapse and the comic collapse, I quit paying attention to what the majority said, and tried to gauge it for myself.