Tuesday, July 13, 2010

Boom Echo

Every boom has an echo, right?

One of the interesting things I noticed about fads (or booms, if you will), is that the maximum number of purveyors appeared long after the peak in demand. The product would reach its height, and then, slowly, almost imperceptibly start its inevitable decline, but the number of stores that would pop up to sell it would accelerate.

I used to explain this by using a 'froth' analogy. The cup runneth over...and over and over....

But I think the mechanics of it are deeper than that.

First of all, let me state this is just a theory, so take it for what it's worth.

Secondly, when I say the boomlet reached its peak, I mean the 'golden age' is over. It no longer is difficult to get the product, the prices are starting to fall, and thus the profits. But the product may be selling in greater numbers overall than ever before. Just nots so you can make any money off it.

The temptation is to follow the prices down, to deny that the product is failing. Failing to make a profit.

It seems crazy that so many stores could possibly be selling what -- just a short time before -- you had been the only one to see the potential of, the only one to take the risk, to develop the market. How are they doing it? you ask yourself in disbelief.

Usually, I'd get hit from both sides -- the big guys would take notice, and the bigger the fad the more likely they'd use the fad as a 'loss leader' and lower the prices to close to wholesale. They just want people in the door. Then I'd get hit by the little guys, who's best idea of how to generate business is to try to steal the customers you have already created and the only way they know how to do that is to undercut in prices.

I tried the first couple of times this happened to keep my customers -- by both competing in price and keeping the same level of service. But this is pretty much impossible, because the service was costly in time, money, space and effort and my competitors were apparently willing to lose money in order to gain market share. How do you compete will someone who thinks they can name that tune with one note?

Here's the kicker.

The overall market might -- to outward appearances -- even by objective numbers -- still be expanding in sales. Sometimes for years. Each outlet is selling less, each outlet is making much less profit, but there are so many outlets that the overall industry continues to expand.

None of this made much sense to me the first couple of times -- until I realized there was no sense to it. I was competing against people who had little imagination, who only really noticed the fad while it was in full swing and only then decided to jump on the bandwagon -- this goes doubly for the mass market, who usually only jump on when the fad has reached its ultimate mania.

Then it really gets crazy. The stores that opened at the peak start to fail, and two other stores will pop up to take their place. Then they'd fail, and two more stores per store would open up. This goes on for years, sometimes. These stores were generated, propagated, at the height of the mania even though they may not have opened until long afterward. They don't see the failing sales or profits because they have nothing to compare it to.

Nuttiest of all, is the phenomenon of stores opening to replace failed stores who follow the exact same business model of the failures. They don't copy me, or some of the other established stores, who are still in business.

No, they liked the failed stores because the stores were "CHEAPER" and the owners were too stupid to realize why they had failed (or unwilling to admit it) and would usually point their fingers at the landlords, or the wholesalers, or the spouse, or whatever as the reason they failed.

So these nitwits decide that selling the product for next to nothing, and spending all their time and energy in a losing proposition is the way to go. And go and go.

Once it reaches this stage, the best strategy for me is to take a step back. I'll maybe moderate my prices a little bit if I want to keep up some volume but not go whole hog crazy discounter, or I'll raise the prices a little bit and order much less product and hang back.

It's hard to compete with "the new kid in town", who in his or her naivete seems so much more of a booster of the fad, (while I'm trying to warn people to watch out), who's idea of competing is to be cheaper, who provides suicidal services like opening product to get the 'best' from it, selling it cheap, then taking what's left and selling it even cheaper.

I play a little bit of rope-a-dope then, wait for them to become disenchanted, or split in the middle of the night and just hope that some of my old customers will drift back to me.

But usually, it's pretty much over.

When I was visiting Brett's store in Roseburg, he mentioned how interesting it was that so many of the old-line stores that existed 20 years ago are still around: Heroes Haven, Emerald City, Things from Another World, Excaliber, Pegasus Books, and so on. Of course, that is a prediction of a natural phenomenon -- that is, the survivors would be the survivors. But I also think it's a valid observation -- and the only answer I could give him was, "None of us became crazy discounters."

I see Magic as having entered into a phase where 'price' will become paramount, because Hasbro has decided to promote the product in the chain stores, because its readily available at near wholesale online, because the progeny of the magic boom are being born in every town, but where the pressure will be for stores to provide tremendous service to retain their customers is stronger than ever, so the strain will be in both price and in services (space, time, effort.)

I'm not going down that road. I'm sticking to my price.

And the customers are disappearing in droves. Which means, I guess, that my budget for boardgames and books has gotten a sudden bonus -- and I'll pursue product where I can still make a decent profit.

Meanwhile, the conflagration of the fad will burn and burn, cheap being the common denominator, services becoming more and more costly and stress inducing and resulting in less and less customer loyalty instead of more. It's a vicious cycle to get into, I tell ya.


O.K. Some of you may have figured out where I'm going with this.

Way back when I first started writing about the boom in Bend, I mentioned that I thought downtown Bend would continue to fill with stores even after the bust because of the demand created at the peak, that the 'froth' would keep filling the space.

I've been more right about that than I expected. For one thing, there really are only a couple of vital places for 'small' business in Bend, right now. Downtown. The Old Mill is more for what I consider 'medium' sized businesses -- same with the Factory Outlet or Cascade Village, etc.

But if you wanted to open a small business and get immediate foot traffic, downtown Bend is the place.

So the irony is that we are still experiencing the Echo of the Boom. Now it may be that this echo will continue to fill the space until some kind of economic recovery begins. It won't be like most fads, where the product falls and falls....and falls. Eventually, there will be a bottom to the recession, and if we are lucky, downtown Bend will have placeholders all the way until then.

But like the boomlets I talk about above, the profits may actually be less, the service stress even more, and there may be more turnover than most people are aware of. But I do believe downtown Bend is an echo of the boom right now.

17 comments:

blackdog said...

"Nuttiest of all, is the phenomenon of stores opening to replace failed stores who follow the exact same business model of the failures."

In line with this, some locations seem to be absolutely toxic for restaurants -- for example, the building near the Old Mill District that originally housed Honkers. Four or five different restaurants have opened there and all have failed.

You'd think if somebody knew that four restaurants had failed in a certain location, he wouldn't be eager to open Number Five in the same location.

What's also baffling, to me anyway, is that there's no discernible reason why these locations should be toxic. They just are.

Duncan McGeary said...

They're toxic -- until they're not.

The place the Breakfast Club is in had quite a few tenants, but they seemed to finally make a go of it.

I've seen that before -- it just has to be the right business, somehow.

IHateToBurstYourBubble said...

The current Echo Boomlet we're seeing in the economy is something I didn't really expect. But I see evidence of it around me:

Person X buys/generals/speculates on 8 houses (2006)

Person X goes damn near broke paying the mortagages on those spec homes + their own (2008)

Person X loses the spec homes (2009)

Person X stops paying the mortgage on their own home, freeing up thousands per month for cars/vaca's (2010)

Just as I knew many going bust paying mortgages on White Elephants in 2008-2009, those same people are living "rent free" for many, Many months (12-18 usually) in their primary residence. And they feel richer than they have in years.

They'll have to Pay The Piper in a year or so, but for now, Live It Up.

IHateToBurstYourBubble said...

And I might add, if these people go Chap 11/7 at some future date & they know it has to happen, it pays to go into the process absolutely penniless... which is easy to achieve.

Duncan McGeary said...

I keep telling people that appearance of prosperity isn't always really prosperity, especially downtown.

As a good friend told me last night. People don't care. They aren't paying attention. They have no perspective.

Pedro Hemes Valdes Ortega said...

well there are biz that just make it, taco-shack comes to mind, its in a little shit-hole, but great cheap-food,

of course the real kiss-of-death is anything there at the old-mill enough said, and I know hbm will choke on his corn-dog to suggest that BSmith's shit doesn't stink. The right-hand man of boss-hogg-hollern.

You can make anything work anywhere if you got buzz, the real issue with these recurring dogs is the triple-net 7 year lease, which are designed to FUCK idiots, ... so fools keep signing up and they can't make a go.

I think the generic model is always that biz will go to the low-rent and the customer will follow. This is why the trend now is that the hottest places in town are brother-johns and ten-barrel. Eventually these rents will go up, but in the meantime, the rent for downtown will go down. Eventually new entrepreneurs will go downtown when its cheap enough.

As for I97 corridor, well some shit is truly fucked, but I think that linda's location is good for the same reason as the mexican store there, is that its an old established corner,

My argument why some locations are 'losers' is that some property's have their lease-terms written so that ONLY fuck-heads will rent, and thus they always fail, because fuck-heads always fail. A good businessman delivers a good product and is a success, and ergo he doesn't sign a 10 yr triple-net lease that fuck's his life from day-one.

The problem here is fuck-heads like HBM have never had to sign a lease or be an entrepreneur, dunc knows a little bit, but mostly he knows about struggling and survival. The real issue is that a GOOD BIZ-MAN, must be very careful about TERMS of the lease.

Of course I do agree, that some areas are JUST fucked, ... like ALL these fucking strip-malls and the fucking OM,... just fucked. NOT COOL at all :)

Pedro Hemes Valdes Ortega said...

Yep, ... the bottom here is going to be "BEND UGLY".

Poverty, without a View.

Duncan McGeary said...

Pleasantville (black and white) except without the jobs.

Duncan McGeary said...

So if it's true that Gisler lost his shirt because he was keeping rents low, then his Chapter 7 would seem to have an impact on his renters when the new owners come in.

Buster -- even thought they've moderated a little, rents are still really high downtown, with some stores which are struggling asking for further breaks (other stores like mine, not asking because I'm not struggling enough. That seems unfair, darn it.)

But as long as it keeps filling up with fresh meat, I'm not sure the landlords are ever going to lower the rents enough for the old fashioned Bo Ho's to come back and colonize. I think maybe it's permanently 'gentrified' now.

Duncan McGeary said...

I've often thought if you could get five or six Boho type businesses to open in the same run down area of town at pretty much the same time, you could create a little arty subculture area --

Say, Division Street, which died on the vine when the bypass was built. Still a nice wide road with retail lining it -- could be kind of cool.

If you could get enough mass to generate heat.

But getting Boho's together is like herding cats. That's why they're Boho's.

Jeff said...

Wow, Dunc, whatever did you say to get IHateToBurstYourBubble to come out of his cave? It's like Moses coming down from the mountain.

Duncan McGeary said...

And BEM is John the Baptist.

Jeff said...

"...John the Baptist."

And Buster is like...? A guy holding a sign "The End is Near" or "Abandon hope all ye who enter here".

blackdog said...

"I know hbm will choke on his corn-dog to suggest that BSmith's shit doesn't stink. The right-hand man of boss-hogg-hollern."

BSmith and MHollern don't even get along very well. And I haven't worked for BSmith in years and never worked for MHollern.

You're talking through your ass again, Buster/Pedro. But that's no surprise.

Pedro Hemes Valdes Ortega said...

But as long as it keeps filling up with fresh meat, I'm not sure the landlords are ever going to lower the rents enough for the old fashioned Bo Ho's to come back and colonize.

*

When there are mexican taco shacks on both sides of Dunc's downtown biz, ... then we know that the downtown has hit bottom.

Yep, its going to be year's before bottom is seen, and the bottom ain't going to look like what it looks today.

I think the point I was trying to make was that the reason spots fail is because assholes design the lease for failure, a fair landlord will get a better client ergo a better business. Losers and con-artists attract one another like Bend realtors and fraud.

I think that both cases of brother-johns & ten-barrel are owned by good fair land-lords, and they knew to get a good client.

Hell yes dunc, the trophy-wives will just keep coming forever and creating new boutiques for your fucking list. Please fix the fucking list, try alphabetical,, why does it have to be in comical order?? I don't think so, as HOMER eloquently pointed out in his X is X comment a few days ago, we're in a comfort period between the storm, where our 'riche' have just quit paying the MTG, so folks are taking the excess cash saved from not paying the MTG and they're using it to start boutique biz, ... yep massive fucking failure in 2-3 years.

Pedro Hemes Valdes Ortega said...

And Buster is like...? A guy holding a sign "The End is Near" or "Abandon hope all ye who enter here".

*

Then HBM is the voice of clarity always reminding us that all of this is a mirage and that Bend is really ran by good people and that the BULL&SORE are here to help us.

The End is Not Near. In 2013 we'll look back to today as the best of times.

All ye who enter here are fucked. The SORE&BULL with all their events paid for by city-fee's and CACB, ... still reel the suckers into town. To be honest a guy like HBM (retired) could come to Bend today and pickup a shit-shack on the eastside for $100k, and probably retire if he lived off canned-beans like Marge. So not all who enter Bend this late will be fucked, ... but those who come to this town and lay down a big wad even now, ... will see to quote many here to see a large fortune become a small fortune.

It wasn't that long ago that the real majority of this area were those who lived in RV's, at trailer-parks, ...

I'm already seeing RV's all over PDX, I have a friend who goes back east every few months tell me that everybody he knows has bought a 5th wheeler and plans to walk-away from their house once their job is gone, and find a cheap place to park the 5th wheeler.

My point is in 2010 NOT all who enter Bend are fucked, ... like 20 years ago or 40 years ago, those that live in this town like nomads in RV's and eat like marge, ... will survive Bend. But the people that DUNC is obsessed with that run these downtown boutiques they're fucked, Bend Fucked.

Pedro Hemes Valdes Ortega said...

Buster -- even thought they've moderated a little, rents are still really high downtown, with some stores which are struggling asking for further breaks (other stores like mine, not asking because I'm not struggling enough. That seems unfair, darn it.)

*

Well until boutiques and trophy-wives are gone, ... the rents will be kept high, and why the fuck not? Shear these sheep, ... shear them good. Let downtown building owners screw these CALI's good.

Eventually this money from NWXC and CACB will dry up funding all these fucking SORE&BULL events that bring all these fuckheads here every weeekend from CALI,...

It's all throwing good money after bad, soon there will not be any easy money for anyone. These enablers like NWXC, and CACB, .. and all the revenue sources that COVA gets are going to dry up. The end of MARKETING Bend as paradise is soon. When this ends the new-blood downtown will quit flowing and that will mean only PRACTICAL biz downtown. Maybe we'll get a downtown HW store again?

But yes, even now in 2010 BEND still lives in LOLLY-POP LAND with these fucking events everyday. Like that event they had up at NWXC a few weeks ago, NWXC spent a fortune of real money, did it sell any STD's?? I don't think so. The only think selling now is short-sales.

Bend realtors are now panicking, the escrow offices and title companys are at a standstill the whole fucking RE racket is now bambi on I97 looking at the head-lights saying "Who could have guessed" :)

Yes dunc, ... as long as their are so many 'out of town fools' still renting biz in downtown Bend, I don't think you'll see a drop in price.