Online Sales Tax On the Horizon?

Amazon & Sales Tax- wsj

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As is evident from Amazon's huge success as an online retailer, millions of consumers prefer to shop via Amazon.com for millions of products.  One of the reasons Amazon is so popular is because it offers, well, everything, and as an online retailer, charges no sales tax.  This has long been a point of contention for brick & mortar retailers as not only do they have to compete with Amazon's already discounted prices, but then charge sales tax on top of that.  A two-fold cost increase to drive more customers to online retailers.

Amazon's advantage, however, is being chipped away at gradually as the issue of sales tax for online retailers gets more and more attention.  It will be interesting to see where this issue goes and how it will effect e-commerce and the retail industry as a whole.

Secret Menus Generating Buzz

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Secret Menus!

A few restaurants, mainly fast food, and now Panera Bread (PNRA), have created 'Secret Menus' for in-the-know customers.  These 'secret menus' offer restaurant items that are not featured on the regular menu.  

Ron Schlach, founder of Panera Bread says ""Secret menus allow us to speak to one audience without the investment and infrastructure of putting an item on the menu."  He also adds that secret menus are simply "Very cool."  The cache of ordering from a secret menu may be enough for some customers to try it... it certainly sounds like a great way to generate buzz about a restaurant.

In added bonus- for the additional buzz generated, there is very little cost.  The secret menu is mostly communicated via social media and word of mouth.  

I will say though, that I actually stumbled upon Panera's secret menu recently while browsing the website to see if it was worth a trip.  The menu, not prominent on the website but still accessible with not too much effort is here.  Other chains with secret menus include In-N-Out Burger, Taco Bell, and according to some customers, McDonald's (although McDonald's executives seem to disagree).

In my opinion, this idea is genius... It creates a bond with the customers who feel special just knowing about the secret menu and many will appreciate the cache of ordering off of a menu that is not posted for all to see.  Not to mention, the social media/word of mouth-only advertising is extremely cost-effective and keeps the 'in-the-know' exclusivity factor intact.

More information on secret menus can be found here from US News- Money section.   

  

Ron Johnson Takes a Run at JC Penney

Article from The New Yorker

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Ron Johnson- JC Penney’s new CEO, had helped turn Target around into a hipper place to shop.  He has also brought great success to Apple, helping in the creation of the Apple Store itself.  Clearly, he is no stranger to turnarounds in multiple industries. 

Johnson planned on ‘revolutionizing’ JC Penney.  Penney has been known for its deep discount sales and for the simple fact that walking into a Penney’s customers are certain they will find lots of sales to pique their interest.  From Johnson’s point of view, sales are ubiquitous and finding a sale is no great feat for a customer.  He chose to re-focus Penney on what he called “fair and square pricing”- every day low prices, no coupons or sales required.  With this strategy, he struck out to reposition JC Penney as “America’s Favorite Store”.  Second to the ‘fair and square pricing’, he plans to create mini-shops throughout the store to create a boutique feel despite the vast size of the store.

14 months later and over the past year, JC Penney’s revenues have fallen by 25% and Penney lost about a billion dollars.  The company’s stock price has fallen sixty percent since Johnson announced his big plans, which caused the stock to jump 24%.  Mark Cohen, professor at Columbia University and a former CEO of Sears Canada says “There is nothing good to say about what he’s done… Penney had been run into a ditch when he took it over.  But, rather than getting it back on the road, he’s essentially set it on fire.”

The article emphasizes how important it is to know one’s customers before making such sweeping changes.  What Johnson did not realize is how very attached his customers were to the sales and coupon promotions they had come to expect and love.  The article also points out the flaws in the implementation of the changes.  Stores opened before the remodeling was complete and created a hectic atmosphere that was unpleasant to shop in.  Old customers were driven away because of the atmosphere and there was no incentive to bring in new customers. 

Johnson’s reputation preceding the JC Penney debacle was impressive.  The article speculates that perhaps this was a job that he simply should not have taken on.  The article closes with an apropos quote from Warren Buffet:  “When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”

Sales of Luxury Vehicles Speak of Increased Optimism

Automakers & Their Luxury Brands- NYT

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Sales of luxury vehicles are rising even as the economy takes its time turning around.  Analysts say that this is a sign that (at least) luxury consumers are feeling more optimistic about the state of the economy and the economy’s future.  The market for luxury cars is expanding in multiple directions from compact luxury cars to leather and wood-trimmed SUVs to the updated models from ultraluxury brands like Bentley. 

The article points out that “luxury sales generate profits for automakers, encouraging even the most mainstream companies to compete in expensive segments.”   Ford, for example, is pouring money into revamping its Lincoln luxury brand.  So far the results have been mixed as to the level of success this endeavor has had.

Joseph Phillippi, of consulting firm AutoTrends adds “The luxury manufacturers have to up the ante because a lot of regular cars now come with bells and whistles like heated steering wheels.”

Financial Affairs of Cyprus

Cyprus's Financial Crisis- nyt

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Cyprus is facing imminent collapse of its banking sector if an accord cannot be struck to save the financially troubled island nation.  Cyprus is struggling to come up with a new plan before Thursday 3/21- the day that the bank holiday ends.  If a deal is not reached by Thursday, the Finance Ministry will order banks to remain closed until next Tuesday.  The idea behind this is to prevent a run on banks from happening. 

A run on banks, is however, even more likely because of the way the negotiations to reach a deal began.   The initial plan was to take a tax on deposit accounts across the board- sparing those with funds under a certain amount, causing mass outrage.  Cyprus is looking to Russia for help and Russiaindeed has a vested interest in helping the ailing country.   The article states that Russians have about $30 billion on deposit in Cypriot banks.  Such a proposed tax would have a grave effect not just on Cypriots but on the Russian people as well.

This morning, Wednesday, the minister of finance of Cyprus, Mr. Sarris met with Russia’s minister of finance and later with the Russian deputy prime minister.  Mr. Sarris has said “We will stay here until we reach some agreement,”.

Various alternative solutions that have been brought up include tapping the national pension fund or issuing new debt.  The church of Cyprus has even proposed collateralizing its many property holdings, against which the state could issue a new round of sovereign bonds to raise funds.  The article points out that the church is a huge stakeholder in Cyprus’s biggest banks, including Hellenic Bank- Cyprus’s third-largest bank and Bank of Cyprus, its largest bank.

How did Cyprus’s banking system get to this precarious state?  Unfortunately, they were greatly impacted by the severe recession in Greece.  Cyprusissued many loans to Greek businesses that have since failed and racked up huge losses as a result.  They have also been hit with losses from Greek debt holdings, purchased when interest rates made the investment attractive.

Cypriots are outraged by the state of affairs and especially so at the initially proposed deposit tax- should they really be the ones paying for the bank’s mistakes?  I will continue to watch this situation in the ensuing days to see where we go from here.

Underwater Mortgages Coming Up for Air

Hope for housing- wsj

During 2012, 1.7 million Americans climbed out of “underwater” status and have regained equity in their home.  Data from research firm CoreLogic was released stating that 21.5% of households with mortgages were underwater in 2012’s fourth quarter compared with the 25.2% of households in the fourth quarter of 2011.  CoreLogic economist Sam Khater opines that “Home equity is the biggest source of wealth, so if equity is increasing that has a very large effect on household spending and consumer psychology…”.  He points out that the increase in equity filters all the way down from homeowner’s and realtors to furniture stores selling furniture for new homeowner’s to fill their homes with.

Unfortunately, the total number of US households with underwater mortgages is still a whopping 10.4 million… down from 12.1 million at the end of 2011.

Phoenix, one of the most dramatically impacted cities, has seen fairly astonishing growth in housing prices.  The Case-Shiller index revealed Phoenixhome prices climbed 23% in 2012.  When home prices were severely depressed, investors scooped up many homes for cash, thereby reducing some of the glut of houses on the market.  The number of months supply of homes on the market is now down to 2 months which has also helped push home prices up as there is a smaller supply available.

This is all good news but we will have to see how the rest of the country fares as time goes on.

Apps: Now a $25 Billion Industry

Apps- wsj

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The app industry is booming!  Apple got the industry off the ground about 5 years ago and today, global revenues from Apps are expected to hit $25 billion.  While Apple gave the industry its start, Google and Apple’s stores today are about equal in number of apps catalogs and usage but Apple still dominates in terms of revenue, making about 3x what Google brings in.  Microsoft, Blackberry and Amazon are also getting in on the app craze to some degree. 

Some of the massive growth in apps is due to the fact that when they started out, they were just for smartphones.  Today, we have apps for tablets and television also.  The app turnover rate is quite high as well; The article states that  about 63% of apps used today differ from the apps being used just one year ago.  Consumers tend to be intrigued and perhaps download a wide variety of apps but in actuality, only use about 8 of those apps.  With such a high number of apps available to the consumer and still more being thought up and put into the market every day, the pressure is on to create something truly unique that will add utility to consumers’ day to day lives.

How Does a 36% APR Sound?

NYT Car Title Loans

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This latest post is from a NYT blog discussing Car Title Loans.  Car title loans are short-term loans that are secured by the title of the borrower’s car.  If the borrower cannot repay the loan at the end of the term- they are forced to renew.  Or lose their car.  Either way, they are incurring fee upon fee upon fee.  The entire concept of title loans seems predatory to me.  First, the loans are typically made based not on the borrower’s credit-worthiness or income, but rather on the value of the car!  This seems absurd to me… and a glaring problem, illustrated by the fact that the “average car title borrower renews the loan eight times, paying $2,142 in interest for $951 in credit”.  This is an absolutely insane interest rate setting even a decently qualified borrower up for disaster.  These ‘short-term’ loans therefore wind up turning into much longer-term loans and wind up being an extremely costly way to borrow money.  The problem is that they are being targeted to low-income individuals who may not be qualified for the loan because the loan itself is based on the car’s value not their individual income.  On top of that, if a repossession does occur (about one in six loans) a fee is incurred of $350-$400 which, added on top of the already crippling balance, puts the borrower even further in debt.  And they have no car.

The report that the blogger talks about suggests more regulation on title loans with guidelines to “include loan terms of at least 90 days, and an annual percentage rate of no more than 36 percent.”  No more than 36%?  Ouch.

236k Jobs Added in February

US Jobs Update

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The U.S. economy gained 236,000 jobs in the month of February and unemployment is at a 4-year low.  The surprisingly high number of jobs added to the economy pushed down the unemployment rate to 7.7%.  The job growth occurred across many sectors… One particularly positive sign is that 48,000 construction jobs were added leading some to believe that the (slow) recovery in the housing market is aiding job creation.

It’s not all good news, however, and there are always multiple ways of interpreting the data.  Economists also noted that the size of the labor force as a whole contracted by 130,000.  While some of this is due to individuals retiring and leaving the workforce, discouraged unemployed individuals continue to give up their search for jobs which also pushes down the workforce and unemployment.  The number of government employees shrank by 10,000 jobs and with the upcoming sequester, economists anticipate spring will be see a weaker labor market yet.

Michelle Meyer, senior United States economist at Bank of America Merrill Lynch estimates that the unemployment rate will stabilize at 7.5% later this year.

Stock Markets Soaring

Record High for Stocks

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Stock markets reached a record high this week but the economy and job growth is still fairly stagnant and the gulf may widen further with impending budget cuts.  This article pointed out that even though stock prices are climbing higher and higher, that doesn’t automatically translate into a growing economy. 

Ethan Harris, co-head of global economics at Bank of America Merrill Lynch is quoted saying “So far in this recovery, corporations have captured an unusually high share of the income gains… The U.S. corporate sector is in a lot better health than the overall economy.  And until we get a full recovery in the labor market, this will persist.” 

With so many people still unable to find gainful employment, corporations are keeping a larger share of their profits since they face very little pressure to raise salaries.  The article calls this ‘a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

Time will tell if the gains in the stock market endure and how far behind the general health of the economy lags.