Wednesday, December 27, 2017

Adding Up the Christmas Shopping Season

The first post-Christmas numbers point to a record high season at U.S. retail. It is not that shoppers were buying more — rather, we bought quite a bit less than last year — but the scarcity of deep discounts in stores meant that we spent more than in any previous year. The smaller discounts and limited stock should also mean that the season was highly profitable for stores. To be sure, some segments did better than others. Toys, automobiles, and clothing were down, while department stores, online retailers, and payment cards did especially well.

Yesterday at after-Christmas sales, I saw plenty of shoppers but not a lot of discounts. At one store, the heavily promoted after-Christmas clearance sale had items marked down by 1/3 or 1/2, but only 1 percent of items in the store were included in the sale. At another store, customers who bought multiple items could save 25 percent — hardly the deep discounts we saw before and after Christmas in many stores over the last few years.

Monday, December 25, 2017

Survivalism in an Era of a Thousand Little Cuts

It is easy to make fun of survivalism and its emphasis on durable goods that can provide the essentials of life, things like bottled water, crackers, blankets, matches. This are things that are set aside for later and, like the fire extinguisher that sits under my kitchen sink, always seem to go unused. As survivalists see it, those things are there for those rare situations when the familiar civil and economic order breaks down and you have to survive on your own for an extended period of time.

Survivalism seems an extravagance only until the survival supplies are actually needed. The situations that would require survival supplies always seem far-fetched until they actually occur. Imagine, for example, that the worst hurricane in U.S. history struck at the same time that the most repressive administration in U.S. history, determined to destroy the country by a thousand little cuts, occupies the White House. The weather disaster could result in simultaneous failures of electric power, water, and roads. A near-complete lack of government response could make the outages last for a year. With running water that is not safe to drink, no electricity, highways that can’t be driven or walked, and no effective law enforcement, suddenly you hope you have a hundred boxes of crackers and a hundred gallon bottles of water.

You don’t have to imagine this post-apocalyptic scenario, because this is the current situation in Puerto Rico this Christmas morning. Most of the island territory has now gone the entire fall without drinking water and electricity, and those services will not realistically be restored before the next hurricane season arrives. As for the roads and the commercial infrastructure of the island, that will certainly take longer. Life will not be back to normal in Puerto Rico or the dozen nearby islands most affected by this summer’s hurricanes — there is no need to add “until,” it just won’t happen.

Hurricane Maria will not be the last such disaster. If the fires in California were to grow to five times their recent size and destroy large parts of Los Angeles, there is no reason to imagine a proportionate government response — never mind the scale of damage that a major urban earthquake might someday cause. One day rising ocean levels will take away half of the Miami metro area. The head of the Federal Emergency Management Agency says people should no longer count on the government coming to their rescue in this kind of large-scale event.

We make disasters worse by not preparing. Instead of pretending that the next disaster won’t strike, we probably should build buildings with non-burnable frames and roofs, strip out the wallboard and carpet from lower levels of vulnerable buildings so that they are easy to clean after a flood, replace utility poles with underground electric service, take down the abandoned railroad bridges that will crumble in the next moderate earthquake, retire the most disaster-prone nuclear power stations — but all that will cost a fortune. In comparison, setting aside some dried fruit, batteries, candles, and waterproof containers costs almost nothing. In an era when our government tells us directly we’re on our own, not just for three days after a hurricane but potentially for months, we would do well to expand on our survivalist instincts.

Thursday, December 21, 2017

Memphis Removes Confederate Statues

Two more Confederate statues have come down. Facing legal restrictions, the only way the city of Memphis, Tennessee could find to remove the two statues was to sell the parks that contained them to an open-space charity. Once that was done, the statues were taken down within hours. The AP story at The Guardian: “Memphis citizens cheer overnight removal of two Confederate statues.”

The two Memphis statues were considered a blight on the community, but action on them was hastened by fears that the one statue of a historical terrorist leader could serve as a flash point for violent action by current white supremacist and terrorist groups, as happened this year in the neighboring state of Virginia. Other cities have been able to move statues more quietly. Most of the remaining Confederate statues that are not at historical sites are likely to be removed in a relatively short time as laws and budgets permit.

Friday, December 15, 2017

Bank Failure: Washington Federal Bank for Savings

There has been another bank failure in the Chicago area. Insured deposits in Washington Federal Bank for Savings, $132 million in total, have been transferred to Royal Savings Bank. Royal Savings Bank apparently has not acquired any of the assets of the failed bank. It will operate the two banking locations starting tomorrow but has not committed to keeping them open.

The failed bank had been in business for a century. The O.C.C. closed it after finding that its capital had been depleted so that its liabilities were greater than its assets. The bank’s financial distress was not reflected on its financial statements, so it may be that it was holding phantom assets that had to be restated when the bank was examined.

Assuming this is the last bank failure of the year, eight U.S. banks failed in 2017, along with five credit unions. This represents a normal pace of bank failures.

Earlier today, the NCUA placed Louisville (Kentucky) Metro Police Officers Credit Union into conservatorship. The credit union has 3,564 members. The credit will continue to operate while the NCUA tries to correct problems in its operations.

Thursday, December 14, 2017

Disney’s Star Wars Deal

In a deal that has been rumored for weeks, Disney will be buying the entertainment operations of Twenty-First Century Fox. It’s a deal that will leave the Murdoch organization owning just the Fox news and sports operations. A big question is what happens to Fox’s rights to broadcast NFL games under a multi-year arrangement with the league. It seems Fox will keep those rights, though surely essential details are spelled out in the fine print of the respective contracts.

This is a deal that looks eerily familiar to me after years of following the banking industry. When a bank has a mostly solid business but its future is in doubt because of a series of strategic mistakes, something that sometimes happens is that the bank is split in two. The good assets are put in one bank, often a new bank created just for that purpose, and the bad assets in another. This strategy eliminates the risk that a further decline in the bad assets will drag the good assets into a future business failure.

“Bad bank” might seem a strange description for the new, smaller Fox broadcasting business, but the deal will probably not close until the second half of 2019, and by then it might look like it is just in time. The broad underlying trend at issue is the downward trend in cable television. Already cable reaches more viewers who are retired or hospitalized than ones who hold jobs. Fast-forward a few years, and the number of cable viewers who are distinctly below retirement age will not be enough to support television industry in its current form. Fox News is aging worse than cable in general and would have to make a drastic change in its approach to make the leap to the Internet. At the same time that it faces this difficult transition, Fox News faces large potential liabilities from its fake news and abuse of employees. The Disney deal separates those weaknesses from the fundamentally sound entertainment properties. There is no problem with getting the films and entertainment series into future Internet distribution channels.

For Disney, the Fox deal is mainly about getting the Star Wars franchise under one roof. The rest of the assets just happen to line up well with Disney’s existing operations. In a statement, Disney says the combination will lead to billions of dollars in cost savings, and I don’t think that’s an exaggeration.

Tomorrow is the last business day before the week before Christmas. With the holiday season occupying people’s attention, the remainder of the year is a news hole, a time for businesses to make announcements that they want the broader public to overlook. I don’t think it’s a coincidence that the Disney deal is being announced today. There is no way to hide a TV business deal as large as this, with so many more details to be worked out over the coming year, but the two companies minimize attention by making the announcement now. The nationwide release of Star Wars: The Last Jedi tomorrow will further obscure this story. I am sure there will be many more announcements made in the coming week so that they can go relatively unnoticed, especially having to do with this kind of restructuring or where the focus is on a similar large-scale problem in a business. In business terms, this is a good time to talk about bad news.

Tuesday, December 12, 2017

“Yolk”: The Decline of Content Reaches the White House

The White House drew an unwanted form of attention last week when it issued a statement opposing “the yolk of authoritarianism.” This phrase was a simple misspelling. The writer meant “yoke” rather than “yolk.” Such a writing error is to be expected, but the staff at the White House didn’t have time to correct the error either before release or after. Some readers suggested that the presence of such a glaring error meant that the White House doesn’t take human rights as seriously as other issues, or that it is more understaffed than it appears.

I see the White House “yolk” as part of a trend. This kind of mistake started to appear in newspapers in the 1990s when publishers realized they could no longer afford to pay reporters and editors a professional salary. By 2000, content had declined so much that similar errors were appearing in books and on television. Again, the economic story was that workers were no longer being paid enough to produce consistently high-quality content. When fewer workers working at lower wages create more content, the quality of the content can only go down. More of the content you see is being produced by students and interns. Now it seems this trend has reached official White House statements, albeit ones coming from a White House that seems to be in perpetual crisis.

In the near term the best hope for better content is better technology. Just as new cameras are easier to control, new spell-checkers catch more misspellings. Ultimately, though, there is no substitute for human attention in the creation of good content, and attention is exactly the area where everyone, it seems, is looking for a shortcut.

Sunday, December 10, 2017

In Puerto Rico, 1,000 Uncounted Deaths

According to the government of Puerto Rico, around 60 people died from the effects of Hurricane Maria. Given the storm’s meteorological profile and the extent of damage observed, the official death count is such an outlandishly low number that demographers have done their own studies to try to arrive at the true number. Two different demographic studies released this month estimate between 1,000 and 1,100 deaths caused by the hurricane. The true numbers are surely higher still for two reasons. First, demographers are not yet able to adjust accurately for the decline in population caused by people moving away immediately before or after the storm hit. Second, the effects of the storm continue, with only about half of the island having electricity and a water supply that is safe to drink and with months to go before major bridges and roads are restored. The hurricane, then, may have caused or advanced the deaths of not too much less than 0.1 percent of the people present. That would be a mortality rate worse than most disasters, but it fits what we know about Hurricane Maria. This was not just another hurricane, but by some measures the worst ever to hit the United States.

Saturday, December 9, 2017

A Day of Snow, But Little Impact at Retail

With snow falling in Pennsylvania, I didn’t think about driving anywhere today. Snow is a mixed blessing for retail in the Christmas shopping season. Snow reminds shoppers to buy winter clothes, but it also makes them stay home. An unusually large snow storm on its way from the Rio Grande to New England has taken away a shopping day across the Mid-Atlantic states, but with two weekends remaining before Christmas, today was going to be a quiet day at retail anyway. The snow is light enough, probably 4 inches where I am, that it may be forgotten by tomorrow. In the last two days the same storm paralyzed Gulf Coast cities, but there too, only for a day. I’m told the snow there has melted away already. Heavier snow is expected across most of New England, but that is a region more accustomed to snow and it won’t represent the same level of inconvenience. Despite affecting half the country, this snowfall is only a minor delay for shoppers.

Tuesday, December 5, 2017

NFL Adjusts As Fan Base Fades

The decline at the National Football League (NFL) is now plain to see. At the start of the season, the league could make the case that its decline was not as fast as the decline in U.S. television in general. It seemed possible that some of the decline at the start of the season was temporary. Now with the season winding down, it is clear that this is an ongoing trend outside of the league’s control and bigger than just the decline in television. Here are three news headlines to tell you about the downward trend that has only accelerated since the 2017 season started:

Bill DiFilippo at Uproxx: “A Pair Of Sickening Hits During Monday Night Football Highlighted The Dangerous Brutality Of The NFL” [Caution: video depicting violence]
The violence that was on display here is not unique, it’s the kind of thing that seemingly happens on a weekly basis in the NFL.
. . . last night’s MNF [television audience] dipped 2% from the previous season low of the October 16 matchup . . .
Jeff Barker at The Baltimore Sun: “Ravens, NFL scramble as fans stay home
Thousands of fans are trying to resell their tickets . . . for as little as $29. . . . Television ratings are down league-wide and empty seats can be seen at many games.

I couldn’t list all the social trends that work against the NFL, but here are a few. The sport is as brutally time-consuming as it is brutally violent. The two largest advertiser categories, beer and pickup trucks, are in long-term decline. The nature of the game encourages fans to have favorite players, yet that means for every player incapacitated there are thousands of fans disillusioned. The science of brain injuries is becoming more precise every year, so that it is now clear to fans that NFL play ruins the lives of a significant fraction of players. The league’s core fans are old men, dying one by one from the diseases of old age.

The core television audience is also old, and this is one of the reasons that television is in decline. Television is so effective at shaping culture that an inevitable cultural split is developing between the television generations, born roughly between 1940 and 1975, and the Internet generations born since 1975. The NFL is just one cultural institution now forced to grapple with this split. The NFL is so financially dependent on television that, for better or worse, it must throw in its lot with that side of the cultural split, but it must find a way to remain relevant or it will fade away as television fads away.

Monday, December 4, 2017

At the Low Point in the 2017 Christmas Shopping Season

In my own observations of weekend retail in a suburban area of Pennsylvania, there wasn’t the unusual quiet that can follow in the weekends after Black Friday. Traffic in retail areas was busy, if not quite so busy as I saw on weekends in November. This fits with the earlier observation of lighter-than-usual traffic on Black Friday itself. Shoppers have to shop, and if they did not get to the stores in November and are not placing orders online, then they will arrive in the stores eventually, and mostly on the weekend.

Macy’s defied conventional wisdom when it announced it would hire an additional 7,000 workers for its stores. It seems a nonsensical move to consider, coming after Black Friday, which could easily turn out to be the busiest day for department stores this season. It makes some sense if you look at the shopping calendar, however. In years past, the busiest shopping day has sometimes been the Saturday before Christmas. With Christmas falling on a Monday, the two days before could be unusually busy in the stores. Macy’s wants to make sure long lines do not send customers away. If that late burst seems somewhat unlikely in Macy’s case, it is only because stores have already seen strong traffic in November, so that not so many purchases remain to be made in December. There may be some bravado on the part of Macy’s as it tries to show confidence in the face of a difficult balance sheet.

If additional hiring at the tail end of the shopping season is questionable on Macy’s part, imagine the situation from the point of view of the workers. The job market remains weak enough that thousands of job-seekers will compete for the chance to work in a position in which they may have a chance to work only 21 hours, earning around $200 in total. For some of the workers, this may be the only work they have all year long. This could be a good thing or a bad thing, depending on the workers’ circumstances. On Black Friday I saw students and retirees who had been pressed into retail service just for that one day. If your schedule or health doesn’t permit you to work continuously, it makes some sense that you might work on days when you are most needed. For nearly all students, Black Friday and the weekend before Christmas fall on vacations, so work scheduling is not the challenge it would be on most weeks of the year.

While we await word on the fate of Toys ‘R’ Us, there is news this morning on its U.K. stores. The U.K. subsidiary is seeking approval from creditors to close at least 1/4 of its stores. In its statement, the company says its big-box stores are too large to function efficiently. The wording suggests to me that, besides closing some stores, the company is thinking of a future in which stores are about 1/3 the size of its largest stores currently.

That’s a sentiment that could apply even more so to the parent company in the U.S., where cultural trends work against big-box stores. The age group that includes the parents of most U.S. children tend to find big-box stores unfriendly, even alienating. This helps to explain why you may see more grandparents than parents in a Toys ‘R’ Us store. Store traffic could improve if stores were redesigned to make them smaller and more personable, more like traditional toy stores.