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Tuesday, November 15, 2016

Thoughts, Part 5

What a difference a week makes.

Image credit to FiveThirtyEight.com.  Don't worry, I have not suddenly gone political on this blog.  I am limiting that discourse here to the vantage point of my business and industry.

This time last week (Tuesday morning) my thoughts were almost entirely operational in-store.  Working on what I was going to do with money that week, what my managers were going to do with events and tasks, and what my staff was going to do with what my managers laid out before them.

By Tuesday evening I was being medicated intravenously in the Chandler hospital emergency room due to a bariatric blockage and severe dehydration.  Serious stuff.  I went out of commission around the time the news talking heads were dithering over whether to call Florida.  I knew about some of the election results by then, and I was even Facebooking about them, but I did not actually know the big one until the next day, which I spent recovering from my brush with mortality.  I told the attending physician when I had my EKG that if a cardiac event had taken place, I wanted him to call the press and say that the election results had given me a heart attack.  Great publicity!

I did not think Donald Trump was going to win, as you can observe when I incorrectly forecast a Clinton victory in an article just a few weeks back.  I also don't think the Office of the President has the most proximate impact on how stores like mine operate.  I differ from President Obama fairly extensively in an ideological sense, but you will observe that he has been the Chief Executive for 100% of my store's days in business thus far, and I have managed not to be nationalized.  What Obama has done from day to day has just not moved the needle much for DSG.  In most respects I expect the same to be true under... sigh... President Trump, a pair of words I never expected to type in that order.

Two down-ticket voting matters portend a far greater impact on my business.

First, Sheriff Joe Arpaio was finally sent packing from the constabulary of Maricopa County, in which DSG exists.  His departure will not only spare thousands from his gross abuses and violations of rights, but will also spare the public treasury the expense of the vast ledger of lawsuits he routinely loses in the course of committing those abuses and violations.  Like the eradication of the Scowrers in the Sherlock Holmes tale "The Valley of Fear," the mere removal of oppressive evil should suffice to elevate the good throughout the community.  When people are happy, they buy things.  Ita vero.

Second, and far more importantly, Arizona passed an increase in the minimum wage to $10 per hour as of January 1, 2017, ramping to $12 per hour a couple of years in.  (It is $8.25 now.)  The political support for a higher minimum wage is, in brief, an expectation that spending will increase along with it.  Setting aside how Hazlitt or Bastiat would savage such a postulate, let us suppose that it will in fact occur.  My target audience includes large portions of people whose base pay is getting increased.  In theory they will indeed start spending more.  How surely, and how immediately?  Well, the answer to that is where small business takes it in the pants.  We are just supposed to pay higher wages until that positive effect kicks in, if it ever does.  Nobody ever offers small businesses any kind of cost mitigation for this, which is ample evidence how confident proponents really are about the spending boost.  And there is only one place for the money to come from, which is my own take-home pay.  My lower-middle-class lifestyle stands further imperiled than before, if that is even possible.

Without giving away core numbers on Al Gore's Internet for all to see, the minimum wage increase amounts to about an increase in costs of about 1.5% of gross most months for my store.  Not that bad, right?  But my net from the store is only 3% to 7% of gross most months.  (I am disbursed money in a form the IRS calls a "guaranteed payment," a compensation mechanism for LLC equity holders who operate their businesses, but my pay is entirely funded by the store's net profits after overhead, and it is anything but "guaranteed.")  This amounts to a huge pay cut for me personally, anywhere from ~20% to ~50% of my actual take-home.  If your boss told you to take a fifty percent pay cut, be honest, your resignation letter would be on his desk within the hour.  Why would anyone expect it to be different for a small business owner?  So this is an issue of scrutiny for me.

As it happens, I have been building a hedge against a minimum wage hike for months now, though I expected it to be the edict of a President Clinton instead of an Arizona voter initiative, of all things.  In general I have sought to reduce labor load where possible and avoid too visible or dramatic a reduction in service.  Categories of goods that required hand-selling, such as board games, were already in trouble; this appears to have nailed their coffin shut.  The installation of kiosks and migration to a cloud-based singles-aware point-of-sale system (in this case Crystal Commerce) further reduces the labor load to administer my highest-volume product category.  My staff are diligent, industrious, friendly, and effective.  They also can only accomplish so much customer interaction at a time, and then add in maintenance and inventory tasks.  Something has to give.  If I have to pay them more, they have to do more, but also I have to find ways to get them stuck less.  This has been a huge part of my personal workload for a while now and will continue to be.

Wednesday after the election saw even less spending than Tuesday, so customer attitudes certainly did not revert right back to joyful consumption, but the weekend was wonderful.  Friday was Veterans' Day and we were packed from bell to bell, along with a minor Magic release, Commander 2016, for which I won't be writing a post-mortem.  It's good, people are happy, and unfortunately there is one deck that Saffron Olive, Rudy, or whoever it is this week leading aspiring MTG Financiers around by the nose, told them to buy, so that's the one we're running the lowest on.

Friday saw the release of the Nintendo NES Classic Mini, for which Nintendo produced approximately fourteen units and shipped them all to a Target in rural Wisconsin.  This item was essentially sold out nationwide within hours.  They probably made four or five million units for release day, which is great except that forty million people wanted to buy one.  Of course there will be pallets of the NES Mini at Costco by March 19th at MSRP, but what happens in the meanwhile?  Hopefully Nintendo can get some more quantity out there to thwart the grotesque levels of scalping we are seeing on eBay and Amazon -- have patience, folks!  Don't overpay for this! -- but absent some great reinforcement, this is going to be our annual seasonal unicorn.  Distribution allocated us zero units, by the way.  We are neither Target nor Toys R Us nor Gamestop, who got the lion's share.

Over the weekend, we had a big retro video game buy including a mint-in-box 1972 Magnavox Odyssey, the first video game console ever made and the only one older than I am!  Look for it in an eBay auction coming soon, or you can make your offers to us directly.  It's absolutely gorgeous and the box is in great shape, especially compared to what's circulating.  It even still has the dry cell batteries with it, and various paper and plastic game aids.  It's very cool to know that even when you're just doing business as usual, really special stuff can still come walking in the door.  The seller was realistic on price and we overpaid slightly but I think it's a reasonable risk.

That's all for today's installment of Thoughts!  I'll be back next week with pre-holiday musings.

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