Posts Tagged ‘recession’

What downturn? Some Aussie counter evidence…

February 27, 2009

The sky is falling, the sky is falling…on to the Australian economy.

So we are told on an almost hourly basis by the media herd and any economist keen to get his mug on the TV.

How strong is the evidence? And might these folks merely be extrapolating from a much more severe US experience?

The recent rounds of layoffs by various Aussie firms have been presented as irrefutable evidence of impending doom. News of firms hiring is much less exciting of course. Any chance this is more a case of searching for bad news than all news being bad?

One pretty solid piece of data snuck out yesterday amongst shopping centre giant Westfield‘s full year results. These were the annual sales growth figures for assorted categories of shops in their malls in Australia (p.33 of results):

westfield-sales-figures Australia

Versus those for their US malls for the same period (p.34 of results):

westfield-sales-figures-usa-20081Unless the firm’s catchment of consumers is startlingly different from Australia to the US (and there has never been much evidence of that), it would seem reasonable to say the Aussie numbers don’t show much correlation with the dire US figures. Conceivably our slowdown is lagging considerably, but again, where is the contagion in the story?

The stronger case could be made for Aussie retailers doing quite well, and antipodean consumers still flashing their money around.

Moral of this post: get beyond the media and check out the real numbers…

How will multinationals protect themselves?

January 30, 2009

There is a growing realisation across the business press that the Global Economic Crisis is transforming the international trade environment to one that is much more protectionist than we’ve seen in recent decades.

do not enter signThe general push for freer trade has been a strong driver of globalisation since the mid-1970s at least. Tariffs have tumbled along with other barriers to trade and investment. Through the GATT and WTO, and a huge swathe of other multilateral and bilateral trade agreements, goods and services have been easier to move around than ever before (particularly once we factor in lower transport costs).

While the US in not alone in imposing some trade-restricting provisions within their proposed stimulus packages, they certainly have the biggest flow-on effects in terms of triggering likely tit-for-tat responses from other governments.

The bailouts and nationalisations were seeing around the world in banking and auto sectors are conceivably just the tip of the iceberg in terms of measures that would certainly be seen as subsidies under any sensible definition. They are trade-distorting and trade-preventative in terms of impact.

As the IMF is already reporting a huge decline in international trade over the past three months, and the World Bank is forecasting more declines.

The question that is too often ignored in these discussions is what likely impact this will have on the behaviour of multinational firms. It perhaps shouldn’t surprise given the complexity of their choice sets.

Much of the protection push revolves around shielding industry and jobs in domestic economies. A sizable chunk of the firms being protected and subsidised are themselves firms who trade goods across borders, both as exports and also via imports of inputs, intermediate goods (and sometimes final goods).

confusing-signsIncreased protection at home may shift the balance back towards domestic activity. Any advantage in international markets derived from subsidies may be undone by retaliatory responses from other national governments (lobbied by their own local players). Any rises in tariffs and other trade barriers may serve to untangle existing value chain configurations as multinationals abandon internationally distributed production processes as too costly, unwieldy and/or unpredictable.

For so long the movement of productive activities around the globe was derided as a race to the bottom. What will we call a retreat to home base?

And what about those multinationals for whom home is but a small portion of their global markets? Are they part of the protection plan of other nations? That would certainly seem to be the case in Australia.

Couture carnage continues

January 19, 2009

Now that the Aussie business scene is back in full-swing post-Xmas, we are starting to see more of the fall-out from the current economic downturn.

Following on from the closure of corporate menswear boutique Herringbone in December, it now looks like a few more fashion retailers are on the skids:

“This week Figgins Holdings, owner of 120 footwear stores nationally, said it would shut all four of its Evelyn Miles boutiques and its 43 Shoobiz stores. Already the luxury Australian shirting company Herringbone has collapsed, a Supre store in the city has closed and the cult denim label Ksubi has been reported to owe $8 million.”

Now, this may well reflect the shifting buying behaviour of cash-trapped consumer (i.e. income elasticity), or it may simply reflect a great media awareness of business failures. Irrespective, it does represent a change to the competitive landscape.

This may mean new competitive spaces have opened up in the Australian fashion retail scene. Perhaps we might finally see a few more international players enter the market (a Zara or H&M?).

Chocolate is still sweet

January 9, 2009

The search for goods that are income inelastic (and thus recession-proof) continues here at International BS blog.

The Wall Street Journal wants to add premium chocolate to the list. They claim that sales of the high end stuff have proven very resilient in the US.

I’m not quite as convinced by this argument. They may be confusing the aggregate behaviour of consumers (i.e. greater discovery and awareness of the product coupled with incerased accessibility) with the actions of individual consumers. Each chocolate lover might be cutting back their spending yet new consumers sneaking in to the market might be pushing up the total revenue.

Irrespective, it would seem that being a Willy Wonka is still a better career option than a Henry Ford at the moment…

Thanks to Tom Osegowitsch for pointing me at this article.

Picking winners in tough times – part 2

December 27, 2008

As with books, it would seem that video games are also proving quite income inelastic. This report from the Economist notes that “Games sales in America in October totalled $697m, 35% more than a year earlier”. There is some logic there. Like books, games are experience goods that substitute well for more transitory, ephemeral experiences like the consumption of ‘nights out’, fine dining, or (as the article notes) vacations. As consumers count the pennies and become more frugal, a game that might be still providing entertainment in a month’s time does seem much more cost effective.

Interestingly, the article raises the prospect that any recessionary effect might be lagged. This is a rather strange argument. The example they give (EA) is just one firm in the industry, and one that has copped a lot of criticism in the past year for not delivering enough quality products to market, and for taking on higher and higher cost projects when other, more nimble competitors have been experimenting with cheaper formats (such as games for the Wii and the iPhone) or games with hardware tie-ins (like Rock Band). It would still seem that gaming is a recession-proof growth industry.