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The Biz Roundup December 27

How far can home prices fall? The sky’s the limit.

The median home price in the L.A.-Long Beach-Glendale metro area is projected to fall nearly 25% in 2009 – the biggest drop in the country.

(“10 Worst Real Estate Markets for 2009,” Fortune, December 24) Did Jack Skellington kidnap Santa so that Halloween-land could take over Christmas? Fortune is predicting declines of up to 25% for the next year and further declines well into 2010. I ran the historic declines with the projected two-year declines on our own llama-infested 5 acre homestead in L.A. and came up with a number still 35% higher than what we paid in 2001; running the projections against the last 30 days of comparable sales in our area gave me a price 45% higher than what we paid in 2001. I did the same calculation on a half-dozen properties around northern L.A. and came up with similar numbers. So, while this is very, very bad news for a lot of businesses, it’s still a road — a painful road — back to sanity. We must all keep that in mind as this decline in home prices transmorgrifies into bankruptcies and pink slips.

“Discounted” is the new thirty.

Retailers have no choice but to find creative ways to clear their store shelves, because they have to make room for spring merchandise. And persuading consumers to take their goods off their hands is increasingly their only option, since other avenues, like discount Web sites, already have full inventories of their own.

(“After a Season of Disounting, Stores Sweeten Discounts,” New York Times, December 26) Sandy Claws strikes again. Not only did retail sales fall by double digits this Christmas season, but gift card sales, which are the primary engine for driving January retail sales, dropped by an average of 30% this year. For those of you, like me, who had depression-era parents, you understand the long-term effects of institutionalizing low prices and discounts for cash-strapped consumers. (Think of all the coupons and S&H stamps and what not that our parents in the 50′s, 60′s, and even 70′s invested time and effort on.) We are producing long-term “discount” buying habits in American consumers that may last years (though, perhaps, not an entire generation as with the folks that weathered the 30′s depression). Grabbing “value” from the consumer, the watchword of American entrepreneurialism over the past three decades, is gradually becoming a losing hand; giving “value” to the consumer offers tons of opportunities. In terms of offering “value” to consumers, discounting and bundling (“buy one, get the second half-price”) is the grossest, most unwieldy, and most ineffective and inefficient pricing strategy. Retailers are simply training their customers in an obvious fact: they’re overcharging with their normal pricing. For the long-term, that’s the wrong lesson to teach customers. Witness, of course, our depression-era parents or grandparents who learned that lesson feelingly and spent decades avoiding “full price.”

Amazon doesn’t want to admit it, but it’s all because they were offering a fantabulous best-seller called Shoestring Venture this holiday season.

Amazon Inc. called its 2008 holiday shopping season “the best ever,” despite a series of predictions that even online sales would weaken as U.S. consumers cut back amid the recession. The online retailer said Friday that on its peak day, Dec. 15, it received more than 6.3 million orders, at a record pace of 72.9 items per second.

(“Amazon Lauds Its Holiday Sales,” Wall Street Journal, December 26) Actually, as good as Shoestring Venture was, it was the Wii (see, what I said, video games and crafts, right?), the iPod Touch, and the Acer even-an-abacus-has-more-processing-power Aspire One elf-sized laptop. Oh, and J.K. Rowling and Stephanie Meyer. One more reason I advise clients to eschew all the rigamarole and hoops (as in “jump through”) of brick-and-mortar retailers to focus their energy on online retail.

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