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The Roundup August 21

And in genuinely good news for the economy . . .

Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999.

(“http://money.cnn.com/2009/08/21/real_estate/home_sales_rise_in_July/index.htm?postversion=2009082114,” CNN Money, August 21) The bad news is that they’re selling for cheap and more houses are coming on the market than are selling (national inventory went up 7%). Our next door neighbor used to be Johnny J, the late, great Tupac Shakur’s former producer, until he died in October under suspicious circumstances while in the custody of the Los Angeles Sheriff’s department (suspicious is the nice word for it — killed by gang members because the LA sheriffs, as is their wont, weren’t doing their job). Great guy, Johnny J, sorry to see him go. So his family moved out and the bank foreclosed on the house. They just put his house back on the market four days ago at a price equivalant to mid-1990′s prices (his house is about 2100 square feet, has a three-car garage, sits on five relatively undeveloped acres with a basketball court, pool, playground, tetherball court — not the kind of homestead you usually find in LA). By 1990′s prices, I mean that it sold for less than a one-bedroom bungalow on 1/8 acre in a bad neighborhood in Burbank. To say this was a deal is classic Minnesota understatement. It only took two days for someone to make an offer — and this is with booze bottles all over the property and the insides trashed because Johhny’s rap industry buddies have been using the foreclosed home as a party center these past few months. Two houses up the hill, the owner spent about $1.4 million building his dream house on five mountainside acres three years ago. Bank foreclosed on him last year and put the house up for sale. What were they asking? A little over a third of what it cost the original owner to build the house. Sold in two weeks. So when you read that new homes are selling on average for 32% less than September, 2006, understand that the homes selling for 50% to 70% less are the ones that are driving all these great sales numbers. There are a lot of desperate banks out there. And they’re getting more desperate each month.


We are now 18 months into the recession and, just now, Lowes and Home Depot are structuring their offerings . . . for the recession.

While the recession has caused consumers to pull the plug on exorbitant renovations, it has ignited a resurgence of small, do-it-yourself repair and maintenance projects. The trend has been so noticeable at Lowe’s and Home Depot that those home-improvement chains are taking steps to adjust.

Lowe’s has added more staff to popular do-it-yourself departments, like paint and hardware. Home Depot also beefed up its paint department, adding new products like an all-in-one paint and primer, and a Rust-Oleum paint variety that promises to cover more surface area for the money.

Unwilling to part with their dollars for glossy new cabinets and granite countertops, consumers are buying only what they need to keep their homes in good condition: plumbing parts, paint, hardware, flooring. And they are buying garden and lawn goods — fertilizer, birdseed, lawn mower and grill repair parts — for their backyards, where many penny-pinchers have spent their summer vacations.

(“D.I.Y. Chains Adjust to Smaller Projects ,” New York Times, August 21) I have repeatedly said in this blog that small businesses and startups have an advantage in the recession because they can move faster and meet changing consumer buying habits. Way, way back, when I first started this blog back in November, I said that the DIY chains need to focus on small home repairs and stop dumping resources into their kitchen cabinet departments. In February, I consulted for a major DIY firm and said the same thing. I even it gave it a tagline, “you must get out of the “replace” business and into the “repair” business.” To which they responded . . . *crickets*. Even now, despite what they say, Lowes and Home Depot are poorly set up to help the small repair set. For instance, a wheelbarrow wheel costs $40 at Home Depot. And they offer no other “parts” for a wheelbarrow. Wheelbarrows cost between $70 and $150. Need a new wheel or other part for your wheelbarrow? Home Depot’s merchandising and pricing strategy is to sell you a new wheelbarrow, which drives customers to shops that will sell them wheelbarrow parts at a reasonable price. (And if there’s one solid, unbreakable rule of business, it’s this: never give your customers a reason to check out the competition.) Adding staff to the small repair departments is only half the story. As long as they maintain a pre-recessionary merchandising and pricing strategy (replace rather than repair), they’re going to lose out to more fleet-footed small businesses. Remember: these guys are dinosaurs and every time they move slowly, that’s an opportunity for the rest of us.


The Starbuckaroo Banzai MBA’s strike again!

[Starbucks], which announced in April that it would join other restaurant operators in fine-tuning pricing amid weak consumer demand, will cut the price of popular beverages like small coffees and lattes by 5 to 10 cents in every market, spokeswoman Valerie O’Neil said.

Prices for large, complex drinks such as frappuccinos and macchiatos could go up by as much as 25 cents in some markets, but on average prices will increase between 10 and 15 cents, O’Neil said, without naming specific markets.

(“In a first, Starbucks lowers price of some drinks,” Reuters, August 20) Anyone who has snoozed their way through a cost accounting course knows exactly what’s going on here. Starbucks, reeling from weak consumer demand, trotted out the branding MBA’s to come up with an “upscale” version of their coffee house. They then trotted out the operations MBA’s and went crazy on “lean” production. And now, it looks like they’ve trotted out the cost accounting MBA’s who have done a bit of Activity Based Costing on the Starbucks drink lineup and found that they are making huge profits on the easy drinks (because it takes little time to make them) and less on the complex drinks. Now, I’m a huge fan of activity-based costing. If it weren’t so bloody hard, time-intensive, and expensive to do (at least at first), I’d pound the heads of every small business owner to implement some form of activity-based costing. Bravo to Starbucks. But, when, when, oh mighty Starbuckaroo Banzai MBA’s and neurosurgeons, when, oh, when are you going to take customer service seriously? How much brilliant business education does it take to smile at your customers? To say the words, “Hello” and “Thank you”? They don’t teach that at Harvard, so these Poindexters running the Starbucks show don’t have any clue. A lesson to all of us: you can do all the MBA tricks in the world. They do work, to an extent. But the ground zero of every customer service operation is . . . customer service.

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