Paul Wallbank – Brilliant Communications

Tag: economy

  • Never going to let you go – the failing businesses clinging desperately to baby boomers

    Never going to let you go – the failing businesses clinging desperately to baby boomers

    Probably the driving factor of the consumerist society’s development was the baby boomers’ growing up.

    Through the last fifty years everything from Coca-Cola to baby products and hair loss treatments has been aimed at the cohort born between 1945 and 65.

    For many businesses and marketers this group has been so profitable it’s been hard to let them go.

    The US motor industry is a good example of this with Bloomberg reporting the over 55 age groups are dominating domestic car sales as younger folk turn away from car ownership.

    A similar thing is happening in Australia as TV executives decide that competing with the internet for millennials is too difficult so sticking with the over 50s market is safer.

    “We’d go out of business if we stayed with our traditional demographic of 16-39.” Channel Ten CEO Hamish McLennan told the Mumbrella360 conference in Sydney earlier this year.

    The problem for both the US motor manufacturers and Australian TV stations is the trends are against them.

    For TV stations trying to compete against the internet, the older age groups are following their kids across to the web at the same time that they are beginning to save for retirement.

    That need to save is also working against the car dealers, while many boomers fawn over new cars a large number simply aren’t going to be able to afford these indulgences. It’s not a good prospect for the motor industry.

    In the meantime, younger people are turning away from the motor car, Bloomberg quotes University of Michigan Transportation Research Institute s researcher Michael Sivak who penned a report on generational shifts in the US motor industry.

    “I have a son who lives in San Francisco; when I get a new car and I tell him what I got, he couldn’t care less,” Sivak said. “To him, it’s a means of getting from A to B. He goes into great lengths about taking a BART or bus, even though it takes him an hour longer. He does have a car, but uses it very rarely.”

    The movement away from the motor car indicates something much more profound about western society — if the baby boomer represented the age of consumerism, the entire Twentieth Century was defined by the automobile.

    For politicians and town planners wedded to a 1950s view of economic development, it may be they are making terrible and expensive mistakes in pushing freeway and other road projects.

    While aging baby boomers purr over their expensive cars, the forces of history may be passing them by. Those businesses pandering to those older groups might just want to consider whether they want to be left behind as the economy, and the kids, move on.

    It’s comfortable to cling onto what has worked for the last fifty years, but sometimes the lowest risk lies in letting go.

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  • Downward trends and demographics mark the end of consumerism

    Downward trends and demographics mark the end of consumerism

    One of the features of the late Twentieth Century economy was how consumer spending came to dominate the economy – as manufacturing moved offshore, mines closed down and agriculture became largely automated, many developed nations’ growth came from retail spending.

    Today’s release of retail spending figures by the Australian Bureau of statistics shows how that economic model too has come to an end. A post on the Macrobusiness blog illustrates the steady, structural decline of retail spending in Australia.

    ScreenHunter_10 Aug. 05 11.36

    Since 2000, the rate of growth has been declining, only low interest rate policies over the last two years has kept retail sales at a steady level.

    Those businesses whose business models are built on the assumption of high growth rates have a big problem – its no coincidence it’s the department and clothing stores are among the loudest complainers about taxes, labour costs and rents as they see their sales and profits shrinking.

    Basically the Twentieth Century era of consumption has come to an end as households have maxed out their credit cards. Now that many of those households are now older, they simply don’t need to spend as much anyway.

    With the demographic, economic and cultural changes now happening in society it’s a bad time to be planning on massive expansions in household spending and debt as we say in most western countries from the 1960s onward.

    It’s time to think different, and be a lot smarter about getting consumers to buy your products. The era of the 72-month interest free deal is over.

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  • Gen Y and the need for building new businesses

    Gen Y and the need for building new businesses

    The retirement of the baby boomers has been an demographic inevitability, but it’s interesting how policy makers and the population in general have ignored the ramifications of this despite the first boomers now aged beyond 65.

    One of the consequences of this is we may see an entire generation being forced to become self employed entrepreneurs.

    Illustrating this point are two stories from the US over the last few days; John Mauldin’s dissection of where US jobs are going and Zero Hedge’s 35 facts that should scare American baby boomers.

    The 35 facts really boil down to one thing, that an affluent, middle class retirement at 65 when average life expectancy is 78 is an illusion for most people – neither their bank accounts or the state treasury can support that sort of spending.

    Which is the point of John Mauldin’s column, that over 50s are taking most of the available US jobs as they can’t afford to retire.

    For those over 50 who’ve fallen out of the workforce due to unemployment or illness, getting back into the workforce is proving to be tough and for many of those folk their later years are going to be a struggle.

    Equally, as Mauldin points out, the younger generation is being locked out of the jobs being hogged by the over 50s.

    Another aspect to that is those employed Gen-X’s and Y’s hoping to get a crack at a seniors manager’s job or their name on the partner’s list are going to find a longer wait as the boomers hold on for as long as they can.

    Those young ‘uns need those high salary jobs too, a Westpac report on US student debt posits that crippling education costs are making it harder for graduates to participate in the workforce and affects their spending power when they do find a job.

    What’s clear is existing government, corporate and social structures are beginning to struggle with the realities of the changing workforce and its demographic composition.

    On a personal level, those Gen Xs, Ys and boomers who are locked out of the workforce have to find a new way to participate in the economy. It’s probably those locked out of today’s workplaces who will build the businesses of the future.

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  • Can governments save declining cities?

    Can governments save declining cities?

    Following yesterday’s post on comparing the relative problems of Detroit and the Chinese ghost city of Ordos, The Fiscal Times has a somewhat wistful description of Motor City’s decline by one of the city’s sons, Eric Pianin.

    Pianin’s story charts the various attempts to revitalise the city following the disastrous 1967 riots that triggered the middle class and white flight from downtown.

    As last week’s events show none of these efforts worked, which begs the question of what governments can do to save cities and regions facing structural decline.

    Every city has an economic reason for existing — it could be transport links, natural resources or an industrial cluster. When that reason fades the population moves on.

    For Detroit, the high point was the late 1960s as the US motor industry reached its zenith. Through the 1970s the sector languished and was then displaced by smarter, better Japanese competitors.

    In the face of this there was little local, state or Federal governments could do. Detroit’s importance, wealth and population were destined to decline as industry left regardless of how much money was spent on grand schemes to revitalise the town.

    Perhaps sometimes we just have to accept there are limits to government power and the predicaments of cities like Detroit are the natural course of history.

    Over time, it may be Detroit manages to reinvent itself however the city will almost be very different, and smaller, city that it was in its heyday.

    View of Detroit Central Terminal Station by Jason Mrachina through Flickr.

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  • Ordos and Detroit – A tale of two cities and two economies

    Ordos and Detroit – A tale of two cities and two economies

    This week bought news that that two cities, one in China and one in the US, had fallen into deep financial trouble.

    While the bankruptcy of Detroit is very different to the developers of the Ordos new city failing, there is a strange symmetry between the two stories.

    Detroit is the biggest US city ever to enter bankruptcy with an estimated $20 billion in debts, dwarfing the previous record of Alabama’s Jefferson Country’s $4 billion default in 2011.

    The fall of Detroit wasn’t unexpected as the New York Times tells.

    Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

    Like most industrial hubs, Detroit grew became the centre of the US motor industry due to geographic and commercial advantages along with a few historical accidents but as the economy changed, the city’s importance faded.

    It’s sad for the people of Detroit but it isn’t the first industrial hub to fade away; Ironbridge, once the cradle of the English industrial revolution, is today an open air museum and a charming rural spot.

    Ordos on the other hand is an example of 21st Century government planning with the Inner Mongolian provincial leaders building the city of the basis of build it and they will come.

    They haven’t.

    The collapse of Ordos is going to be an interesting test of the Chinese economic model. Many of the country’s local and provincial governments – like Australia’s – have become dependent on the revenues from property sales. Now the market is  drying up, local councils are having trouble paying their bills as Bloomberg reports.

    Some Ordos district governments had to borrow money from companies to pay municipal employees’ salaries, Economy & Nation Weekly, published by the official Xinhua News Agency, said in a July 5 report on its website.

    So while Detroit illustrates the stresses in the US system, so too does Ordos tell us about the problems facing Chinese governments.

    The tale of these two cities also shows the difference between the US’ industrialisation of the early Twentieth Century and today’s economic development in the PRC and reminds why the results of ‘Capitalism With Chinese Characteristics’ may be very different to the modern American consumerist economy.

    For Detroit, at least there’s good news as one US city manages to works its way out of bankruptcy. For the developers of Ordos though, things must be looking very grim.

    Ordos image courtesy of Bert van Dijk through Flickr.

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