Monday, November 10, 2008

96 Days Until the Election

Yes, you read that right. March 3rd 2009. And it is shaping up to be a doozy. First up will be the "proposal" to raise the sales tax by 1.5% for three years to "balance" the budget. As the wish list for the ballot rolls in I'll post updates but this one alone has got to go down in history as the hail mary desperation play of all time.


Entertained said...

That'll be just the first in a long line of bad ideas I fear.

Peripheral Visionary said...

So, let me get this right, Circuit City is now bankrupt, following CompUSA--two giants felled by the retail downturn, with more casualties undoubtedly on the way.

And yet, Radio Shack lives on.

How do they do it? They have survived multiple retail spending slowdowns, the onslaught of the big-box retailers, the transition from strip malls to mega-malls to mixed-use development, and a culture where the mention of their name among even the barely tech-savvy is good for a laugh.

Say what you will about the Shack, and there is plenty of room for comment, but the Shack is a survivor. The entire economy is going into a downturn, and yet the Shack is still turning a profit, based, as far as I can tell, on nothing more than steady sales of barely passable quarter-inch cables, useless mobile phone accessories, remote control car parts, and an astonishing array of electronics adapters, all sold by a socially impaired but technologically savvy workforce. It may not be pretty, but it works.

Rob Dawg said...

And yet, Radio Shack lives on.

How do they do it?

Besides your answering most of the question yourself, I would merely ad that they have a low cost basis for their footprints and careful site selection criteria.

Peripheral Visionary said...

I think you may have hit on it with the low cost basis--they typically rent out small spaces in older retail developments, and I suspect that they pay minimal amounts to landlords who are lucky to have a client. Also, having two or three staff rather than the twenty to fifty people Best Buy has standing around (waiting to tell you that they don't know the answer to your question) would keep wage costs down as well. It's a bit like a family restaurant, a business model that's minimal enough to scrape by through difficult times, even if it never makes a lot of money.

But to your topic, either they're going to have to cut expenditures or raise taxes, or (most likely) both. Raising sales tax is unfortunate, as sales tax is a regressive tax; if California is as progressive as they think they are, they'd be targeting progressive taxes like income tax and/or property tax for increases.

Rob, I don't envy you; it's going to be a long, hard slog for California. Think Japan ca. 1991. Actually, I will envy you in January and February, but the rest of the year, you can have California. :)

Rob Dawg said...

Regards California. No one has a clue. It is a literal rock and hard place moment. I understand absolutely why and even see a way out but it is precisely because of those attributes that I will not be part of any exit strategy.

I'm actually not so worried about most of California. California makes and grows and mines and stuff. San Francisco and Los Angeles on the other hand are royally screwed. Sacramento is doubly screwed for being the awkward stepchild of LA/SF.

I am honestly going full tilt extremist with regard to taxes. I at first thought increases would buy more time but now I see increases accelerating the exodus. If we add another 1.5% sales taxes I expect revenues to DECREASE.

Hey, and don't make fun of the weather. Yesterday at Disneyland I got more soaked on Splash Mountain than in years. I was damp for hours in my polo shirt and shorts. ;-)

Winston said...

The reason for Radio Shack's success seems clear to me. They operate lots of small stores with a good selection of connectors and cables, which are nice high margin items that a consumer often needs in a hurry. For example, when setting up my TV in my new house I found myself needing a 3m HDMI cable. Here were my options:

Radio Shack: 1 mile, $19.99
Best Buy: 15 miles, $69.99
Circuit City: 8 miles, $74.99
Newegg: $6.99 + $3.00 shipping + 3day wait.
Frys: 12 miles, $29.99

For items like that radio shack is by far the best combination hassle and cost. It isn't a glamorous business, but it is a profitable one.

For that matter, I've started pricing out my more expensive consumer electronics purchases at Radio Shack and they've been about the same price as the big box stores IF they have what I want.

Winston said...


In terms of making stuff, I was somewhat surprised to read in The Economist about 2 months ago that L.A. county produces more manufactured goods than Michigan.

serinitis said...

Sacramento is not screwed. If you look at the number of propositions that just passed, Californians are still spend happy. Sacramento is likely to screw some other areas. (Which is what happens when LA/SF raise a Caseylike child)

Sales tax is the wrong tax to go after. It may take 2/3 vote to raise taxes, but it only takes 50.0001% to change our Constitution. If they target the man behind the tree, rather than the mass of poulation, they would have no problem raising taxes.

Peripheral Visionary said...

L.A. has a major manufacturing sector, and that actually makes sense, as it's a major port and transport hub, and is reasonably close to sources of raw materials in the West. What doesn't make sense are its tax and property rates; and if L.A. wants to stay competitive, it's going to have to do something to give corporations incentives to stay (and the same goes for California in general.)

Which means the much-decried "corporate welfare"; keeping taxes on corporations low while hoping to recoup those taxes on income tax, property tax, and sales tax. Not a popular strategy, but it seems to work; look at the Southern states that have picked up a lot of manufacturing in recent years thanks to low taxes and low labor costs.

Of course, low taxes also mean low spending, and for California and its huge public sector that is a major issue . . .

Tach said...

I love sales taxes! As long as they don't put taxes on necessities (like food). I say tax the shit out of it. I'd much prefer to pay a 35% sales tax than a 35% income tax any day of the week.

Funny thing is, for the vast majority of Americans who live at or beyond their means it would make *no* difference to their bottom line, but for savers, it would be a huge boon.

Property Flopper said...

PV - CA DOES have big incentives for manufaturing to stay, at least older companies. It's called Prop 13 - thier property tax remains at the 1970's level.

New companies don't get this, but over time they can - once they buy a plant, the property tax is fixed and won't go up over time.

Sun said...

Great note about Radio Shack. I've continually thought they were going out of business for the last 10 years, but they always seem agile enough to ramp-down and re-invent.

The the benefit / necessity of a recession is that it throws out the bums. However, when the Fed continues to pump sweet cash into the system like there is no tomorrow, it just delays the inevitable and makes withdrawal that much more painful.

In terms of who is going to get hit the hardest, I've noticed Starbucks is taking its fair share. To this day I cannot understand a line for $4 coffee (props to the marketing team). As to other industries I think might take a hit would include the sports industry. Can football tickets continue to be $150 (for the cheap seats) when I can watch it on TV? I know the experience is great, but with 8 games a season that's a pretty expensive seat.

Mr. Outspoken said...

AIG Chief Executive Edward Liddy called the plan a "win-win."

And indeed it is a win-win, for the government, and for the company. For the taxpayer it's a hose job, but the alternative would be worse... Or so I hear.

Lost Cause said...

So software and movies aren't "stuff?"

Lost Cause said...

Radio Shack no longer sells "stuff" -- that is all on their web site. Ask them. Try to figure that one out.

Lost Cause said...

It is not going to be a pretty Christmas for retailers. There are only 3 1/2 weeks of shopping this year because Thanksgiving comes so late. "It's a Wonderful Life" will be popular.

H Simpson said...

What is this thing you call a sales tax? :>)

Sort of brings new meaning to our state motto Live FREE or die.

Things must be getting bad. I read ICE deportations are way up. All I can think of is the free bus ride home for the family wedding in that Cheech & Chong movie.

Proves all you have to do is cut off access to jobs to stop illegal immigration.

And soon the b@stards who took advantage of these people will not longer be able to say there are no Americans who want those jobs. Just a matter of time.


Bill in NC said...

Radio Shack in the smallest towns is often your only choice when you are 50 miles or more from a Wal-Mart.

They'll continue to do just fine.