{"id":441,"date":"2016-08-26T23:30:58","date_gmt":"2016-08-27T03:30:58","guid":{"rendered":"http:\/\/commoncents.blogwyrm.com\/?p=441"},"modified":"2023-02-12T11:38:40","modified_gmt":"2023-02-12T16:38:40","slug":"viscous-cycle","status":"publish","type":"post","link":"https:\/\/commoncents.blogwyrm.com\/?p=441","title":{"rendered":"Vicious Cycle"},"content":{"rendered":"

Often in macroeconomics analysis we hear about favorable and unfavorable business cycles, of the ebbing and flowing of macroeconomic forces of aggregate supply and demand that can sail a fleet of businesses into new waters teeming with fish or pitch them onto a reef.\u00a0 But there is another and more interesting business cycle which some recent experiences have put firmly in my thought.<\/p>\n

The stage for my experiences can be set with one simply phrase \u2013 back to school shopping.\u00a0 Like millions of parents across the United States, I found myself in the position of hauling one of my kids and a not-insignificant subset of his position some 350 miles north to college.\u00a0 I have made this particular trip many times, laden with pounds and pounds of teenage possessions.\u00a0 But what made this trip particularly interesting was it was the first time one of mine had housing in an unfurnished apartment, which was being shared between him and 3 other young men.\u00a0 Thus a routine return-to-college trip suddenly transformed into something akin to engineering a permanent move to a new city.<\/p>\n

Since my vehicle was the family car and not a rented U-Haul, the necessities of furnishing a new apartment had to be done once we had arrived and that meant purchasing lots of furniture in a short time from stores that I don\u2019t normally visit or have never patronized before.\u00a0 And that is where the lesson really begins.<\/p>\n

Looking for bargains (who doesn\u2019t) and being in unfamiliar territory led us to visit a chain that had once been mighty in days gone by and was now transformed into something more akin to a bottom-feeder.\u00a0 I won\u2019t mention the name for the very reason that doing so contributes the very \u2018business cycle\u2019 that this column is about.<\/p>\n

This store, a mere shadow of what it once was during its former glory days, offered nice products, a bit on the cheap side, but nice.\u00a0 That said, neither the quality of the goods nor the quality of the shopping experience could really compare to its higher-end competitors.\u00a0 Nonetheless, we found some suitable choices at prices we could live with and so the deals were struck, trunks were loaded, and so on.<\/p>\n

After having delivered and installed these items in our son\u2019s room, we got into talking with the parents of the other boys, who, like us, were trying to furnish the apartment with as little cash outlay as possible \u2013 paying tuition tends to do that to a parent.\u00a0 We recommend the chain we had just visited and off the others went to give it a look.<\/p>\n

Hours passed before they returned bearing goods from one of the competitors.\u00a0 When we asked what they thought about the store we recommended we got an interesting answer.\u00a0 It seems that the other parents had gone and had actually seen a set of table and chairs that would work for the shared kitchen at an agreeable price.\u00a0 What had stopped the deal from happening is that they wished to talk to someone about the goods and, after waiting 20 minutes, they had decided that the customer service was terrible and they took their dollars somewhere else.<\/p>\n

As they were narrating their experience, I realized that when we were shopping in that store I hadn\u2019t really seen any employees around.\u00a0 The store, for the most part, was devoid of employees.\u00a0 A few were at the registers, a few more at the snack bar, and I saw a manager moving to and fro keeping an eye on things.\u00a0 But I didn\u2019t see employees circling different areas (e.g. electronics, apparel, etc.).\u00a0\u00a0 There just wasn\u2019t that many people supporting the day-to-day operations.<\/p>\n

As I reflected on this realization, I found myself led to two different conclusions.<\/p>\n

First, it makes perfect sense that the number of employees for a store such as I described earlier should be minimal.\u00a0 An institution trying to hang on to the low end of the market share can\u2019t cut goods or the size of the store.\u00a0 The only thing they can cut is people cost.\u00a0 They need to offer less in the way of services in order to keep operating costs and consumer prices down and, in doing so, stay competitive.<\/p>\n

Second, the necessity of cutting personnel costs drives customers and, more importantly, dollars away.\u00a0 \u00a0As the shopping experience falls so does the traffic into the store and the probability of moving goods.<\/p>\n

And so it is easy to see how a vicious circle can form that drives businesses out of business.\u00a0 It starts when a business stops growing, either due to management missteps or changing tastes or new technology, and begins to lose customers.\u00a0 As the cash flow beings to dwindle, the business need to cut back on goods and services, which usually results in an accelerated loss of customers, which in turn accelerates the descoping.<\/p>\n

\"Viscious<\/a><\/p>\n

This negative feedback loop has only two ends.\u00a0 Either the company finds just the right combination of new goods and services to offer or it goes under.\u00a0 And it seems that the later outcome is more usual compared with the former.\u00a0 \u00a0It takes a lot of hard work and luck for a business to reinvent itself once public perception has gone the other way and both of those require that the business stay afloat while the reinvention takes place \u2013 and that means capitol.<\/p>\n

Capitol to continue the supply chain so that goods stay on the shelf.\u00a0 Capitol to keep employees working the business and keeping the customer service high.\u00a0 Capitol to create and air advertisements that hopefully change the consumer attitude towards the business.\u00a0 And if that capitol isn\u2019t available, the vicious cycle will just pull a business down.<\/p>\n

Indeed, there is a lot of truth in that old saying that it takes money to make money.<\/p>\n","protected":false},"excerpt":{"rendered":"

Often in macroeconomics analysis we hear about favorable and unfavorable business cycles, of the ebbing and flowing of macroeconomic forces of aggregate supply and demand that can sail a fleet... Read more ><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-441","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/441","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=441"}],"version-history":[{"count":5,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/441\/revisions"}],"predecessor-version":[{"id":1045,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/441\/revisions\/1045"}],"wp:attachment":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=441"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=441"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=441"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}