Tuesday, December 2, 2008

The economic crisis and the consumer

Around the planet, a vast majority of people have reduced their discretionary spending, both with regards to consumer goods, such as clothing, and for major purchases such as home appliances, a vehicle or a house. As reported in a Washington Post article, Economist Peter Morici from University of Maryland states that «What consumers are not spending on gas, they are not taking to the mall».

One could have indeed thought that the significant decrease in fuel prices could lead to a reallocation of the money saved to discretionary spending. However, let’s recall that the disproportionate increase in fuel prices has forced many consumers to cut everyday spending, food for example; it’s likely that the money they now save on fuel is first being allocated to a form of recuperation for basic expenses before being used on discretionary consumption.

In most parts of Canada and the United States, consumption is down. A Global and Mail daily Poll performed in the last week of November reveals that a majority of people plan to reduce their Christmas expenses. Although the sample was not selected scientifically, the survey nevertheless features 13 160 people. Of these, 68% plan to reduce expenses, a result that corroborates what one can observe in stores.

In the United States, «Black Friday», the day on which retailers traditionally turn from losses (red ink) to profits (black ink), has been disappointing. A Washington Post article reports that consumers only buy items on which they get an exceptional deal.

It would appear that things MAY BE different in Quebec… FOR NOW. Indeed, according to a survey unveiled on November 12, performed by Altus Géocom on behalf of the «Conseil québécois du commerce de détail» (CQCD – Association of Quebec Retailers), 64% of Quebecers say that they intend to spend as much as last year for their Holiday purchases; 7% of our citizens intend to spend even more. For my part, the GOOD news in all this is that these percentages are still lower than in 2007 when they were respectively 69% and 12%. There thus seems to be only 29% of us, 10% more than in 2007 thank God, who want to reduce their consumption for the Holiday season. I am one of those.

This denial of the crisis by many Quebecers was confirmed to me during an interview on Christiane Charette’s talk show on November 25th. I was amazed to hear callers say that the economic and financial crisis was amplified by the media to «scare people». I wondered what planet I was on. If those people are representative of Quebec's population, this may explain, at least in part, the results of CQCD’s survey.
Those reactions are rather shocking, considering what is happening elsewhere in Canada and the United States.

Tuesday, November 25, 2008

Bursting of the consumption bubble

This column is subsequent to two radio interviews broadcasted today, Tuesday November 25 2008:

  • the first with host Christiane Charette on Radio-Canada (95.1 FM),
  • the second with host Michel Gailloux on Radio Ville-Marie (91.3 FM).

The rise of luxury leads to excess both from the consumer and the producer. This is the central theme of «Consommation et luxe», a book published in November 2007. My analysis helps understand that buyers’ and sellers’ excessive behaviour is in fact partly responsible for the economic and financial crisis which started in the summer of 2007.

Various bubbles have developed over the last decades and they all ultimately erupted: technology, real estate, stock market ... we must now talk of a consumption bubble.

Hyperconsumption, a phenomenon which appear at the turn of the 20th century, is characterized by:

  • consumption focused more on pleasure than on image,
  • an increase in the quantity of goods and services purchased,
  • an escalation of luxury, «luxurization» in some way of goods and services offered.

This rise of luxury is easily explained by considering the motivations and behaviour of the consumer and producer.

From the consumer’s standpoint, it should be noted that consumption itself is inflationary, not the economic sense, but in the sense of an ever-increasing purchases, day after day, year after year. Abraham Maslow rightly said: «Man is practically always desiring something».

Luxury only exacerbates this impulse: Man always desires something… better. This translates into an inflation of features in goods and services. Take a car for example: if I just bought a car with power windows, an accessory my previous car was lacking, this feature is a form of luxury for me. However, the luxury effect is short-lived; when I buy my next car, power windows have become my «standard» and I will need to add another accessory or upgrade to a higher end car to satisfy my desire for luxury.

While the consumer wants to buy luxury goods and services, the producer is also enticed to sell such products, because the profit margin on those is much greater than on mid or low range products. Furthermore, investors’ demands ever hungrier for profits force companies to follow this path.

It’s an illusive path, as the main car manufacturers in North America can well testify, having originally built their respective empires selling affordable products to the middle class. In this industry, a financial ploy, leasing, has allowed dealers to retail, for some time, high end vehicles to people whose income level was insufficient to purchase this type of good. This business model was doomed to failure.

Current economic and financial conditions favour the bursting of the consumption bubble. Having suffered financial losses, perhaps lost his job, deprived of savings, no longer having access to easy credit and seeing payment options for luxury goods disappear (i.e. leasing), the consumer must curb his consumption.

This is true in all social classes. The difference between the richest and poorest is that the latter are even more deprived to the extent that some can not even buy the bare minimum.

Where is consumption heading in the coming months and years? I’ll answer this question in future columns.

Monday, October 13, 2008

National Do Not Call List

If, like a good many people, you are exasperated by unwanted telemarketing calls, a solution is now available. The Canadian Radio-television and Telecommunications Commission (CRTC) has established a National Do Not Call List (DNCL) ().

Since September 30, you may register your residential, wireless, fax or VoIP telephone number directly on the DNCL Web site. Your registration is valid for three years, after which you must reapply.

Thursday, October 2, 2008

Consumption of financial products: Caution!

I wish to make it clear right away that what follows strictly applies to stock market investments. According to experts, Canadian banks are strong and amounts invested in bonds, bank accounts, guaranteed investment certificates and other similar tools are safe. If you are unsure about the nature of your investment, contact your financial institution or advisor.

The purchase of financial products is a form of consumption. Today, given the recent fluctuations of financial markets I want to share with you my experience with these products.

Despite my knowledge of economics, finance and investments, I do not pretend to be a financial expert. However, my business career taught me to exercise utmost caution in the management of moneys under my responsibility. My governance principle has always been very simple: «To manage my employer’s assets as cautiously as if they were my own, perhaps even more so. » And I take great care of our assets.

Let’s go back in time. At the end of August 2008, world stocks markets had already substantially declined; this signal and others before, was a clear invitation to sell stock investments on which a fair profit had already been gained. Yet most investors, I for one, have ignored this warning, anesthetised by the gains made, amongst others from 2004 up to summer 2007’s «subprime» mortgages crisis. We were all convinced of the transient nature of the crisis and confident in an eventual recovery in medium if not the short term: it was a mistake!

Worse still, between September 15 and 29, a Monday as «black» as October 19 1987, markets have alternated between gains and setbacks; most of us still have not considered protecting our backs. Yet, the most basic investment principles advise to sell a stock investment after garnering a fair profit, many arbitrarily set at 20-25%.

During this period, I must admit, however, to have followed our investments’ evolution on a daily basis and devised an exit strategy to protect the invested capital, plus a minimum net annual return which I then set at 3%. Our financial advisor, with whom I discussed this strategy, confirmed its merits, for us anyway.

Friday September 26, I long hesitated to implement my strategy... finally deciding to wait a little; reassured by the comments of American leaders optimistic about the approval by Congress and then by the Senate, of the proposed rescue plan, I once again entertained the illusion that recovery was imminent. I also found it a pity to sacrifice the huge profits achieved... on paper.

I regretted this decision all weekend. Sunday, I decided that, whatever the vote of Congress and whatever happened on financial markets the next day, I would liquidate all our stock investments, namely rather conservative mutual funds. That's exactly what I did.

Of course, with the brutal drop of the markets, 840 points for the S&/TSF in Toronto and 777 points for the Dow Jones in New York, our investment portfolio decreased by 5.2% that day. I am nevertheless convinced that this was the right decision.

Despite the huge virtual loss, since our gains were only on paper, we managed to preserve the invested capital, our main objective; subsequent performance analysis revealed that we had even averaged a 6.2% annual gain between March 31 2003 and September 29 2008.

Since last Monday’s collapse, the markets have significantly increased on Tuesday, and then slightly decreased on Wednesday. Thursday October 2, although the Senate approved a modified rescue plan, the S&P/TSF crashed again closing down another 813 points, while the Dow Jones lost another 348 points.

Markets may increase tomorrow, or decrease again; no one knows. They will wildly fluctuate for a period impossible to foresee. They could also collapse without warning. Such a volatile context calls for the utmost caution, particularly from small investors.

I therefore urge you to make a detailed analysis of your investments with respect to their nature, their performance thus far and the invested capital. If you've turned a profit despite all the cumulative losses, perhaps it is time to cash in? If you no longer turn a profit but have not yet suffered a loss, perhaps it is time to at least preserve your invested capital? Finally, if you suffered losses, perhaps it is time to cut those losses?

Most financial advisors will disagree with me and instead advise not sell in a period such as the one we now live in. But it’s YOUR, hard-earned, money; it’s up to you to decide what to do with it.

Analyze your portfolio and markets’ outlook for recovery, assess your risk tolerance, consult with a cautious and experienced financial adviser... then decide. All I did was telling you what I decided.

Also read «Mutual funds suffer record redemptions».

Sunday, September 28, 2008

Hyperconsumption and the global financial crisis

For many years, I have warned people against the misdeeds of hyperconsumption; for many, daily life is centered on purchasing increasingly luxurious goods and services, first of all for one’s pleasure, a fleeting satisfaction. In fact, the evanescence of contentment procured by consumption is also what has allowed excessive consumption to rise.

Once purchased, the new object integrates with existing possessions and the pleasure of ownership quickly fades; a new desire swiftly surfaces, exacerbated by the omnipresent advertising. Abraham Maslow rightly said: «Human beings always want something. » In addition, when one lusts for a new object, it is invariably a little more luxurious than the one it replaces, since the characteristics of the latter are taken for granted, they no longer procure the expected pleasure. This is what I call inflation of consumption.

To feed this limitless flow of consumption, people must either draw on their income or their savings, or get into debt. The very rich, the ones middle class people wish to emulate, can more easily satisfy their cravings without getting into debt, to a degree; the inflation of consumption phenomenon also applies to them.

As for the middle class, consumption’ main engine and banks’ key clientele, a recent Léger Marketing survey shows that it has become impoverished, worse indebted. In a report published September 15 2008 by Statistics Canada one can read : «Households had 19.6 cents of debt for every dollar of net worth and $1.25 of debt for every dollar of personal disposable income.» And the situation is worse in the United States. This is precisely what has caused the global financial crisis that we now live.

To fuel their craving for consumption, people have borrowed on the added value of their property, at often excessive interest rates and without the lender verifying the borrower’s ability to repay. It is understandable that the budget balance is fragile; it may be compromised by the slightest glitch, illness, job loss, etc., resulting in even a slight decrease of income flow, or by inflation in the price of an essential commodity, gasoline for example. This is what happened in the United States.

In 2007, many people were unable to meet financial obligations, especially the repayment of loans contracted, the sadly notorious subprime mortgages. This payment default, multiplied millions of times, has undermined several U.S. financial institutions. Unable to recover the money lent, they in turn were unable to repay their creditors, much less guarantee their depositors’ money, thus causing a rush to withdraw invested savings before banks, they fear, run out of cash. This has created a liquidity crisis and the «domino» effect did the rest.

Evidently, other factors have made the crisis worse, many investors borrowing to create leverage being one and speculation another, but those are subjects on which I will not dwell today; my goal was to demonstrate the link between hyperconsumption and the global financial crisis ... which I have now achieved.

Friday, September 12, 2008

Wild fluctuations in the price of gasoline

In Le prix de l’essence laisse songeur, an article published Thursday September 11 in La Presse, journalist Hélène Baril states: «During the last week, the price of a litre of regular gasoline has fallen by almost 4 cents in Toronto and only 0.6 cent in Montreal. » The article goes on reporting justifications from various industry representatives, which you can read by clicking on the above hyperlink.

Nonetheless, I believe that the consumer is tired of these explanations, particularly in the wake of the scandal which has hit the oil industry last summer, as reported in a column entitled Quebec gas companies charged with price fixing published by CTV Thursday June 12: « Gasoline retailers in four Quebec regions have been accused of price fixing, the federal Competition Bureau announced Thursday. The alleged scheme involved 13 people and 11 companies in the Quebec regions of Sherbrooke, Magog, Victoriaville and Thetford Mines, Commissioner of Competition Sheridan Scott told reporters at a Montreal news conference. » Other media have reported that the scheme could also involve other regions: Les prix étaient discutés pour d’autres marchés.

It is pointless to endlessly rehash our constant frustration vis-à-vis those facts; appointed authorities have done a good job, let justice take its course, hoping that the Court judgement will deter such dishonest and illegal practices.

To give consumers a tool, some small form of protection, against the perpetual yo-yo that has become the price of gasoline at the pump, I will instead reveal the existence of a resource and make two suggestions.

I have recently discovered a Web site, Essence Montréal , « a real-time forum where consumers can post current gasoline prices in the city of Montreal and its suburbs. »

This site needs our collaboration to convey accurate and reliable information to people. I invite you to take a few minutes of your time every day to report the price of gasoline at the pump in one or two service stations in your neighbourhood.

On the home page, you can also subscribe to a newsletter by entering your email address: « The Essence Montreal newsletter will consist of e-mail alerts which will be sent out to our subscribers whenever there is a suspected large increase in gas prices in the city of Montreal and its suburbs. » Thus, you will at least be able to fill up before being surprised by a swift and unexpected price increase.

Consumers often underestimate their collective power. Yet, if my suggestions bear fruit, in the long run, surges in gasoline prices could translate into an equally sudden desertion of service stations, until the price decreases. I won’t pretend that our efforts would lower the price of gas, but they could at least put an end to wild fluctuations.

Sunday, September 7, 2008

Consumption and technology

My next book, whose publishing (in French at first) is planned for winter of 2009, will focus on consumption and technology; here’s a glimpse of its content.

In our hyperconsumption society, technological development is essentially dictated by commercial considerations, the first of which being the necessity for manufacturers to differentiate their products from their competitors’.

The iPhone, launched in Canada in July 2008, is a fitting example of this assertion. Far be it from me to denigrate this gadget which obviously appeals to a very specific market segment; otherwise, how can one explain the endless launch day queues in front of stores for the privilege of being among the first to own this marvel? Its design undoubtedly meets aesthetic expects and its many functions, too numerous in fact for the average user, allow its users to justify their purchase from a utilitarian standpoint (functional expects).

The iPhone’s appeal lies elsewhere. It has to do with the image, the myth I should say, Apple built around its latest creation, as it did for other products, the iPod for instance; as the latter, the iPhone is a cult object, a status symbol (symbolic expects), yet even, for some people, a possession which allows them to enhance a somewhat weak self-esteem (aspirational expects).

Despite the fact that competing products, such as the Touch Diamond (HTC) and the Instinct (Samsung), offer very similar designs, features and functionalities, the iPhone’s exclusive image allows Apple to sell it at a price slightly higher than competing products’, because the unconditional, the true aficionados, are less sensitive to price, as long as said price remains within a range whose boundaries Apple has undoubtedly pinpointed (financial expects). One can therefore say that technological development has shifted to a commercial exchange paradigm.

Saturday, August 30, 2008

Comparing the price of gasoline between Montreal and Paris

I wish that with each new rise in the price of gasoline, some people would cease to comfort consumers telling them that gasoline is still much less expensive in Canada than in Europe.
On August 30 in Paris, one could find regular gasoline (SP95) at 1,399 € per litre
(French Ministry of economy) while on August 29 in Montreal, the price of the same fuel ranged between $1.389 and $1.394 (Quebec’s Régie de l’énergie)
Using the August 30 conversion factor, 1.5996 dollar for 1 euro
(Royal Bank of Canada), some might say that the price in Paris is actually $2.24; this calculation is completely wrong and misleads people.
The $2.24 is only valid for a Canadian visiting Paris, whose salary is paid in Canadian dollars, buying gasoline for a rental car. The French are paid in euros; 1,40 € is for them what $1.40 is for us.
In other words, the price of gasoline is exactly the same in Paris and Montreal, apart from the daily variations which exacerbate so many Montrealers.

Thursday, April 3, 2008

Consumption and commerce are essential

In my writings and my public position, I criticize several aspects of consumption, especially excesses on the part of consumers and speculation on the part of sellers. However, I am in no way against the consumption and I do not preach in favour of self deprivation or hard core simple living. These solutions are so extreme that they can do nothing but put off most consumers… rather than encourage them to consume more sensibly. On the contrary, I believe that, subject to responsible practices on both sides, consumption and commerce are essential in two ways. They are first of all mandatory from an economic perspective. In fact, strong domestic consumption is what has so far saved Canada from the recession in the United States since the summer of 2007. According to the Conference Board of Canada, «Consumers Help Canadian Economy Overcome the U.S. Twin Shocks».

Consumption is just as essential from a human standpoint. Everyone wants to have fun, consume, acquire goods and use services that make life more enjoyable, things that go beyond the strict necessities of life.

In my most recent book, « Consommation et luxe, La voie de l’excès et de l’illusion » (Consumption and luxury, The path of excess and illusion), I stress the essential, universal and anthropological nature of luxury consumption, resting my argument on Shakespeare and Lipovetsky.

Trade and consumption have been an essential part of human development, they have existed for millennia. It would be idealistic to attempt stopping such activities in the twenty-first century.

The shopping center was born in the 1950s. Much like motorways, population migration to the suburbs made essential construction of this new mode of distribution: the shopping mall. Mega shopping centers are simply an evolution of retailing; they are increasingly places both of necessity and pleasure.

Doesn’t the Quartier Dix30 plan to open a Mega private health care clinic, something many Quebecers feel to be a necessity? Furthermore, their commercial offer goes well beyond the traditional commercial function; these new commercial centers are referred to as Life Style Shopping Centers.

The Quartier Dix30 , the largest Life Style Shopping Center in Canada, recreates the illusion of a Main Street in old days villages, an artery mainly intended to be functional, as it centralized shops people needed. These new malls’ main function is symbolic; it is also designed to give you a sensory experience.

Apart from «Main Street» and the Theatre, many other shopping malls incorporate all other aspects of Quartier Dix30: free indoor and outdoor parking, a variety of restaurants, cinemas, and so on. What is so special about a Life Style Shopping Center? As for a perfume or a luxury restaurant, packaging and communication make the product.

Positioning and selling Quartier Dix30 as an entertainment center is inspired by Lipovetsky’s pleasure-purchase logic: «Today, even the consumption of material goods tends to switch to an experiential logic, shopping in general bathing in a recreational and hedonic atmosphere» (G. Lipovetsky, Le bonheur paradoxal. Essai sur la société d’hyperconsommation, Paris, Gallimard, 2006, p. 60).

Some will say that architects of this project only encourage consumption, and they will be right. However, we are not victims but accomplices of the consumer society; it’s up to us to consume better and less. Furthermore, these promoters help make people dream in a world that really needs; Quartier Dix30, it’s not a shopping mall, it’s a recreotouristic center in which rich people and less affluent ones can find what they want.

Purchasing behaviour in open-type Mega shopping malls is not the same as in a traditional closed-type mall. The latter promotes shopping, walking, often without a specific purchase in mind, even walking for health purposes, as some walking clubs practise this activity in winter. People who spend time in malls say that they get pleasure from these visits; they will even stop for coffee at one of many indoor terraces found in these places. Some people living in the city cannot understand what pleasure there is in this activity; as far as I’m concerned, I see no difference between having coffee and mingling with people in such places or doing so one of Montreal’s many cafes.

This type of behaviour can also be observed on the «main street» of a Life Style Shopping center such as Quartier Dix30. However, behaviour changes radically in shops that stand away from this central point. People who go into these shops often have a specific purchase in mind, they have made their choice of product and point of sale on the Internet or in a promotional brochure; they go directly to selected store, do their shopping and then often leave the mall.

In large cities such as Montreal, trade has rather developed in a linear fashion, Ste-Catherine Street for instance; much like a mall, some of these commercial streets even feature a canopy that protects consumers from bad weather while shopping, Plaza St-Hubert for instance. More recently, commercial spaces have flourished in Montreal’s underground, Montreal’s Indoor City.

Consider this map of Montreal’s Indoor City.

According to the Observatoire de la Ville intérieure, «The indoor city is a set of buildings connected by interior walkways, belonging to distinct owners, offering a diversity of functions, namely public transportation, shopping malls, office space and leisure activities, where the use of public space has been settled by an agreement with the municipal authorities». As of December 31 2004, Montreal’s Indoor City featured 1,366 shops of all types and 477 restaurants of all categories.

What difference is there really between Montreal’s Indoor City, Plaza St-Hubert, Ste-Catherine Street, a portion of which is to be pedestrianized in summer 2008, and the Quartier Dix 30? The answer is simple: NONE!

Why then criticize Mega shopping malls?

Tuesday, March 18, 2008

Results of the mini survey about Mega shopping centers

Since the televised debate on «Il va y avoir du sport», on the theme «For or against Mega shopping centers», some expressed their surprise seeing me present the positive aspects of Mega shopping centers.

It is rather curious because I have never been moralizing towards consumption; as I write in my blog presentation, «I claim myself to be a moderate critic of consumption. While I recognize the benefits, even the necessity, of a measured and responsible consumption, I want to denounce its pernicious effects and questionable practices. »

I am thus especially pleased to have participated in this show because it was an opportunity for me to clarify my position with regards to consumption.

One must also not forget that this kind of televised debate is planned to polarize the debate… to better entertain the audience; the producer most certainly does not want participants in the debate to present the pros and cons of an issue, which would have been my preferred position.

Finally, the debate having been focused on issues related to the environment, ecology and urban development, little analysis was made of the shopping center itself.

In my next column, I will thus further clarify my position on consumption and Mega shopping centers. For now, here are the results of last week’s mini survey.

Results take into account responses from the English and French blogs, 82 people in all; statistically speaking, this number of respondents is low. The error margin is thus higher than the norm: 11% at a 95% confidence level, the proverbial 19 times out of 20. As with all such «question of the day» type surveys, now found in several media, the sample has not been selected according using a probabilistic methodology.

Clicking here will allow you to see a graph presenting, in percentages, responses obtained, as well as the minimum and maximum based on the error margin.

Given this 11% error margin, one can say that people are almost equally divided on the question «For or against Mega shopping centers? » Nothing wondrous!

In the midst of those "Against", one can find amongst others druids of the environment and hard core apostles of simple living, for whom shopping malls, Mega or not, are dens of vice. There are however a number of people who do not like the concept of «Mega Center», as I was saying in Nathalie Villeneuve’s excellent article «Les limites de la démesure» (The limits of excessiveness).

Climate is obviously a drawback and purchase behaviour is different from what one can observe in traditional closed mall type centers.

In my next column, I will elaborate on this issue in addition to clarifying my position on consumption and Mega shopping centers.

Friday, March 7, 2008

For or against Mega shopping centers?

Vous pouvez lire cette chronique en français.

In anticipation of my participation in the IL VA Y AVOIR DU SPORT show, I submit a question on the selected theme:


The show will be broadcasted on Tele-Quebec Friday, March 14 at 7:30 PM, Saturday, March 15 at 2:30 PM and Sunday, March 16 at 6:30 PM.

The «Quartier Dix 30» is an example of Mega shopping center.

Thursday, February 7, 2008

Purchasing a vehicle: price, fuel consumption and style before the environment

In a chronicle published January 26, 2008 (French only), I reported the results of a mini-survey concerning the criteria deemed to be the most important when purchasing or leasing a vehicle. Clicking here will allow you to see a graph showing the number of responses received for the five assertions I considered the most important, having been chosen either by a majority, or by a minority of people who participated in the study.

Highlights are as follows. Three elements are considered among the most important by at least half of respondents [answers/total]: price (purchase) or monthly payment (lease) [29/32], fuel consumption [27/32] and vehicle aestheticism (style and color) [17/32]. Conversely, an item is considered important by only a small number of respondents: an ecological engine [3/32].

Now, The Globe and Mail recently published a survey involving 38,500 Canadians that the importance of 26 criteria involved in purchasing or leasing a vehicle. Clicking here will allow you to see the results of this study.

The five criteria deemed to be the most important are the following (% responses): Value for the money (30.7%), Fuel economy (28.4%), Reliability/dependability (27.5%), Price/cost to buy (21.5%) and Exterior styling (19.5%). Environmental friendliness is relegated to the 23rd rank, out of 26, with a meagre proportion of votes (2.2%).

In my January 26, 2008 chronicle (French only), I wrote that “an exploratory study is indicative of trends that need to be confirmed by other studies or supported by known facts”. The fact that three elements identified in my mini-survey are amongst the top five in the national poll shows the usefulness of exploratory studies. Without featuring the accuracy or statistical reliability of studies involving a large number of respondents (≥ 1000) selected through probability sampling, they are nevertheless indicative of major trends.

As for the fact that environmental considerations as a criteria for purchasing a vehicle only concern a very small minority of people in both studies, it strengthens the view that I supported in several columns of this blog, particularly that of June 7, 2007. I am more than ever sceptical about the willingness of Quebecers, and citizens of other Canadian provinces, to radically change their lifestyle to reduce polluting emissions.