GOOD LUCK INDEED

I was forwarded an item from Forbes that is more remarkable for its tone than its content. Retail giant Best Buy is failing (largely because it is discovering that selling CDs and DVDs is not a growth industry, but also because electronics buyers are so willing to shop online rather than in big box stores) and it is attempting to turn things around by closing a bunch of stores. A commentator with Forbes, a name synonymous with a conservative take on business and financial news, points out that this is a silly strategy. It is not a difficult point to make. If the chain's fundamental problem is with its product offerings and retail model, having fewer stores selling the wrong thing the wrong way isn't going to help. The writer sums it all up in her title: Best Buy Cutting 50 Stores To Get Profitable. Good Luck With That.

An excerpt:

Best Buy is closing 50 superstores and focusing on mobile in an effort to reduce expenses. But since when is cost cutting to profitability a successful retail strategy?

Since never.

In so many ways, it feels like a shell game. The kind that companies use to deflect negative attention by waving their arms and yelling, “look over here!” Changing things up, reducing its footprint and getting out of too large or otherwise unfavorable locations is important and probably needed to be done long ago. But these changes look more like an olive branch to the financial community: a restructuring to reduce costs.

Analysts believe Best Buy is doing the right thing. Right or wrong, at least Best Buy is doing something. Sometimes the bigger thing to do is go small, but a retailer still has to sell more stuff, not just jettison the people and locations that are supposed to help it do just that.

Now let's pause and consider how the great minds at Forbes can wrap their heads around this idea as a business strategy…but not as a public fiscal policy. True, the analogy between government and business is imperfect (yet infinitely more useful than the favorite right-wing trope of the government balance sheet as a household budget) but it takes some active denial to gloss over the broader implications of "You can't cost-cut your way to profitability." This is true, and obviously so. So why, one might wonder, can Congress or state legislatures spur economic growth by cutting spending? The fundamental problem of the business and the government is the same: not enough revenue coming in to meets its obligations. Firing people and shuttering stores is a knee jerk response that promises meager short term benefits at the cost of substantial long term losses.

Just a brief review: businesses that try to become profitable by cutting expenditures are on the road to ruin, but growth in the planet's largest economy will be spurred by the government cutting costs and taking in even less revenue. Yep. That's about the logical consistency I would expect from a publication with Steve Forbes' name on the masthead.

40 thoughts on “GOOD LUCK INDEED”

  • Middle Seaman says:

    The whole story is a projection of a very simple truism: belt tightening is good for, but I need more money. That's the summary of Ryan's budget.

    A 77 year old man shot himself to death today in Athens. The respected pharmacist became a beggar. The EU has tightened the belt all over Europe. Banks and other rich must get their due.

    It might end like the French Revolution, at the guillotine.

  • Best Buy has other problems besides CDs/DVDs being dying sectors.

    All they sell are consumer electronics, and that market is broadly tanking. You'll be surprised to learn that overall electronics sales were down 6% in holiday 2011 compared to holiday 2010, which were themselves down 5% compared to holiday 2009. The reason is that the smartphone is wiping out whole categories of electronics – cameras, media players, portable game consoles, pdas, gps devices, and so on. Best Buy is set up to be a one-stop shop for every imaginable consumer electronic, but consumers are increasingly ignoring consumer electronics that aren't smartphones (or laptops, those sales are holding steady).

    BB also dedicates a lot of floor space to software, games, cds, and dvds – all of which are quickly transitioning to streaming/digital sales.

    What's left often has crummy margins. HDTVs that used to sell for thousands of dollars now sell for hundreds (which is why they're so desperate for 3D TVs to take off). laptops cost $300-$500 (which is why everyone is so desperate for ultrabooks to take off). and the one electronics brand that people are buying and paying a premium for (Apple) doesn't give its retail partners very good margins, and is building out its own chain of competing retail stores (which are booming, and are the opposite of bb stores in every possible way).

    Walmart and Target have broad enough selections that if electronics takes a dive, they just cut the floor space and make it up by selling lawn furniture and flashlights and cosmetics. bb can't do that.

    Even if BB managed to fix their terrible business practices and upper management (spoiler alert: they can't), the nature of the market they're means they're very likely fucked in the long term, no matter what they do

  • Also, my favorite example of conservatarianism not quite closing the circle, logically, is the way that incentives work differently for rich and poor. Poor peoples' problems are caused by their lack of incentives and "skin in the game", so the way to deal with unemployment and inequality is to slash the safety net and give them a little tough love. Whereas the rich, those globe-bestriding collossi who bend the world to their will, are fragile little hothouse flowers who needs an endless steam of tax cuts and loopholes and soothing words, wihtout which they curl into little fetal balls and will take the economy down with them.

  • If you hadn't given the heads up, a little editing of the excerpt you could have had us believe Forbes had taken up Leftwing talking points about Govt spending and investment. Then told us it was a belated April Fools joke, when you told us that it's really about BB.

  • c u n d gulag says:

    I read this book, written in 1841, a long, long, time ago:

    http://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds

    It's an explanation of how and why some really stupid sh*t happens, and it applies to a lot of 'group think' throughout history, and still does today.

    Right now Keynesian economics is looked upon as the Model T of economics, 'Yes, ok, it MAY have worked once THEN – maybe – but times are different, and we've moved on…'
    And the new model is the Austrian/Friedman "Austerity" model and has taken it's place.

    No amount of evidence of its failure, like in Europe today, and South and Central America over decades, and no matter how often it's repeated, is evidence of its absolute failure as an economic model. Instead, it's either an example of not doing "Austerity" right, or, not applying enough "Austerity."
    And, of course, the rich and really rich do very, very will in this system, because no one wants any "Austerity" from them – they, after all, are "The Job Creators" (All kneel… Let us pray… 'Our Job Creators, which art in mansions much like Heaven, Hallowed be thy names…)
    The poor get poorer, but the rich get far richer – so those in power, themselves rich and powerful, don't give a sh*t. "Hey, it's no skin off my ass!".
    So, what's their incentive?
    Maybe, one day survival – from mobs, or the warming climate. But by then, it'll already be too late. Not just for them, in the case of mobs – but all of us, in the case of the climate.

    It's like Conservatism. It's not been successful, despite over 30 years of diligent effort.
    Oh, but not because Conservatism, in and of itself, is a failure!
    No!
    It's that the leaders like Reagan, "Papa Doc" Bush, "Baby Doc" Bush, failed it, because they weren't Conservative enough.

    So, the solutions?
    MORE "Austity!"
    (Yeah – that'll fix Europe. Bring it to America!!!).

    MORE Conservatism!
    (Yeah – the Ryan Plan will fix the debt and declining economy!).

    It's like the "Dutch Tulip Mania" in the early 17th Century, where single bulbs became the most expensive items on the planet – yes, a SINGLE bulb could be worth 10 times the wages of a skilled craftsman (think computer engineer).
    A single bulb became unaffordable to most people, so shares were sold (sound familiar?). People borrowed money to get in on the bubble (sound familiar again?). Poor people pooled money together, and were sold shares in a single bulb.
    Speculators made fortunes – at least until the end, when the whole bubble collapsed – from the weight of it's own stupidity.
    At it's height, that bulb in your hand was worth as much as a mansion. Then, the next day, it was just a flower bulb that might brighten-up your grave.

    Eventually, after many lives are ruined and lost, so will this "Austerity" (bowel) movement.
    After all, the end game of "Austerity" is to find out, "How much blood can you get from a stone?"
    And, not soon enough, people will realize that the answer is, "Not f*cking much."

    George Santayana was right.
    We don't learn from history (or at least not the right message).
    And so, we constantly repeat it.

    American Empire – meet British Empire.
    British Empire, move over – we'll soon be joining you in the same dustbin of history.

  • I'm beginning to think that paying all those CEOs so much money might have not been the best course of action.

  • anotherbozo says:

    An insight, an analogy worthy of any editorial page, any writer in the country. Where is Ed's Peabody or Pulitzer? Day after day he does this. Why I tune in.

  • Neal Deesit says:

    A farmer tried to "streamline" his operation by cutting costs: "Just when I got that mule's food ration down to nothin', it went and died on me."

  • So what's good/bad for business is good/bad for government? Really? I didn't know liberals felt this way.

    I'll file that one away for future reference.

    Let's see how CONSISTENT Ed is what this logic.

  • @Dookie: Not to speak for Ed (who can clearly speak well for himself) but I think he was being facetious.

    It seems to me that Best Buy is suffering from precisely what led to the demise of Circuit City: The margins on what they sell will not support the overhead of a large chain of big box stores.

    Not only can't they compete with Wal-Mart or Target, they can't compete with Costco and Sam's Club and for small items, they can't compete with Amazon and other online merchants.

    If not for their shitty retail practices, I might feel badly about this. But as it is, there's a Best Buy a mile from where I am sitting and I have only wandered into the store a handful of times in all its years of existence and the last time was years ago.

  • @Arslan:
    "I'm beginning to think that paying all those CEOs so much money might have not been the best course of action."

    No, it has to work, everybody agrees it will; we need to increase the payments! More money! Larger payments!

    (offstage: "Iceberg! Dead ahead!" cue mass hysteria, Celine Dion)

  • c u n d gulag says:

    Hey Dookie,
    This may shock you – but Liberals DO WANT businesses to succeed!
    If they don't, how else does a nation?

    It just that we believe that they need to be watched, monitored, and regulated, so that ALL of the people in the nation benefit from their success – and not just a handful of rich people who own, are executives, or are shareholders, in them.

    If you are for unbridled greed at any and every expense, including your neighbors and the environment, then you're either a rich owner, a top executive, a shareholder, or a moron of epic proporations – or any combination of the four.

    I'll withhold my judgement on you, and file that one away for future reference.
    But I know which way I'm leaning…

  • c u n d gulag says:

    That should read "proportions" towards the end.

    "Proporations," sounds like it needs a letter next to it, and be used in ones ass.

  • James Carroll says:

    The right has no plan or logic to their belief system. It cannot be challenged because they do not care about truth or accuracy. It is the same reason that when they lose at the polls they will eventually support armed rebellion because they do not know what is right but they know what they want. The second amendment solution is the prescription to being a minority.

  • There's a big, gaping hole in this analogy: maximizing revenue is the goal of private economic entities. It is not, or should not, be the goal of governmental entities.

    If there is an action a business can take that will increase revenue, it should do so. (Within the constraints of law, of course.) If there is an action the government can take to increase revenue, it should only do so if the benefits to society of appropriating more resources outweighs the costs.

    The purpose of government is not per se to increase the size or share of GDP it controls. Its goal is to maximize wealth of all citizens outside itself. This requires appropriation of a certain amount of resources. But if it can get the same results with fewer resources, it should do so, and release the excess resources back into the economy. Providing more services than is optimal, or using more resources than necessary to achieve the optimal level of services, is destructive.

  • To answer your question about the logic of the claim that "cutting gov't spending will lead to prosperity":

    'Cause one (Best Buy)is a business (Good, "magic of the marketplace."etc.), the other is government (Bad, Evil, "Starve the beast", "Drown it in a bathtub," etc).

    That's how the Republican mind works. Logic doesn't matter.

  • FMGuru @1:32 knocks it over the fence.

    From Ed's post:
    "True, the analogy between government and business is imperfect…"

    You aren't very good at trolling, Dookie.

  • We need to get government back to it's primary role – regulating everybody's sex life and promoting evangelical Christianity.

  • Saying the analogy isn't perfect is hardly a sufficient qualifier…neither would saying it is akin to comparing apples and oranges…

    Comparing apples to copy paper…that gets us much closer to the usefulness of the post.

  • Broad brush here…

    Boots took over in 2001 – debt at about $5T
    Lets blame all the war debt on Boots – How about $3T (I think that's conservatively high)?
    So instead of $9T when he left, let's call it $12T
    Three years in w/ Mr O – $16.5T total

    In 12 years what have we done for ourselves by spending the budgeted amount (which is many $T) plus about $12T debt on non-war stuff? Do y'all think this was necessary?

    Doesn't that represent a tremendous expansion of government in that decade plus. (I bitched about Bush spending too)

    Is it the Leftist view that we were so deficient in our g spending that this just represents a down payment? Looking at the ballooning ACA numbers, I guess yeah.

    Is anybody who asks for moderation in spending being mean spirited? I'm not against increased taxes to balance things out, but what about the spending side?

    //bb

  • DOH! I sometimes teach math for money :-(

    That should be about $9T debt on non-war stuff.

    $5T (boots starting debt) + $3T war + $9T non-war debt = ~$17T

    //bb

  • bb- You have heard of tax cuts, haven't you? Or recessions, which reduce revenues and increase spending automatically, as more and more of your fellow Americans are pushed into poverty and lower tax brackets?

    You're smarter than the average conservative, so I had hoped for much more than you.

    If you want to talk about spending, talk about spending, not debt. Clinton-era taxes plus military spending under 3% off GDP plus single-payer health care to control costs essentially solves our debt problems forever. Add in the closing of tax loopholes and we can pay off the entire debt fairly quickly. It's not rocket science, but instead we get Paul Ryan Republican proposals that destroy the social contract without really solving our debt problems- it's more tax cuts + lies =fiscal responsibility and freedom!

  • @bb in GA: You should bitch about Bush. When he entered office, the CBO projected surpluses of about $5T over the coming decade. Which he turned into $5-6T in new debt. Plus, when he left office, the CBO projected $8T in deficits over the coming decade. The war debt, the cost of the unfunded entitlement (Medicare D), the cost of the unfunded tax cuts, that's all on him.

    Just saying…

    On the spending side, how about cutting defense by 50%? That will save over $200B per year. And we can stop being the world's nanny.

  • @bb

    I might almost agree, if I thought it was really about the debt and not about getting rid of programs that Republicans don't like.

    The Ryan budget pretty much convinces me that it's more about the latter.

    If they were serious about the debt they wouldn't be proposing yet another round of tax cuts plus increases in defense spending.

  • @economist

    Thanks, I don't sweat much for a fat boy…

    I'm really in danger of falling off the 'smart for a conservative' list because dumb ol' me thought that debt resulted from spending.

    I have seen varying numbers on the 'value' of the tax cuts and most of the numbers are not $T over the decade. I am not resistant to your numbers if you will expound. I'm not resisting tax increases – I really believe, at this point, that they have to be part of the solution.

    Remember I was talking spending:

    In 12 years what do we have to show for the budgeted trillions plus our $8-9T in NON-WAR debt spending?

    Bush Medicare Part D – $X hundred billions
    Bush Tax Cuts – $Y " "
    Energy Dept – $Z " "
    Education Dept – etc, etc.

    Does the summary of this data exist at the high level?

    //bb

  • karen marie says:

    The idiots at Best Buy are forcing their prospective customers to shop online. I wanted to buy a camera that I had seen online Best Buy was advertising at $125 , but when I went to the store to buy it I discovered that they only carry the high end cameras in-store, "cheap" cameras like I wanted were only available online. Absolutely ridiculous. I'm not going to pay $25 shipping and wait 10 days for $125 camera. I went elsewhere.

  • "I'm really in danger of falling off the 'smart for a conservative' list because dumb ol' me thought that debt resulted from spending."

    Debt results from spending if it's not funded by tax revenue. This is why Greece in a debt crisis and Sweden or Denmark isn't, despite government spending being *much higher* in the latter. And Sweden, Denamrk (and the Netherlands, Austria, Germany) have a lot to show for their large government spending- just, relatively equitable, prosperous liberal democracies.

    " I am not resistant to your numbers if you will expound. I'm not resisting tax increases – I really believe, at this point, that they have to be part of the solution."

    This is really all I ask- this used to be part of a mainstream Republicanism. If you don't want taxes to be too progressive, their are option for relatively regressive taxes like the VAT, carbon taxes, etc. that we can work on. But not if it's always tax cuts, all the time, etc.- that can't work.

    Anyway, this is probably the best analysis of why deficits got so much bigger in the 2000s:

    http://www.washingtonpost.com/blogs/fact-checker/post/revisiting-the-cost-of-the-bush-tax-cuts/2011/05/09/AFxTFtbG_blog.html

    Medicare Part D is less of a big deal than though- probably because using medication reduced the need for other Medicare spending. But the effect of the Bush Tax cuts can be measured in the trillions easily. The effects of the recession are big too- look at countries like Spain that were running surpluses and had low debt levels, but are now having debt crises because things got bad fast.

    If the USA can return to trend levels of GDP by mid decade, then deficits will recede slightly, but soon the cost of medical care starts to blow up the budget. This is the elephant in the room really- how to control costs. The Ryan is kind of a non-plan- the government just gives less money as costs spiral out of control. Even if this plan were to be passed, I don't think it would last. A world where the Ryan plan is passed is one where employers drop health coverage in droves, or have to take more and more out out of wages for medical care. Plus grandma won't be able to afford medical care that voters think is essential. That's a world where people vote for single-payer (or a more left-wing program) pretty fast, and Republicans will wish they had gone for Obamacare. It's smarter for them to control costs by letting government use its bargaining power over prescription drugs, medical care, etc. to try and control costs, otherwise the current employer + government-based model will break down and government will be the only option.

    This might seem rambly, but my point is: the Ryan Plan or any voucher scheme has no good endgame for Republicans- with no cost controls and health care unaffordable for the elderly and more and more of the population, Democrats will be able to recreate the New Deal coalition really really easily. This might seem good for me, but it means a lot of needless suffering for my fellow Americans. So Republicans should work with Democrats to try and find ways to control costs, or else. The Ryan Plan means decades of Democratic landslides, and probably a New New Deal that conservatives won't like one bit.

  • c u n d gulag says:

    "Ryan's Folly," as I call his plan, is Conservative Christmas, Easter, and their birthday, all rolled into one.

    It's every idiotic Conservative fancy (the words thought and idea indicate some logic and something beyond just "I want!" ) rolled into one.

    "Ryan's Folly" does little to nothing to immediately address helping to eliminate the debt that's the boogieman Ryan and the Conservatives are using as a cudgel to scare people in order to get support for passing "Ryan's Folly."
    In other words – it FAILS to address the very thing that is supposed to be the purpose behind it.

    It continues a much more expensive military budget than is needed. We don't need EVERY toy – just the most efficient ones.

    It doesn't just shred the "Safety Net" – it annihilates it.

    It limits government to do little for the "General Welfare" of the people (except defense) – which is at the very heart of our Constitution:
    http://en.wikipedia.org/wiki/General_Welfare_clause

    And a plethora of other reactionary Conservative wet-dreams, too long to list at this hour of the morning.

    Just 12 years ago, the reactionary elements in this country tried to put lipstick on that sociopathic pig, George W. "Baby Doc" Bush, by saying he would govern as a "Compassionate Conservative."
    He definitely DID as the latter – with nary a trace of the former.

    Now, all pretense is gone.

    In a little over a decade, they've dropped all pretense of "compassion," and, instead, roll out a program of "Cruel Conservatism."

    And that's all this is – "Cruel Conservatism."

    The rich get richer. by further bleeding the middle class, the nation remains armed to the teeth, and the poor, sick, and elderly, get crushed – not by the wheels of a nation moving forward, but that of a nation going backwards to something that would make even the richest and most heartless sociopaths in "The Gilded Age" blush.

    "Ryan's Folly," is not just "Social Darwinism."
    It's "Cruel Conservatism."

  • c u n d gulag says:

    Something else to add to my long-ass trail of word-turds above:

    "Ryan's Folly," is not just a gift to individual rich people, but to corporations.

    To follow the Ryan Plan is to goose-step towards Fascism – which we're not far from anyway.

    Here's a great definition of "Fascism:"
    http://www.rense.com/general37/char.htm

    After reading it, I dare anyone to show me where, if we're not already there, we're not at the door, poised and ready to knock.
    Soon: "We are here, we are here!"

    Since "The Reagan De-evolution" began, we have been replacing whatever good things this country once stood for, with "Fascism – American Style."

  • Note that tax-and-spend Sweden came out of the recession quickly while the countries that implemented austerity, like Ireland, are in death spirals.

    But that's commie Keynesian crazy talk in today's political climate.

  • The local Meiers was remodeled a couple of years ago (when it was ~ 10 years old), and the amount of space devoted to stuff competing with BB was increase by at least a factor of 10. I imagine that Wal-Mart and Target have done the same. Which has got to be hacking into BB's sales tremendously. When that Meiers first opened, the electronics section really stank – it was small and cramped, and you couldn't really see things.

  • @FM: to take you hothouse flowers a step further, I'd recently read that the Aus Govt has been offering tax credits for companies R&D. WT…

    The conclusion that can be drawn is: that *unless* a company is compensated in some way for doing what they're supposed to be doing in the first place, they won't be inclined to do it. It's like telling your kid they can have a new toy if they clean their room. Instead of telling them they'll lose out on playtime. Pure "child bribery".

    No wonder so many companies are falling behind.

  • Another Halocene Human says:

    BBY is also run by evil fucks who mistreat their employees. If it's not the abusive sales practices driving olds like my parents away for good, it's their evil attitude towards their floor workers which has caused me to boycott them for years now, and tell others to boycott them as well.

    It's like they have no concept that most American teenagers are stuck in a shitty retail job at some point and then a lot of them will finally have some serious spending money a decade or two later and they will still have angry feelings about the way those retailers treated them and their friends.

    Target, ditto. Plus funding hate groups. I am fucking shopping at Walmart for some things now, so I hope you're happy.

    PS: I can get anything I would buy at BBY at TigerDirect or monoprice or B+H for a much better price and no jaggoff assistant manager trying to force me to buy rip-off "insurance" at the register, or selling me reboxed merchandise as "new" and making vague threats when I complain.

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