Saturday, March 17, 2018

Toys R' Us is no more

Retail Apocalypse Now

Iconic American retailer Toys R'Us announced it will wind down operations, closing or selling its remaining 800 stores in the US and 100 in the UK, threatening 33,000 jobs.  The six-decade old company cited its unsuccessful turnaround after declaring bankruptcy less than 6 months ago.  It also marked 14 years since the company's leveraged buyout by a consortium of investors Vornado, Bain Capital and KKR for US$6.6bn, which was financed by 80% debt.

Need to note a few facts about Toys R Us: 
  • Thanks to the massive debt post-takeover, the company has had to service over $500mn of interest every year.  Sales failed to grow rapidly enough to make the debt sustainable. 
  • Also thanks to the debt, the company spiraled into a black hole of cash drain.  There is no resource to invest in better store experience to compete with online prices, or better livelihood for its store employees, killing morale. 
  • Despite intense competition from online stores (Amazon) and big box offline stores (Walmart and Target), Toys R'Us still accounted for 20% market share of US toys sales.   Furthermore, despite the well-covered retail apocalypse, 2017 holiday toy sales exceeded market expectations.
Another nail in the coffin of vulture capitalism.

Monday, March 05, 2018

The Culture of Putin; or why Strongmen are Popular

Ahead of the upcoming Russian elections, a fascinating Christian Science Monitor article exposes the culture of Vladimir Putin: why the Kremlin leader remains wildly popular despite his authoritarian, ultra-conservative and isolationist/anti-Western policies.  Not just a Russian phenomenon, similar people are in power in Egypt, Turkey, and the Philippines. The short answer: power -- not checks and balances -- is the testament to their legitimacy.  From the article:
[A Moscow writer and historian] notes that in the US, a president gains legitimacy through elections. In Russia, it’s the president’s top-down control that validates the election result. He says many view Putin’s ability to hold onto power for 17 years through essentially faux elections as a power to respect. “Americans think other people are just like themselves,” he says. “We are not Latin Americans, or Eastern Europeans. We are Russians.”
Indeed, Russians have suffered through multiple devastating wars, two revolutions (Bolshevik and the breakup of Soviet Union), and most recently, an economic downturn driven by commodities price crash. Moreover, the aging population means many experienced the turmoil first-hand (or know somebody who did), and the people are sick and tired of unstable politics.  Ultimately they turn to iron-fists to lead the way.

The nostalgia factor also comes into play, Russians long for the good old days when their country was respected as one of the global superpowers.  From the perspective of the average citizen, although the end of the Soviet Union heralded the end of the Cold War tensions, for many, it was the start of years of political and economic uncertainty, as well as a diminished place for the Russian people on the world stage.  Perhaps they wish that somebody, a modern-day Josef Stalin(???), would make Russia great again.

Finally, there's complacency.  From Stephen M. Walt:
[...] entrusting one’s fate to a Great Leader is tempting because it spares us the burden of thinking for ourselves. For democracy to work, citizens have to pay a some amount of attention, be reasonably well informed about key issues, and be willing to hold politicians genuinely accountable for success and failure. By contrast, pinning our hopes on a Great Leader allows us to check our own judgment at the door: all we have to do is trust in the Leader’s alleged wisdom and all will be well. Given the repeated shipwrecks that democratic systems have produced in recent years (the financial crisis, Iraq War, Eurozone debacle, growing inequality, etc.) is it any wonder that [some people] are willing to turn the helm over to someone who conveys an image of independence, resolution, and confidence?

The historical evidence, however, is stacked against authoritarian leaders.  From Steven A. Cook:
There are, of course, outliers. The governments of Singapore, the United Arab Emirates, and Qatar have strong track records of development, security, and global prestige. They claim legitimacy because nondemocratic, but also mostly nonrapacious, governments have created wealth and with it superior infrastructure, longer and healthier lives, and opportunities for their citizens. Of course, these governments are not always [benevolent], but there is no denying Singaporean, Emirati, and Qatari success. These accomplishments are, however, specific to these places with small populations, unique locations, vast wealth, and particularly charismatic leaders. In other settings, strongman states have more often than not become predatory. In large, complex societies, reform requires a degree of consensus and some devolution of authority, neither of which your typical strongman — even a reformist-minded one — can countenance. The result is the instability of authoritarian politics and the pathologies they produce including violence, corruption, and radicalization.

The reason dictatorships tend to fail, is because their goal is ultimately to stay in power.  Everything else -- political reform, freedom, economic growth, institution-building, etc -- becomes secondary.  So although with great power comes great responsibility, it's still true that absolute power corrupts absolutely. 

Thursday, February 22, 2018

Rock and Roll is Dead!

Rock & roll legend Chuck Berry and his ES-335

Gibson Brands, the iconic American guitar manufacturer with their trademark Les Paul, SG, and ES models, is expected to declare bankruptcy.

I guess decades of price gouging, subpar quality control, and useless innovation eventually caught up with them.

Monday, February 19, 2018

I like Mondays

Today's international news summary:
1) Russian Olympic bronze medal winner for curling(!?) tested positive for doping.
2) Silvio Berlusconi, most famous for throwing sex parties in an underground cave, is leading polls in Italy.
3) Philadelphia man arrested for stealing a thumb from Chinese terracotta warrior exhibit.

Saturday, February 17, 2018

Putinomics -- or how to rule the modern day Iron Curtain

So today I learned about how Vladimir Putin runs the economy, making sure mother Russia keeps turning and he stays in power despite external pressures from low oil prices, multiple sanctions, and costly wars in the Middle East and eastern Europe.  Putinomics is based on three pillars:
  1. State control of all productive sectors, except for "non-strategic" ones (such as agriculture and retail). The state covers approx. 2/3 of the economy, tightly controlling media, energy and financial services -- which are closely tied to politics.  Pay some lip service about improving the business climate and efficiency, understanding full well that the country's largest firms, the source of political power of the ruling elite, relies on the monopoly power awarded to them.
  2. Fiscal prudence.  Russia keeps its budget deficits under control and maintains low external debt and low inflation to minimize its economic vulnerability.  Cutting salaries as an austerity measure, avoiding massive layoffs, despite millions of workers employed in inefficient, Soviet-era factories.  This is done at the expense of growth, which was 1.3% in 2017 (-0.2% in 2016), lower than many developed markets, despite its relatively underdeveloped industries and therefore higher growth potential.  Stagnation continues in 2018-19, where projected growth is even lower than global growth.
  3. Using social safety net to maintain control over the mood, especially among its older, more vocal population (i.e. pensioners).

From the article:
" The Kremlin understands that maintaining its current policies will keep Russia stable but stagnant, under-investing in human capital and in private businesses while overspending on wasteful and corrupt state-owned firms. Economic growth will be capped around 2 percent a year. From Putin’s perspective, economic stagnation is tolerable. He has the tools he needs to stay in power. Big changes in economic policy, by contrast, might anger key support groups and loosen the Kremlin’s control over Russian politics."

Sunday, February 11, 2018

On Lies

Dogbert predicts politics in 2018

" Falsehoods fly, and the truth comes limping after it. "
                                          - Jonathan Swift