The issue stated for closing at Borderlands is the steep San Francisco rise in the minimum wage, which jumps to $15/hour over the next three years, rising in pretty steep increments over that time. If you read the Borderlands press release, they have very clearly broken down their labor costs, how it effects their overall operating costs, and the amount of sales they would need to cover those costs. Not only do they believe they couldn't survive with those numbers, they believe no book store in San Francisco could survive. Only a week earlier, Valhalla Books in San Francisco also announced they were closing.
There are two issues here, minimum wage and as Borderlands points out, the stifling effect of the MSRP, manufacturers suggested retail price. Both of these issues effect game stores, since we're usually close to the minimum wage level with most employees, and most of our games (for us 80%) have an MSRP. Lets look at a higher minimum wage first. I support the idea. I support the rising tides theory that many of our customers would have more disposable income with a minimum wage that would go to us.
The problem with minimum wage is when it rises too fast. When it rises above a reasonable level of annual profit of a small business, you've got trouble. Using Borderlands numbers, a 20% rise over 3 years would require a nearly 7% increase in sales. Most retail businesses are not growing at 7% a year. I don't need back of the napkin math to figure this out. The Department of Commerce numbers show average retail sales growth median to be 5.04%, with 2014 at 3.17%. So minimum wage yes, but not so quickly.
Also, enacting a fast track minimum wage while criticizing small businesses for their ethics when citing it as a reason for their failure, which is what happened in local new sources, is the liberal version of blaming poor people for being lazy. The system is rigged folks. It's rigged at both ends. Have a little more compassion. When you enact draconian government policies on all businesses, regardless of size, you no longer get to criticize large corporations as a liberal. You are giving them a pass with a regressive policy and inviting them to take over. I'm kind of liberal, and the hypocrisy stuns me. Now lets look at the real culprit, MSRP.
The telling point of the Borderlands post was the discussion of MSRP. As I've said many times, an MSRP is a price ceiling that prevents businesses from adjusting to different business models and conditions. If I want a boutique store in a fancy area, I need to charge over MSRP. That's essentially a Borderlands in San Francisco. The market will determine "the price" without the need of it printed on the book jacket. The book trade is pretty well established with MSRP, but the game trade is a little more flexible.
The concept of MSRP is bad. You can never charge more for an item, you are only being undercut by MSRP. Plenty of other industries prosper with a net price model, the closest to us being the toy industry. You can take a random net priced toy and find a 20% price differential among a variety of stores online, within minutes. Each has their own marketing, cost structure and justification for their price. Each sells a number of these toys at the price that works for them at the amount they desire. The game trade has some net pricing, but not nearly enough. I want to encourage net pricing to continue so game stores have the freedom to address rising costs and explore different models. The freedom to increase prices to cover costs is a fundamental part of retail that is still alien to many in the game trade.
Preach on brother. I'm not sure when I jumped on this bandwagon, but it was at least 10 or 15 years ago in one of those Delphi forums or another.
ReplyDeleteOne more aspect of this that is a challenge in the Game Trade - manufacturers have to stop selling direct. Even if there is no price on the product itself, if the manufacturer is selling direct, there is a de facto MSRP (or technically, MRP, since it's no longer "suggested").
One step at a time. ;)
ReplyDeleteSo if part of the response to rising labor costs, is for the employer to raise prices as well to cover those increased costs, how does that actually lift anyone's boat? If your new increased salary has the same purchasing power as your old salary, have you really gotten a raise at all?
ReplyDeleteOne of the earliest bit of received wisdom in the hobby game trade that I shed was the concept of MSRP. We'd been open less than a year, and I was touring an out-of-town game store that I had visited many times before joining the industry (in a fancy-dancy mall), and noticed how many games were priced over what I now-knew to be MSRP. I saw how no one shopping there cared. Then I went to Toy Fair, and saw that most of the industry is Net priced. MSRP is no way to run a sustainable business. Some items must be lower to be competitive, others can be higher because the value is there. Without the ability to vary as your market and costs dictate, long term viability is left far too much to luck than skill.
ReplyDeleteOnly about 3% of the working population is at minimum wage. They're concentrated in certain industries:
ReplyDelete"More than half (55%) work in the leisure and hospitality industry, about 14% in retail, 8% in education and health services, and the rest scattered among other industries."
They're also concentrated in the South.
http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/
Those industries would need to raise prices to cover the minimum wage increases. What percentage of ones personal expenses are in those industries?
If I use this sample minimum wage budget, it's no more than 20% of their budget, but probably much less. So if we call it a 7% jump of 20% of their budget, that's a pretty small amount. In the example in the article, it's $16/month.
http://www.apartmenttherapy.com/living-on-minimum-wage-206197
A rising minimum wage, doesn't only effect the bottom end wage. It pushes all wages up. So it increases costs for all employers, regardless of what sector they are in.
ReplyDeleteWell written and, in my opinion, spot on. The market does not respond well to being jerked around and the more you try to control it, the worse the damage caused.
ReplyDeleteI'm also for MAPs, minimum advertised prices, which is the retail price equivalent of minimum wage.
ReplyDeleteIf I thought the government wasn't manipulating the crap out of the economy with fiscal policies, I probably wouldn't be in support of minimum wage.
I suspect those are two aspects where stores here in Canada have it easier. The minimum wage seems to rise less but more often, and the MSRP doesn't really apply to consumers here since it's in a different currency so it's going to be more anyway. It's just up to the store how much more. Some stores charge their actual landed cost plus a mark up %, and some just mark up the MSRP a %, but it's less transparent to the end consumer which has been done. You can find out that it's $75 at this store, and $70 at this other store, but you don't know if either are specifically at/above/below MSRP.
ReplyDeleteBecause your rent is going up regardless of whether or not your employer pays you more.
ReplyDeleteExactly. That's how net pricing would work.
ReplyDeleteIt does strike me as more than mildly ironic, that Gary is simultaneously arguing "price controls bad" (re: MSRP) and "price controls good" (re: minimum wages).
ReplyDeletePerhaps, but it does so most directly and suddenly with those currently paying minimum wage. The bookstore industry isn't traditionally high paying or high profit, so it stands to reason that they'd be hit harder than average by this.
ReplyDeleteMaybe you should advocate for a cure to the disease then, rather than merely a treatment for the symptoms.
ReplyDeleteCuring disease is really hard. Curing symptoms is relatively easy. (see: Common Cold)
ReplyDeleteSometimes, curing the symptoms does enough that curing the disease becomes mostly an academic exercise.
You don't cure symptoms. You just mask them at best. That's the difference between a cure, and a treatment.
ReplyDeleteAnd the other big difference is that treatments are not a one time thing. They are a recurring thing, until the underlying problem is actually cured.
I think the problem with the rise in the minimum wage is that it doesn't take into account the variation between industries. The free market does that. In this case, Borderlands has run a very tight ship with a small profit margin. It depends on minimum wage workers in an area where the fixed costs of rent, taxes, utilities, etc. are very high. It is an industry that has suffered a lot with the expansion of online shopping, e-readers, and rising costs (printing, shipping, etc.). Pushing the minimum wage up so dramatically is what is forcing them to close. Even if the rise would eventually lead to more spending, I doubt enough of the spending would be on niche bookstores to enable Borderlands to survive. Borderlands spends only one paragraph discussing MSRP. It does have a valid point about the MSRP, but it does not discuss how books can be returned or remaindered which is the trade-off for the MSRP. Also, Borderlands has a large used book section which is not beholden to the MSRP. So, it is more the tight profit margins and dramatic rise in costs than the MSRP.
ReplyDeleteAnd as has been posted elsewhere, the real minimum wage isn't $10 or $15. It's $0. Because that's what you get when the business you work for turfs because it can't raise your wages to the new "minimum".
ReplyDeleteI think an overlooked aspect is that Borderlands isn't facing a rise in the national minimum wage, only a rise in San Francisco's minimum wage. If the minimum wage went up nationally, then products with MSRPs that are too low for a small retailer to afford to sell, would be rejected by small retailers everywhere, and the manufacturer would be forced to re-price.
ReplyDeleteWith the current situation, *real* minimum wages (adjusted for inflation) have fallen precipitously since the 1970s. The falling cost of labor has created enormous opportunity for domestic business that relies heavily on labor, even while the falling cost of overseas shipping has siphoned off that opportunity and sent it to China. But in-person service-oriented business can't be relocated, and consequently, it is the business that relies most heavily on personal labor - retail sales, say - that is most hurt by fixed low prices of products.
Don't blame San Francisco. They're correcting a wage issue that should be corrected at the national level, but national politicians have lacked the will to do it themselves, for decades. San Franciscans are enjoying rapidly rising incomes, which creates competition for insufficient housing, which creates rising costs of housing, which creates increasing gentrification, which drives away low-wage earners, which means without raising the minimum wage, San Francisco cannot function. It loses restaurant workers, hotel workers, the people who keep SF's tourist industry alive. The blame is on a growing disparity between the minimum wage set in places like Washington State and San Francisco, and the stagnant minimum wages across the rest of the country. That disparity is allowing game manufacturers to give up sales in relatively small fragments of their market (SF, Seattle) rather than raise prices and give up sales everywhere else.
Allowing prices to float would mask the problem. Are SF customers really going to pay 40% more in a store than they can get online? 50%? We know store-goers will pay some loyalty-premium, to support their social gaming space, but that premium has a limit. Do you really think Borderlands could have survived, if only its products didn't have an MSRP printed on the box? That customers would be so unsavvy that they'd not notice they're paying an increasing premium vs. online, for the same level of in-store service?
I don't.
My overall cost difference is about 14% to cover the differences between the 2016 California minimum ($10/hour) and the 2017 proposed California minimum ($15/hour).
ReplyDeleteSo that $29.99 MSRP game book needs to go to $34.50 for me to make the same amount of money. That $4.50 difference is negligible on products with no MSRP, but painfully obvious and unacceptable otherwise.
The toy industry operates under this model with prices pretty regularly floating +/- 20%, usually based on the venue where you buy it. Want to shop at the cute boutique store on 4th Street in Berkeley? You vaguely know you're paying more. You also know you'll get it for less online.