Tuesday, February 17, 2009

Yahoo Tech Ticker - Howard Davidowitz: "Worst is Yet to Come" "Americans' Standard of Living Permanently Changed"

Back when I started the blog, I coined a phrase "The Pooring of America" - this was a theme based on a confluence of events, some of which we brought upon ourselves, some global changes. We don't spend a lot of time talking about the "long long" term because in the stock market "long term" is now next week. But if you are newer to the blog you probably want to read a piece I penned in late 2007 [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] Aside from self made events we brought upon ourselves (and continue to do so), I believe the globe is heading to a more equivalent wage among workers in various countries (you have seen this is in flattening wages the past decade). The "shopping culture" we've transformed into, while dispensing with productive industries - is also a whole 'nother animal. Awful leadership full of cronyism and lobbyist domination is yet another. I could go on and on...

Aaron Task over at Yahoo's Tech Ticker has had some great guests on of late - one of my favorite's is retail analyst Howard Davidowitz. He appears to me, to be one of the few who 'see the light' - or at least my light. He is Anti Kool Aid [Aug 14, 2008: Howard Davidowitz - the Only Realistic Retail Analyst in America?] [Mar 30, 2008: Howard Davidowitz on US Consumer] I do believe the average American, in narcissistic form, is in denial as is our leadership. I was saying the same "alarmist" type of things about the economy in 2007 - and was proven correct. This "Pooring of America" mantra will take much longer to play out so I cannot be proven wrong or right as quickly as came to be with the economy. But we'll check back in 2019 on this thesis of mine ;) One can agree or disagree with this view today - but I'd ask people to consider viewpoints that differ from theirs. We have a too many people who act like ostriches with head in the sand; until you recognize a problem you cannot begin to address it.

Some other related posts
  1. [Dec 29: What Happens if America Returns to a Historical Savings Rate?]
  2. [Sep 20: US News & World Report - The End of the Shopaholic Nation?]
  3. [Nov 23: David Walker in Fortune Magazine]
  4. [Mar 26: Annual Spring Entitlement Warning Falls on Deaf Ears]
  5. [Feb 4: Clusterstock: Americans Lost $10.2 Trillion in 2008]

Here are 2 videos put up today with Aaron and Howard - both 5 minutes in duration.

There's no question the American consumer is hurting in the face of a burst housing bubble, financial market meltdown and rising unemployment.

But "the worst is yet to come," according to Howard Davidowitz, chairman of Davidowitz & Associates, who believes American's standard of living is undergoing a "permanent change" - and not for the better as a result of:

  • An $8 trillion negative wealth effect from declining home values.
  • A $10 trillion negative wealth effect from weakened capital markets.
  • A $14 trillion consumer debt load amid "exploding unemployment", leading to "exploding bankruptcies."

"The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car," Davidowitz says. "A lot of that is gone."

Going forward, the veteran retail industry consultant foresees higher savings rate and people trading down in both the goods and services they buy - as well as their aspirations.

The end of rampant consumerism is ultimately a good thing, he says, but the unraveling of an economy built on debt-fueled spending will be painful for years to come.

Everywhere you look, retailers are slashing prices. Such markdowns reflect a fundamental shift toward lower prices, says our guest, retail consultant Howard Davidowitz, chairman of Davidowitz and Associates:

  • "70% off is the new 50% off," he says.
  • Expect apparel prices to drop 30% -40% from a year ago.
  • Consumers should actively bargain for lower prices for big-ticket items, especially furniture, jewelry, appliances and electronics.

Luxury retail may never be the same. The Wall Street Journal traced the beginning of the end for exorbitant prices to the fateful decision by Saks Fifth Avenue to slash prices by 70% on designer goods before Christmas:

"Saks's deep, mid-November markdowns were the first tug on a thread that's now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell."

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