I met Allan Allaf at a small auto insurance company located near USC. I introduced myself and somewhat desperately asked if I could meet the owner of the company for my assignment.  By this point, I was already denied four times by other small businesses due to different reasons and was extremely exhausted by the triple-digit weather. I think Allaf saw how desperate I was to get the interview. He told me he was the sales manager at the company but thinks he could offer me some help since he runs a boutique shop in downtown Los Angeles.

The first question that came to my mind was “why is he here if he has his own business?” But I didn’t want to seem too rude. I wanted to hear his story first.

So this is how the story goes. Allaf is the owner of “Treasurer Boutique” located inside the grand Millennium Biltmore Hotel in downtown Los Angeles. His fiancé currently is in charge of running the business. He used to have two more employees but had to let them go in order to cut to the bear essentials due to sluggish economy.  He first jumped into the business with $5,000, which he had paid his friend who used to own the boutique. The rest of the money came from loans, which, he is still paying back little by little. “I come here (insurance company) to work just so that I can sleep better at night.”

When I asked him if his business has been impacted by cyclical or secular shifts, he told me both factors impacted him. Then interestingly enough, he started talking very cynically about the media. “The media is a big problem from all aspects. It wouldn’t shut up about the economy and puts fear in people’s hearts. As a result, consumers become very aware about their money and refrain from spending. As long as the media keep making negative forecasts about the economy, I must keep coming here to work as a sales manager.

Mr. Allaf personally believes there is nothing wrong with the economy whatsoever. This doesn’t mean he didn’t have to change the way he runs the business. He had to stop buying smaller quantity of products from the regular vendor he used to purchase from. He began ordering larger quantity items from wholesaler to get a more discounted rate, which ultimately results in cheaper retail price. Nonetheless, despite the cheaper retail price he has to offer to consumers, there are discounts going on at pretty much all the time going anywhere from 10 to 60 percent and even 70 at times.

Interest rates or access to capital do not play a significant role in his business since people do not have to rely on third party to finance any of the items sold at the Treasurer Boutique nor the customers must be qualified by a third party to buy the products from his shop. Nonetheless, online market is a huge threat to him. “The online market is probably our biggest competitor that affects us the most. Unfortunately, small businesses like mine cannot buy in huge bulks of products as Amazon does to sell at those prices. Plus it is a lot easier to buy stuff from home than actually going into the store to purchase goods,” said Allaf.

Another challenge he faces as a small business owner is the huge amount of tax he must pay. “Small business runners pay more taxes than big corporations. I don’t mean in terms of numbers and figures but in terms of percentage,” said Allaf. Even though he did not see an increase in the fees he needs to pay, people’s spending has dropped by a significant amount. He feels that it’s unfair that only big corporations get the government’s advantage of having their tax cut while small business people are struggling more and more to pay their taxes. He is therefore currently thinking about getting more loans for his business. “It’s hard for us to decide whether people like us should get a loan or not. I think it’s almost impossible for small businesses owners, especially nowadays, to excel without the help of loans.”

Then he added, “we are constantly facing predicament. It’s a matter of whether we should build up slowly or make a fast leap.

Nonetheless, he seemed quite casual about these challenges. He said his business is quite easy to run because it pretty much runs itself. He was also very optimistic about the U.S. economy. “I believe there is nothing wrong with the economy whatsoever. It’s not a factor about the economy, it’s the media play,” explained Allaf.  He gets annoyed of how the press puts false fear in people everyday, which makes people spend only 10 dollars when it is totally fine to spend 20 dollars instead.

“I really hope the media can do their job right. In the end, it is them who makes the difference in the economy.”

Carol He is a 32-year-old Chinese female, who has been living in America for 25 years. She is the boss of a “fashion company.” After deducting all costs, including wages, production cost, operation cost and all the other necessary spendings, the “company” makes about $150,000 net profit every month – and mounting. There’re 12 people in her “company” now, including her. You may be wondering: how can such a small company earn so much? Well, what I haven’t told you is, Carol’s “fashion company” sells faked luxuries. From my interview with Carol, I knew that if we only consider about profitability, this is indeed a great business.

Carol started selling faked goods 8 years ago. Back in 2006, she just graduated from university and found her first job in an airline company. When working there, she happened to get to know a Chinese handbag factory manager, Wang, who told Carol that his factory manufactures faked Chanel Classic Flap handbags, and that they’re exactly the same as the authentic ones, but with a much lower price. Carol told her friend. Her friend bought one and said to Carol that she walked in the Chanel store with the counterfeit, and no one recognized it. Since then, more and more people asked Carol for pictures of the bags by email or cell phone. Carol then created an account on MySpace to upload photos of newly manufactured handbags. People ordered by commenting or sending messages to her. By the end of 2007, Carol was able to sell about 10 bags every week, and earned around $3,000 monthly. At that time, the price of medium Chanel Classic Flap in lambskin was $2150, and the faked one was $300.

At first, Carol sold counterfeits just to make some extra money. “However,” she said, “soon I had a feeling that I was the only one in this business, and people were all asking me for bags.” According to her, most of her customers were Asians at the very beginning. But in the first half year in 2008, the number of people contacting her suddenly increased dramatically. In August 2008, she sold 128 Chanel Classic Flap handbags in different sizes and colors to customers all around the U.S., and her customers expanded from only Asian to Hispanic, Caucasian, Africa American, etc.

I asked her if she think the boost in her business has something to do with the Great Recession in 2008, she smiled and said:” Well, I don’t know much about economy, but thank god recessions never happened to me.” Carol decided to focus on the business and quitted her job at the end of 2008. The faked Chanel sold so well that she had to quit her job to take care of the business – she even hired an assistant to help her with customer service.

Though the Great Recession didn’t impact Carol’s business directly, there was indeed a huge change – which she didn’t realize till now – that was emerging in 2008. “I remember it was in that year that a large number of competitors began to appear in the U.S. and China out of a sudden, to the extent that in 2009, the U.S. Customs had been very strict about import packages from China for quite a while, even non-business ones” – and that was when Carol officially started her “company.”

Carol went back to China in August 2009, and stayed there for six months. During that time, she realized that there was much more demand for faked luxuries in China than in America. “There were so many people, they had so much money, yet they didn’t know where to spend.” At that time, Chinese economy was developing rapidly and led to dramatic rise in the population of millionaires. Luxury brands noticed the potential in China and were all trying to take a place in the market. Together with the emergence of various kinds of social media, such as Weibo – the Chinese Twitter – people got to know more brands. More importantly, they had the ability to make a purchase.

The number of luxury products is always limited – the more “luxurious” it is, the more limited it will be. Therefore, even if people have the money to buy a product, they’re not necessarily getting it. “So I wondered, what if I can sell various brands’ counterfeits that are identical as the authentic ones? Besides, the number of people who can’t afford to buy luxuries but still want one is always larger than that of people who can arbitrarily buy whatever they like.” Therefore, Carol met Wang again in China, and negotiated with him about expanding their production from only Chanel flap bags to all famous international boutique brands, such as Hermes, Christian Dior, Bottega Venetta, Celine, and so on. Carol buys authentic products from stores in America and sends them back to China, and Wang’s factory will take care of disassembling and dissecting them, in order to make identical counterfeits.

Carol decided to change the way she sells as well. She still took care of the American market, but she became a supplier in China. As I’ve mentioned, there’re 11 people working for her directly. One of them is in Los Angeles helping Carol. Four are in charge of recruiting “sales associates (SAs)” in China – these “SAs” do not work for Carol; they simply purchase from her and sell in their ways. These four people in Carol’s group are responsible for communicating with SAs and making orders. Each of the four people has a staff who takes care of sending products to SAs.  Of the rest 2 people, one bookkeeper, and one who transports goods from Wang’s factory to Carol’s warehouses in China.

“We have 2 major problems now,” Carol said, “The first is that we’re short of staff.” Each SA recruiters now has to take care of more than 30 SAs, which is too many for them. Therefore, Carol might nominate one SA recruiter as the team leader, and he will be in charge of keeping necessary staff on his team. “The second one is more crucial – competitors are getting stronger.” Carol told me she didn’t feel any pressure competing with others even just a year before. But now, some “companies” are targeting higher quality, some lower price, while Carol’s marketing strategy has no obvious feature except for the mature distribution system. “Since I have a relatively large business in this field, I’m wondering segmenting the SA recruiters into different lines. For example, some recruits SAs whose customers are looking for better styles, others can be about lower price, rare products, etc.” Carol is also considering creating a new line exclusively for Hermes, since it’s the most profitable products that many people – from normal consumers to resellers who claim to sell authentic goods – are looking for.

Speaking of Hermes, Carol laughed and said, “If I know anything about economy, it should be that scarcity prints money, and Hermes is the best example.”

$6 Dollar Standoff

As a 20 year old college student I’ve just started my journey into the working world. On top of being a student, I work part time in the music industry. Like most industries, you start at the very bottom and that comes with a cents on the dollar paycheck known as minimum wage. My own minimum wage paychecks, however, weren’t my first experience with the low dollar amount. Growing up I watched my father start a company that employed many minimum wage workers. Coming from a upper class family, I have never had to put a value to my time, and money has never been something that was a daily worry. While I was living comfortably though, many people that worked for my family’s business were living pay check to pay check. Starting my first job made me look at that business from a different perspective. My job made me ask, was I only worth $9? This new evaluation of myself made me take a second look at what minimum wage meant and the difficulties it presents.

This debate is very relevant to me, as the minimum wage increase has both positive and negative effects on my life. On one side, my check could definitely use the boost as just the commute to work itself eats up a third of the money. If I needed to solely live off my pay check it would be nearly impossible, especially in LA. On the other side, however, business owners like my father see the minimum wage increase as a threat to their company. With the city of Los Angeles looking to increase the wage to $15 it’s not just a dollar here and there, but a substantial new cost a company must undertake. With a personal interest in myself, and a deep interest in the success of my family business, this issue has become one to make me think deeper into why the minimum wage exists.

The most obvious claim is that we must value our workers more than the national average wage of $7.25. Many recent strikes have workers demanding wages that support their families, something more than a “starvation wage.” I can resonate with their frustration and the disappointment when opening the checks in the mail. If I was in a minimum wage situation indefinitely and it was my only source of income, I would need more money, but there is a lot more to this issue.

In small businesses that employ minimum wage workers, the wage allows them to be successful through competitive prices for their customers. Raising that wage by $6 more means huge new costs that must be shifted somewhere. I discussed this issue with my father who blatantly put it, there’s only two places for the new costs to come from, raise prices or cut jobs. In this situation companies will be forced to raise prices by potentially 50% to 60% just to compensate. The other option, firing workers, from my father’s perspective means the first to go will be those with the fewest skills, the current workers at or near minimum wage. Wages are set by supply and demand for labor. Using a minimum wage artificially influences that balance. So now you will have minimum wage workers making more money, but they have to spend more to live because they purchase goods and services from places that use minimum wage labor. The LA Times put the numbers into perspective “overall unemployment at the height of the Depression was about 25%. Especially for low-skill workers and for young workers, the two groups of workers who will be disproportionately hit by a minimum-wage increase, ours is a labor market in crisis.” The minimum wage is a struggle for business across the board as low production costs are top priority, and affordable labor is a necessity for operations.

The minimum wage increase doesn’t just effect the bottom line workers pay in a company it also affects company moral. As a minimum wage worker I do feel less valued than other employees because I make the least amount possible. While many people think raising the minimum wage would help workers feel more valued, it in fact has the opposite effect. There is a negative psychological effect with raising the minimum wage. When people earn raises and their pay goes up from the minimum wage, they feel good that they are now more valued. I myself would love to be able to say that I make more than base pay. When the wage goes up and workers are again making just minimum wage then they aren’t happy, and they want even more. Why should someone that has taken 10 years to earn $15 now be happy that someone brand new to the company at an entry level will make just as much as them. They will want a $6/ hr raise too. So the domino effect happens and it destroys companies and workers moral. Raising the minimum wage affects salaried managers as well. To be salary you must make at least double the minimum wage, so when the minimum goes up not all managers are making enough and now they are reclassified as hourly workers. This lowers their moral as they are no longer in this higher category of management. This just happened at our family business when the minimum wage increased from $8 to $9 as a lot of the front line managers were making $16 to $17.

This debate certainly isn’t easily answered as it is a complex issue with two very different sides. The minimum wage increase is a perfect case of putting oneself in the others shoes, it is a debate with each side having very little experience with the others circumstances. This lack of understanding is what has created a standoff in Los Angeles over $6. My unique situation has allowed me to gain some insight into the differing perspectives and see why each side is willing to battle so hard.

During times of recession Americans are less than keen on going shopping—no surprise here. Even when the economy is booming, most Americans never weigh the costs and benefits of buying alligator skin boots, belts or bags, wallets or watches. No matte

r how well the economy is doing, $2000 for Gucci alligator skin loafers or $100,000 for an alligator skin Birkin bag by Hermes, one of the most prominent players in exotic tannery business, never seems worthwhile. Apparently during recessions the wealthiest Americans are hit hard too—right in their $11,000 Burberry alligator skin wallets; but that’s just fine by the alligator population.

As it turns out, sales of alligator skin goods plummet during recessions. Economists first noticed this trend during America’s most recent financial crisis in 2009. There is little available data concerning alligator populations in the US, though experts generally believe that the total population has steadily increased since the 1970’s. Louisiana is home to one of the largest alligator populations in America, and the industry makes a somewhat significant contribution the state’s economy. Louisiana’s Department of Wildlife and Fisheries website has an entire menu section dedicated to its “Alligator Program” that’s separate from information about other wildlife. Maintaining a healthy commercial farming population requires alligator farmers to rent helicopters to scout nesting areas, wade into marshes to collect the eggs (and potentially confront angry female alligators), and invest considerable time and energy into raising them in captivity. Bottom line: if hides aren’t selling farmers are losing a lot of money.

During the Great Recession many, if not all, of the state’s alligator farms experienced serious liquidity issues and worried about their business’s solvency going forward because the prices tanneries and high-end fashion houses were willing to pay for hides dropped so quickly. This industry was affected so severely that Louisiana’s Alligator Management Program report since 2008 lists an asterisk next to the revenue data from that year stating, “Worldwide economic recession caused alligator hide demand to decrease dramatically.”

From 2002-2007 the total revenue from alligator hides increased sharply, reaching a peak value near $55 million. Total revenues decreased dramatically in 2008, rebounded slightly in 2009, and then dropped again in 2010; revenue fell to a fifth of what it was in 2007. These drops in revenue directly correspond to decreases in GDP the both Louisiana and the United States experienced in 2009.

This correlation exists for earlier recessions as well. Commercial alligator farming was prohibited from 1965-1972 in an effort to protect the alligator population, so Louisiana only has data available beginning in the early 1970’s.  Quadrupling oil prices, high unemployment and a high inflation rate contributed to significant stagnation in the the U.S. economy from 1973-1975; alligator hide revenues in Louisiana also decreased by about 58% during this time. Revenues rose dramatically again in 1976, corresponding to an increase in GDP for both Louisiana and the U.S. The disparity was extreme: in 1975 revenues from farm alligator hide harvests totaled $3,597, compared to $34,259 in total revenue in 1976.

Alligator skin revenues in Louisiana dropped significantly again from 1981 to 1982, corresponding to another global economic slump in the early 1980s. When the stock market crashed in 1987 and the business cycle dipped from 1990-91, alligator hide revenues were along for the ride, stagnating from 1989 to 1990 and then decreasing sharply until 1992. Finally, total revenues decreased again from 2000 to 2001, which corresponds to a decrease in Louisiana’s GDP from 1999 to 2000, the burst of the dot.com bubble in 2000, and the September 11 terrorist attacks in 2001. Revenue from alligator hides in Louisiana is currently on the rise again, at a time when IPO valuations and the S&P 500 are reaching record highs.

It seems somewhat counterintuitive that a decrease in revenues from a luxury good would correlate so well with economic downturns. Only the wealthiest portion of the population can afford goods made from alligator hides, and people typically assume that they are insulated from economic recession or hardship. Yet, this niche luxury goods industry experiences significant declines during periods of economic recession. While it’s no great tragedy that someone won’t be able to purchase exorbitantly-priced shoes, it is perhaps comforting to note that recessions and financial crises force every man to tighten his belt, whether it’s made from alligator leather or elastic.

Economy is interesting because it even affects what people wear. The most well-known fashion related economic indicator of all time is the Hemline Indicator, an idea that women’s hemlines are influenced by the macroeconomic performance. In other words, the shorter the skirt gets, the better the economy looks.

South Korea is currently struggling with economic recession. Its economy suffered its worst growth in more than a year during the second quarter of this year. The cloudy outlook for the economy in South Korea is therefore affecting latest fashion trends—people are going back to the basics.

According to the data analysis that has been conducted by istyle24, one of the biggest online fashion retail store in South Korea, there was a huge rise in demand for basic fashion items. Comparing to last year, there was a 139% rise in classic tees, 78% rise in plaid/checkered shirts, and 54% rise in polos for men’s fashion items. Accordingly, the shop has also seen a 30% hike in basic tops and 42% rise in tanks in women’s items.

Moreover, the analysis also stated that there was a much higher demand in the market for white, black and gray color fashion items regardless of gender. Comparing to last year, fancier color such as pink, blue and orange items showed a 19% decline while there was a 21% growth in the market for achromatic color clothes.

This interesting trend in the fashion market can be explained in a few ways. First of all, the price. Obviously people are having less money to spend on clothes and other luxury items due to economic recession.  Thus people are turning to something they can easily afford such as classic tees and basic tanks that are relatively cheap comparing to other kind of clothes. For instance, you can get a men’s v-neck tee that is as cheap as $3.80 at Forever 21.

Another big reason for growth in demand for basic style clothing is that they have high applicability. Consumers who now have less money to spend are not willing to take risks in buying clothes. In other words, people want to buy items that they know they will put on for sure instead of having to waste money on something that will be kept in their wardrobes forever. People in South Korea are basically taking advantage of inexpensive classic fashion items that can be easily matched with anything.

Whether it is the hemline or the t-shirts or whatever the fashion item may be, one thing we can know for sure is that economic recession makes people look less fancy.