Gary Russell stood behind his counter in the Grand Central Market in downtown Los Angeles. Surrounded by those old-fashioned, bold-colored vendor signs, Russell in a casual red shirt and his clean-designed counter felt like an invader to the atmosphere of nostalgia.

Photo credit: Peiwen Jing

Nevertheless, the crowd walking inside of the market in their sportswear  brought the sense of modern to this over-100-year-old marketplace, just like what Russell did with his kombucha tea bar in the past eight months.

It was Saturday noon, one of the market’s busiest hours throughout the week. Two customers grabbed several traditional pork carnitas tacos, stopped by Russell’s counter, tasted different flavors of the kombucha teas they produced, and got two bottles of “midnight rose” as their drinks.

“The market has been there since 1917 and I don’t know some other place in LA quite like this,” said Russell. “The dynamic, the atmosphere, and also for the new organic and healthy choices coming in.”

Photo Credit: Peiwen Jing

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Russell works for the Better Booch, a small business manufacturing kombucha tea in downtown Los Angeles. They get the organic tea leaf supply from the Art of Tea in Beverly Hills, brew the teas, and then add bacteria and yeast to let the mixture to ferment for a couple of weeks.

Better Booch has been in the business for more than two years. The small crafted kombucha tea brewery now has five employees, including their husband and wife duo co-founders Trey and Ashleigh Lockerbie. All of the five people working with Better Booch began their career in the show biz as touring musicians, mainly backing up popular international artists. “After years of exhausting travel and inconsistent schedules, we decided to make a change,” said the founder Trey Lockerbie.

The tiredness of inconsistent traveling around the world was one of the personal stimulators for the Lockerbie couple to switch their gears into the small business of cottage product. Meanwhile, the policy makers also sent their encouragement, by passing the bill to support the movement.

California passed the Homemade Food Act, which went into effect in January of 2013. Since then, the cottage food industry has been booming, bringing more and more food artisans to farmer’s markets and craft shows. Food artisans crafting everything from bread, candy and cupcakes to dried pasta and nut butters were legally allowed to sell their wares to the public.

The policy benefited to the Lockerbie couple. They started to sell their products in the famers’ markets across LA, and had no idea that the Booch is selling through 40 different locations. The spot in the Grand Central Market is their only retail revenue so far.

“Through our experiences with Better Booch, we’ve seen our highest highs and our lowest lows,” Ashleigh Lockerbie described their experience of running this handcrafted small business in this way. “You don’t get very far if you don’t work as a team and whether it’s music, a tea business or navigating life’s domestic challenges.”

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The Booch promises only use organic loose-leaf teas from a local supplier, with no added sugar in the way of juices, purees, syrups or powders. According to Russell, The cost for Booch’s manufacturing is generally higher than the similar kind of product, even higher than a national standard.

“You earn a little bit less but you are making a better product,” Russell thought the higher cost was hard to afford, but worth it. “We want the quality of the product.”

The business keeps going up, in Russell’s word, “each week is getting busier and busier.” Nevertheless, in Russell’s opinion, the larger the sales didn’t mean the larger the profit from running the small business. Some things have made the small business running a major challenge: the cost to produce, the high rent in downtown’s commercial zone, and now the possibility of a minimum wage hike in the following years.

“I think these guys who are governing have studied economy are just making a rough guess that you are making enough to pay people,” said Russell. “If we get more small business going, they can hire more people; that is better than a lot of people don’t have work, I think that is what they need to know.”

Nevertheless, as a employee, Russell’s income has been effected by the minimum wage level. “It could be a good thing but nobody can afford to pay that. They make the small business owners pay more, but somebody will get fired,” he said.

Speaking of the great depression in 2008, Craven Ji was a little bit upset: “The sales of homes dropped by 50% that year, and house prices also decreased by 30% on average.” “However,” she then added, “As the economy is recovering recent years, the market is seeing a brighter future. Home prices have recovered by approximately 25%, which almost reach that of the peak time in 2006.”

Craven Ji, a real estate agent in Real Estate eBroker Inc. in Los Angeles, has been in the business of real estate for almost 9 years. Different from her colleagues, most of Ji’s customers are Chinese. According to Ji: 67% of all her customers are Chinese immigrants while another 33% of them are overseas investors from China, either looking for investment opportunities or trying to find a new house in America. Ji does most of her business in Pasadena, Arcadia, San Marino, USC and UCLA neighborhoods where Chinese people aggregate.

“The year 2008 was a hard time for me,” she said, “There were little overseas Chinese investors that time, and the local market was also frustrated by economic recession.” Ji only sold 7 properties in 2008, which was much less comparing to her average record of 20 houses sold per year. In fact, although the U.S. interest rate was pretty low during the economic downturn, most homebuyers were frightened by the poor economic performance and were thus resistant to borrow money from the bank. “When people earned money, they’d rather pay off their debt to the bank than spend them on other consumptions. They were simply not confident with the market,” said Ji. Because most of her customers rely on bank loan to buy house, the unwillingness to borrow money would definitely impact her business. Also, as bank owned foreclosures set home prices extremely low, home sellers had to cut down their price to the same level to be competitive in the market. The two sides kept going back and forth, which resulted in a huge decline in the market volume.

Now, several years after the real estate nightmare, the situation seems to get better. “Not only does the local market start to recover, but also does overseas capital continue to pour into the U.S. market,” said Ji. According to property consultant firm CoreLogic, home prices rose by 7.4% year over year in July 2014, and are expected to rise by 5.7% from July 2014 to July 2015. Moreover, according to LA Times, overseas homebuyers and new immigrants spent $92 billion on U.S. homes in the last year. The $92 billion amounts to 7% of all money spent on U.S. homes within a year, which is 35% higher than the year before. Among those purchases, 25% of them were made by Chinese buyers. Statistic shows that they are extremely interested in the Real Estate market in southland, including the city of Los Angeles, San Francisco and Irvine, which also helps drive up home prices in these areas.

Percentage Change in Home Price Index Year After Year

When asking about the future of real estate market in the U.S., Ji expressed her concern over the median-price house market: “One challenge we are facing now is that there are less and less affordable houses in the market.” While the demand for median price house is going up, the supply is actually going down. In July, the median transaction price was $457,000, which is 7.6% higher than that of last year. Also, the market volume, which is 7012 this year, is 12.5% less than that of last year, according to CoreLogic’s recent report. Ji is worried that if the interest rate starts going up next year, there will be more competitions in the median-price house market.

With home prices showing an upward trend and overseas cash flowing to U.S. market, some people may ask: will there be another cyclical real estate economic downturn in the future? Also, what about the housing bubble that once led U.S. economy to collapse? Well, the questions may be hard to answer now, but one thing we are pretty sure is that the housing market won’t crash, since buying house is an American dream that will never die.

Refueling the car every other day, working seven days a week, shuttling back and forth deep in the concrete jungle, is the kind of life Sergio Sanjurjo gets along with every single day. And he loves every second of it.

Sanjurjo, 25, has been driving for UberX in Los Angeles for five months. Along with doing two other jobs — property manager and marketing promotion— he would be lucky to have five hours to sleep everyday.

“Bills and prices of everything is getting higher, so the only way to get ahead in life is you gotta hustle hustle hustle,” Sanjurjo said, laughing. His main goal is to make enough money within ten years and retire by 35. 

His weekly revenue from driving 30 hours a week is $950. According to Uber’s 80-20 split policy, he gets $760. “Whatever you make, you get 80%,” Sanjurjo said, “so it would be worth driving.” 

Subtracting gas bill $100, car maintenance fee $20, iPhone rental fee $10 (Uber rents an iPhone to each driver to connect them to the APP and block incoming calls) and insurance $30 from $760, he makes a weekly income of about $600. “You can’t complain about that,” He smiled and said, “now your car is working for you instead of you working for a car.” 

Sanjurjo enjoys being an Uber driver most. Not only earning double what he made at a nine-to-five-job, but the sense of making money for himself instead of for somebody else makes him happy. “Different from punching clock everyday, I come and go as I please,” he said.

Being an Uber driver also makes him proud. Some customers come to his car and complain how expensive and smelly the taxies are, how rude the taxi drivers are, and meanwhile express how much they enjoy taking Uber. 

But a recent UberX fares slash by 25% makes Sanjurjo feel the sting. Sanjurio ups his driving time by ten hours per week just to make what he was originally making.

In order to get more rides, he has to keep an eye on the hotspot map showing where all the Uber drivers are, trying to drive further out to avoid a bunch of drivers near him. He also has to stay out longer to pick up people further away where he would not like to be originally.

Especially in traffic, the cost remains the same while the revenue seriously drops. He could be stuck for more than an hour making barely any money. “Driving in traffic is not fun,” Sanjurjo said. 

Sanjurjo always chooses not to drive in traffic. He gets off early, utilizes his day and goes home early before rush hour.

Cutting the price is not the only way Uber leverages supply and demand principles. Actually, Uber is using dynamic pricing — raising prices when the demand is high, cutting prices when the demand is low. As MIT professor Yossi Sheffi puts it, it’s the “science of squeezing every possible dollar from customers.”

During a snowstorm in New York last December, for instance, UberX gouged the price 8.25 times the normal amount. But high risk always comes along with high reward. As James Surowiecki writes in In Praise of Efficient Price Gouging, “the reality is that the times when people most want a ride are also the times when it’s most annoying and, often, most risky to drive.”

For an Uber driver like Sanjurjo in L.A., where snowstorms never happen, surge pricing during times of high demand is the best thing that could happen. “Thanks to the surge pricing strategy,” he said, “it makes me some really good money.” He once made $200 on a normally $40 ride.

The surge pricing is short lived. More often, he deals with annoying cancellations. “It’s irritating when you are on your half way to pick somebody up and they just cancel on you at the last minute,” Sanjurjo said.

Uber’s cancellation policy tries to minimize the hurt by charging a cancellation fee if people cancel rides after five minutes. But any cancellation within the five minutes costs drivers’ money. The unpleasant episode, happening three or four times a day, costs Sanjurjo three or four full gallon of gas.

Sanjurjo’s biggest concern right now is whether decision makers in Sacramento will ban Uber in California. He doesn’t want to lose his favorite job. “I hope they can see that a lot of people make a good living on this and a lot of consumers enjoy it,” he signed.

After topping off his car, Sanjurjo turns on the engine and releases the brake. He and his car blends into the armored concrete and steel.

“We Listen. We Collaborate. We Build.” – These three sentences lay the foundation for Wells Construction, a family originated company since 1989. The business is located in Roseville, California, approximately 25 miles outside of the state’s Capitol. Three generations of Wells family members have received employment from the company, creating a tight bond for the family – and inevitably, bound with its challenges as well.

When the recession hit in 2008, the demand for construction services took a turn for the worse, as the figure below shows. With this knowledge, I anticipated that Wells Construction wrestled to get through the economic downturn. A small, family run construction business does not have the reserve of resources that major construction companies have to get through an economic downturn like the Great Recession. This led me to inquire how Wells Construction found success to get through the rough times.

 

 

CJ Wells, the Training and Development Manager of Wells Construction, agreed to have a conversation with me about the impact the changing economy has had on their business. The first topic brought up was the big question of the day – how did they find success in an otherwise pessimistic market for construction? He began to explain that their business sources two main facets for revenue: general construction and Starbucks. One of the first bids (agreement to build) that Wells Construction acquired was Starbucks – an international chain of coffeehouses. This set the stage for a long relationship with Starbucks, one of the factors that kept Wells Construction alive through the recession. Through time, the construction company was able to take over all the planning and building services for Starbucks throughout the Sacramento area. CJ explained, “Although the construction industry has a lot of risk, Starbucks seemed to be recession proof in Sacramento, allowing us to keep our employees in employment and our office buzzing.” When asked whether cyclical or secular shifts have affected the family business, CJ explained that there have been more cyclical changes for the company. Approximately every five years they experience a period of growth, followed by a time of decreased demand for construction services (riding the “economic rollercoaster”).

Besides their relationship with Starbucks, their other source of revenue is in general construction – the other industries that choose to use Wells Construction for their planning and constructing needs. A certain tactic they employed to get through the recession was to focus on developing relationships with certain industries that were expanding. Currently, the veterinarian industry is growing in Sacramento; therefore, Wells Construction has placed a group of employees to strategize multiple methods to become “the” veterinarian construction group in the area. Another industry that was expanding despite the recession was private medical offices; therefore, Wells Construction also put attention towards this avenue of development. CJ made a point to exclaim that 80% of their general construction services are with repeat companies, or recommendations within the same industry. This percentage reveals that their company not only builds for their customer, but they also put effort into maintaining this relationship. For example, one of their recent projects was to build an “Orange Theory” gym in Roseville. After this was completed, Glen (the owner of Wells Construction) paid for a year membership to the fitness center for all of his employees.

 

 

Although it appeared that the recession has not impacted Wells Construction as much as I anticipated, there are still challenges present with the construction industry. The first issue at hand that CJ revealed was the continuous struggle to balance cost, quality, and time when it comes to placing a bid on a new project. Taking on the perspective of the customer, it would be ideal to have the construction project completed fast, with high quality, and in a timely manner; however, this is simply not realistic. CJ explained that you can ultimately have two out of three aspects, and not having the right balance offered on the bid could lead to losing a potential customer. Another concern Wells Construction is dealing with is the capability to control the amount of growth the company is experiencing. This is where CJ plays a vital role in the company – handling the growth and trying to keep up with the demand for their services. At first I was perplexed to hear that this incident was considered an issue, but CJ explained that if the company did not handle the growth well, it could be a swift death sentence to Wells Construction. The employee turn over rate is extremely high right now, and that also poses as an issue. Hiring employees to keep up with the projects they are accepting is risky, especially when this growth period eventually slows down and they are forced to re-evaluate the size of their team. Amidst this growth, the construction company recently decided to open a new office in Irvine, CA, which comes with a big potential for increased profits, although the stakes are evidently higher as well. Developing the infrastructure and work force to maintain this office is up to CJ – not only is their money invested in this new office, but so is their credibility as an upcoming force in the construction industry.

If Wells Construction can use this time of growth to their advantage, CJ anticipated that the company could begin to accept larger projects (right now the projects are no more than a couple million with a range between 8-20% profit). To take on a large-scale project worth more money, the company would need to acquire additional insurance, and consequently, take on more liability. The company is not ready to make this move; however, with time and positive development – it could be in the near future.

 

 

Wells Construction, the family construction company from Roseville, California, has worked its way up the business ladder to increase its profits, hire a larger workforce, and open a new office location. The recession was not a complete blow to the company as Starbucks was the lifesaver that kept them through the storm; however, their growth from this new era of demand for construction seems to be the ultimate test of the company’s strengths.

Sources:

http://wellsconstruction.com

http://clients1.ibisworld.com/reports/us/bed/default.aspx?entid=84

When the economy sinks deeper, consumers tend to get creative about finding ways to cut on spending. 

Equipped with scissors, printers and shopping carts, in recent years many Americans have hunted for online coupons to save on products like canned soup, toothpaste and cookies.

While consumers print and clip their coupons, economists closely watch their activity, trying to link it to economic growth or decline. 

Over the years, they have calculated that the more people print coupons, the worse the economic pressure they are feeling.

Originally intended as a form of advertising, coupons became a way for some customers to increase the value of their non-monetary exchange for groceries and goods. [Read more…]

Los Angeles hotel owners got a jolt early this year when Mayor Eric Garcetti announced a plan to boost the minimum wage for 10,000 housekeepers, bellboys, janitors and other menial workers at the city’s largest hotels from $9 to $15.37.

Now Garcetti wants to bring that pay raise to all industries across the city, ultimately aiming to lift 567,000 people out of poverty. He said in a statement:

Our city has always enjoyed the greatest prosperity when everyone can afford to support themselves and contribute to our economy.

By improving the quality of life for the working class, the mayor also aims to boost the economy. Will it work? And conversely, what can the minimum wage tell us about the economy’s health? [Read more…]

Women consumers are a driving force in the market place, constantly shaping market patterns and trends. While new fashion and beauty trends seem to constantly be surfacing, many of these fashion trends aren’t as random as once thought. Though the latest issue of Vogue many seem like a collection of designer ideas and fashion revolutions much of women’s style runs in cycles. Further research into these cycles has revealed economic ties to woman’s buying habits.

One of the more widely talked about economic indicators tied to women is the lipstick index. Leonard Lauder argued “that during difficult economic times, women will increase purchases of lipstick and makeup and decrease purchases of higher priced goods like shoes and handbags”. There are two major theories that support why women would increase their makeup buying habits in hard economic times. The first of these theories looks at the self-esteem of women and the need to have luxury goods even when unaffordable. Women’s fashion is branded from a desire standpoint not a need standpoint therefore women view items like handbags and shoes as items that increase their self-value. While money may run short women’s opinions of their own self-worth does not diminish at the same rate. This leads to women seeking desire goods that fit their new price point, such as lip stick.
The second theory looks into the reasons why women buy makeup to begin with, with one of the main reasons being to increase their attraction level. A study conducted by a team of psychologists looked into this trend and noticed that as a recession occurred the number of men women found attractive decreased. This occurred for several reasons with the primary reason being women look for financial security in a partner as a major trait. Business Insider found that the “results of four separate experiments showed that women were likely to increase purchases of lipstick, perfume, and other products that might enhance their sex appeal.” While handbags and shoes might also enhance a women’s sex appeal, during economic downturn these expensive items fall into an unaffordable price range.

Women do not affect the market only with beauty sales but with fashion as well. George Taylor in the 1920s came across the Hemline Index. This index looks at the length of women’s garments juxtaposed to the state of the economy. In his research he found that the better the economy was doing the shorter the hemline fell on women’s clothing. Many economists have looked at this theory and found differing reasons. Some found that a longer hemline in economic downturn was a result of women wanting to appear more professional as they looked for jobs or tried to keep their jobs. This was backed up with dramatic length changes on women’s clothing during the 2008 financial crisis. On the opposite end other economist found that the shorter hemline in good economic times was a result of more disposable income being spent on partying and social use.

Women’s buying habits highlight a third economic indicator the High Heel Index. Dr. Trever Davis found that “Usually, in an economic downturn, heels go up and stay up – as consumers turn to more flamboyant fashions as a means of fantasy and escape”. While in the previous study it was shown that women tend to shy away from buying expensive items like shoes; this study has shown that those who still do purchase shoes purchase higher ones. The high heel has been correlated with a women’s confidence and an overall put together presentation. The association has led women to purchase higher shoes in harder times to in a way suppress reality.
Women have always been large consumers in the market place and studying their consumption patterns has given economist a different way of looking at the economy. While the standard economic statistics and figures are still used as the most credible way to gage the state of the economy looking at trends such as these provide a different perspective.

Starting with 50,000 dollars, Ryu Isobe has operated his ramen restaurant for one year and eight months. He and his partner are planning to open another one in Hollywood area this year.

“This time we will spend 700,000 dollars to build a fine place for my ramen restaurant,” Isobe drank a sip of coke and continued. “I lived in United States for 11 years. I always want to open business or doing something related to Japan. I’m a Japanese.  You know, there are so many ramen restaurants in Japan but here there is not that much,” said Isobe.

According to a report from National Restaurant Association, driven by a stronger economy and historically high levels of pent-up demand among consumers, restaurant-industry sales are expected to hit a record high of $683.4 billion in 2014. There are 17 ramen restaurants in Los Angeles.

When you enter the ramen restaurant, you will find three iPads for self-ordering and self-payment. You just need to hold your receipt and wait to be seated. The high-tech mechanism attracts a lot of young people.

“We only have 29 seats but we could serve 700 people one day during weekends…every customer spends around 15-20 minutes…most of them are college students…sometimes you can see some 30+ customers and even high school students,” said Isobe.

Born in 1988, Isobe graduated from USC business school in 2011. However, he didn’t choose to jump into the ramen business right after graduation.

“I spent almost one year to find a great location…I think that’s one of the most important elements for my business…and also I want to make my ramen taste unique,” said Isobe.

Isobe learned to cook ramen all by himself. He said that he wants to make ultra-specialized Hakata-style tonkotsu, whose preparation is more rigidly structured than most medical practices, a Tokyo-style fusion.

“You can find ramen restaurants in Japan every where and they all taste much better than here…especially the tonkotsu,” said Isobe.

According to abc News from Jan 2012, economists were forecasting even more sticker shock in 2012. The price of just about everything — fueled up bond. From gasoline — caffeine to breakfast is filling up. However, it didn’t stop Isobe opening his first restaurant in May 2012.

As we know, during the recession, consumers spent less on luxuries such as dining out. However, when they did visit restaurants, they purchased lower-priced items. Moreover, consumers have become increasingly health conscious over the past five years, according to PR Web.

“I actually wasn’t impacted by the price or recession. People always need to eat and my ramen only costs around 10 dollars per bowl…we put all ingredients in ramen…it is not expensive,” said Isobe.

Isobe’s ramen restaurant is not the first one on Sawtelle Blvd, but it must be one of the hottest restaurants. He gets lots of emails for franchising every week, but he never replies.

“My goal is to open my ramen fast food chain restaurants all around US as Panda Express. I think we need real fast ramen food,” said Isobe.

As a new comer, Isobe didn’t spend any money on marketing his ramen restaurant. On the opposite, he put more attention on training waiters and designing ordering system.

“All my employees are Americans…they don’t speak Japanese…I spent a lot of time on training them to be a great waiter…I created simple rules for them to follow such as when to add water for customers…I taught them step by step,” said Isobe.

According to a report on restaurants from IBIS world, the single location full-service restaurants industry has bounced back after a slowdown due to reduced consumer spending during the recession. In 2009, revenue declined 0.9%. Over the five years to 2013, IBISWorld estimates industry revenue will grow at an average annual rate of 2.3% to $137.5 billion. Revenue is expected to continue its upward trajectory in 2013, growing an estimated 3.1%.

Isobe never makes a loan from banks nor accept any angel investments. He has a partner to work out all money issues together. Even though Isobe’s ramen restaurant wasn’t impacted by recession economy, he’s still facing challenges. The biggest one is labor.

Another report from U.S. Bureau of Labor shows that California is one of the nine states with highest unemployment rate, which reaches 8.5%. Last year, Gov. Jerry Brown endorsed a bill that would raise California’s minimum wage to $10 an hour by January 2016. Employers countered that a substantial jump in the minimum wage could be disastrous for small businesses, particularly the state’s 87,000 restaurants, according to LA Times. It makes even harder for Isobe to find appropriate employees.

The gains remain below what would be expected during a normal post-recession period due to a range of challenges. However, the restaurant industry will remain the nation’s second-largest private sector employer with a workforce of 13.5 million, according to National Restaurant Association.

“The biggest challenges I’m facing is labor…I hired 40 people in total…it’s really hard to find perfect employees now,” said Isobe.