The Pixelated Screen: The Sudden Move of Entertainment and the disappearance of Movie Rental Shops

Sam Nguyen wakes up everyday at around 8 AM to drive to work at his movie rental shop, “Video Town,” located in the city Hawthorne, to open up at exactly 10 AM. Throughout the rest of the day, he is met with a majority of long-time customers–who have been going for years–that are either returning a movie or asking him for help on what the best new release is to rent.

“Is this movie good, Sam?” one 5-year-old boy asks, holding up a DVD.

“It’s horrible,” replies Sam, with a little laugh.

Sam has been fortunate enough to be able to open his shop for more than 15 years, welcoming all those that want to rent movies from his establishment.

Sam, of course, is the exception.

With the sudden business transaction between Time Warner Cable and Comcast that was followed by Netflix paying Comcast for better streaming access, it is safe to assume that a majority of viewership is shifting towards the lovely world of the internet.

And while most of this discussion revolves around the relationship between television shows and broadcasting channels, the discussion should start to include movies and the financial stake when it comes to certain businesses for that particular industry.

The movie industry has always been fortunate to leave an economic “car accident” scene virtually without a scratch. Almost all of the Motion Picture Association of America (MPAA)’s theatrical market annual reports show consistent progress, proving that no matter what the cost, consumers will still line up at midnight to see the latest blockbuster film. mpaa-all.png

However, once those movies have left the theatres and begin their way to the land of renting and purchasing movies from specific local businesses, not as many people are racing to get there at midnight.

What caused this very gradual shift?

Back in the 1970’s and 1980’s, US citizens would rush to stores in order to access their favorite movies without having to depend on television broadcast schedules telling them when they were going to watch it. In the 90’s, as Blockbuster rose up, making $785 million in profits on $2.4 billion in revenues: a profit margin of over 30 percent.  However, what is important about Blockbuster’s success was all the profit they made from overdue and late fees from customers who would forget to turn it their rentals as scheduled and the fact that people had no other method of viewing movies, aside from actually buying the movie.

But things have changed.

These “brick and mortar” shops are facing large competition from technological alternatives. Instead of going to a local rental store such as the once-upon-a-time giant Blockbuster, one can now quickly go to the grocery store and pay for their bread and then quickly rent out a movie from a Redbox machine all before leaving the store.

Or if that is too much of a burden on people, the existence of Netflix and Amazon provide even more convenience by allowing consumers to access whichever movie they want from the comfort of their home. Netflix started their business model by showing commercials that focused on the fact that DVDs could be mailed to one’s house and one could mail it right back in the same envelope–and with no late fees.

Amazon also provides the same alternative to consumers, allowing them to both rent and buy movies from their website. Blockbuster attempted to compete with these emerging enterprises by creating its own website, but by 2007, it was tanking and going on the verge of bankruptcy (which it declared in 2010).RC-WatchNow1.3_Blockbustervsnetflix.gif

Even to those that are still seeking a physical space to purchase their product, the opposite is expected. Much like the way that Redbox is offered at grocery stores or outside convenience stores, the interior of the Redbox itself provides lots of options. One has the choice of DVDs, Blu-Ray discs and even video games when searching through the “Box”.

This abundance of product is why locations like Target or Best Buy are able to have such success. Joanna Cantu, manager at a Best Buy in Lawndale, CA, believes that Best Buy is the best of both worlds.

“Here, one can go into the DVD or Blu-Ray section and see something they like, want to buy it, and then decide they also need a laptop to watch it,” she said.

Although Best Buy gets a majority of its profit from its laptops, tablets and large high definition televisions, Cantu says the store still recognizes that watching movies will never go out of style.

“Movies are extended shows in a sense–they are a form of escape and the way that people like going to bookstores because they still get excited purchasing a book or even just being inside of a bookstore, I believe people have the same feeling when they buy a movie they really wanted,” she said.

Still, there is no denying that movie rental shops are now talked about once in a blue moon. There are overwhelming different forms of getting a movie once it has stopped being shown in the movie theatres.

What is even more threatening is the emergence of taking out this fine line between movie theatres, movies at home, and access of the internet. Slowly, it is becoming all intertwined into one big thing.

Televisions are now being turned into Smart TVs, where you can access your cable channels and switch onto Netflix with the click of a button.

But if that is not enough for consumers, particularly to the younger demographic, Microsoft’s newly released Xbox One now has an update coming up later in March that will allow players to watch video, play games and chat with friends all on one screen. Video includes movies which players can purchase and save in their Xbox One hard drive to watch whenever they want.

There has not been any speculation about Comcast going into the video game console industry, but considering the way that this lure into the internet spectrum is flowing, one can only assume that Comcast is patiently waiting for the appropriate opportunity to do this.

And yet, as companies and technology are racing to the top of the cultural universe, it is the simple and once rental shops that are being left at the bottom without a ladder.

However, for successful people like Sam Nguyen who have managed to stay alive, the advice provided by them to those that believe all hope is lost is the simple realization that never goes away: the gift of family.

“What people are looking for is an experience with entertainment. And in order to appreciate an experience, it has to be shared with someone,” he said. “If you are able to provide that aspect of family to people, and you can do it from a shop that is not even suppose to exist anymore, you have done a good job.”

Need a Lyft? Ride-sharing and the Rise of Collaborative Consumption

My girlfriends and I with Lyft's famous pink mustache

My girlfriends and I with Lyft’s famous pink mustache

It is Saturday night. You and your friends are planning to go downtown for a few drinks. Instead of calling a cab, someone takes out her Iphone and books a ride with Patrick. He has a friendly smile, a five-star rating, and a white Toyota—with a pink mustache.

Lyft is a ride-sharing app that markets itself as “a friend with a car.” The economic transaction is more than just an exchange of service; it’s an experience. The app is free and syncs to your smart-phone. At any point in time, you can open up the app and hail a friendly Lyft driver around the area.

You enter the car, give the driver a fist-pump, and he or she entertains you with a friendly conversation as you are dropped off at your location. The transaction is processed by Lyft so you avoid the awkward paying and tipping process. Lyft raised $60 million in its third round funding last May with venture firm Andreessen Horowitz and company has grown to be available in 22 cities.

According to TechCrunch, Lyft is currently growing at a faster pace than its main competitor, Uber, with a 6% growth rate disclosed my its co-founder, John Zimmer (TechCrunch). Lyft has especially been popular especially with the tech-savvy and thrifty Millennial generation. Katherine, a college student from California, says it has to do with convenience and saving money.

“I use Lyft because it feels more personal and I feel like I can trust the drivers more. Plus it’s convenient to find a car from an app on my phone – I never know which number to call for a taxi or what service is better than another. Plus it’s cheaper. A ride to downtown via taxi can be $14, while using Lyft, I can get a rate as cheap as $8.”

If we dive further into the success of Lyft, we can find there are multiple economic forces at play. The first is the economic recession. In tough times, people are gathering part-time jobs to make ends meet. For instance, Patrick started Lyft to make more money on the side.

“I needed a second job to help pay some bills and also to help save up for grad school. I do see myself doing this long term because I can make some extra cash and not have it interfere with my regular work schedule.”

In every transaction, Lyft gets 20% of the cut. There are also “Prime Time Tips,” that escalates rates during high-demand periods (i.e. 11pm on a Saturday night). These tips can go as high as 70%, but the entirety of the increase goes to the drivers. Lyft gets to bypass the system by asking for “donations” rather than charging “fares.” The legality of this is as fuzzy as Lyft’s iconic pink mustache, evidenced by the app’s ban in certain cities like Seattle. However, this does not mean Lyft does not take safety seriously. In some aspects, Lyft’s screening process is harsher than some taxi companies, with higher standards on criminal records, and linking your Facebook for safety and providing insurance of up to $1m for the drivers. The car also has to be clean and presentable.

Another economic factor is proliferation of mobile technology. “There’s an app for that” is a common slogan in response to every day problems. Technology of apps and mobile phones have allowed companies like Lyft to reduce transaction costs. People are able to conduct business with private individuals rather than a chain. Perhaps ironically, through innovation, our generation is reverting back to a peer to peer localized model. People have referred to this phenomenon as the sharing economy, or collaborative consumption.

Rachel Botsman, the co-author of What’s Mine Is Yours: The Rise of Collaborative Consumption, talks about how technology is enabling trust between strangers, and this concept of collaborative consumption is a “powerful cultural and economic force reinventing not just what we consume, but how we consume.” Botsman writes collaborative consumption is a class of economic arrangements in which participants share access to products or services, rather than having individual ownership.

Named as one of TIME’s 10 ideas that will change the world in 2011, the concept of collaborative consumption has proved it is a force to be reckoned with. Botsman co-wrote the book in 2010, and since then, the concept has taken the app world by storm, with giants like Airbnb, Uber and Lyft rounding billions from venture capitalists. However, this new concept is disrupting the economic system. In Lyft’s case, the service is a huge threat to the taxi and limo service industry. Formally trained drivers who are screened in a testing and licensing system are now competing with normal civilians. In essence, the barriers to entry to the transportation industry has been compromised.

There has also been tensions between governments and the new model. In 2012, the California Public Utilities Commission issued “cease and desist” letters to Lyft along with other similar services. Although the knee-jerk reaction may be the issue of safety, there are many factors contributing to the debate of this new business model. Taxi and limousine companies who once enjoyed monopolies are heavily lobbying against legalizing these services. In addition, many cities rely on the regulation fees these companies pay to operate, fees private ride sharing programs are not obliged to pay.

“To me it’s a really dumb debate,” Patrick says.

“The real concern for the state of California and other states that Lyft operates in is that they see private ride sharing programs as entities that are taking money from them. They hide under the issue of safety, but their arguments are based off of taxi companies having to pay fees regulated by the state while private ride sharing programs do not. How does that equate to being concerned about passenger safety? It’s really ridiculous.”

The issue of safety is always brought up in these debates. However, it seems like Millennials have more faith in strangers. Katherine says “the idea of communicating even with a stranger online isn’t quite as daunting anymore.”

“There’s a growing inherent trust between young people in this generation (twenty-somethings), so doing things like calling a cab or organizing a ride share through an app or online service doesn’t seem so out of ordinary, and most don’t think anyone is trying to scam them.”

Patrick says the age of his passengers range from 21-45, which is consistent with the wide belief ride-sharing is embraced mostly by the Millennial generation. Botsman asserts that we now live in a global village, and there is a new importance of reputation. In Lyft’s case, transactions are followed by a rating system, from these reviews these drivers and users leave a trail. If you average less than 4.5 stars, you are in danger of being dropped. Our ability to collaborate is quantified into a form of “reputation capital,” and it is put in public display, and ultimately determining our access to collaborative consumption.

Last September, the State of California became the first state to regulate ride-sharing, or what is now newly dubbed as “transportation network companies.” Depending on how these new rules perform, other cities may follow the California framework in the future.

The Few. The Proud. The Unemployed.

Economic indicators are crucial to helping determine the state of the economy. As we are unable to physically or literally see the economy per se, economic indicators allow us to not only confirm economic trends (lagging indicators), but they also enable to help us predict future patterns and cycles.

While economists mostly rely on economic indicators such as a nation’s gross domestic product, unemployment rate, or consumer price index, there are also more unusual and unconventional indicators which may illustrate an economy’s state. An economic indicator that I found particularly interesting was the Marine Advertisement Intensity Index. The concept is simple: The more intense in nature the advertisements for the Marines were, the weaker the job market – and subsequently, the economy.

The Marines – as well as any branch of the U.S. military – offers many benefits in order to make enlisting more desirable and appealing to potential new recruits. According to the Marines’ official website, a Marine can enjoy “full health coverage, access to on-base medical facilities, free on-base housing, monthly housing allowances, low-cost mortgage loans and educational funding.” Furthermore, Marine families are also offered additional amenities, including healthcare, day-care and counselling. During an economic recession, these benefits and the promise of job security can seem especially appealing to high-school graduates who may feel that a potentially high college loan is unjustified – especially if the prospects of a future job are uncertain. In contrast, during times of economic prosperity, more high-school graduates are likely to go to college – therefore lowering the number of new Marine recruits.

The intensity of Marine advertisements is then reflected in the amount of people who enlist. In 2005, the Marines’ advertisement “The Climb” sought to recruit new members by invoking feeling of patriotism, pride, and accomplishment. The advertisement depicts a lone young man climbing a cliff without any equipment. While he struggles, images of Marines in full dress uniform, helping young children, and working together under a waving American flag are superimposed on the cliff-face encourage him to climb on. At the end, the advertisement emphasizes teamwork and duty in order to convince young men to enlist. In 2005 the economy and the job market was booming – however at the same time, it was a tough year in terms of Marine recruitment. The advertisement sought to recruit all who were willing – evident in its highly emotive, patriotic advertisement.

In 2008, however, saw the Marine Corps not only meeting but exceeding recruitment goals for the next three years. Furthermore, 99% of the new recruits were high-school graduates – up from 95%. Subsequently, the 2009 Marines advertisement, “America’s Few,” depicted a very different lifestyle than the one shown in the 2004 advertisement. In “America’s Few,” three men are shown enduring the rigorous challenges of boot-camp training, including but not limited to, running through intense obstacle courses, undergoing intense physical training, and bracing brutal, unforgiving weather. This grittier, perhaps more realistic depiction of military life illustrates a change in mentality – with more people willing to sign up, the Marines have the luxury of choice and can afford to be pickier in who they recruit.

U.S. Annual Unemployment Rate

 

When looking at the data, there is a clear correlation between unemployment rates and the number of new recruit. In 2004, the U.S. unemployment rate was 5.5%. In 2009, however, this rate soared to 9.3%. (U.S. Bureau of Labor Statistics.) The number of new recruits in 2004 and 2009 fiscal year were 36,794 and 42,226 respectively. (Marine Corps. Times, U.S. Department of Defense)

The trend seems to have continued, with the Marine Corps accession rate dropping to 32,215 in 2013. (Department of Defense) At the same time, their numerical accession goals have dropped – perhaps in anticipation of a slowly recovering job market. Does that mean we can expect – assuming unemployment rates continue to drop – not only fewer recruits, but also recruits who are not as strong as the recruits of 2008 or 2009? It is interesting that in an unstable economy, more and more Americans are willing to endure not only arduous physical military training but also the possibility of warfare and violence in hopes of securing a better future – just a glimpse into the desperation that the Great Recession created.

Say Yes to the Dress (Please)

I was a sophomore in high school when the 2008 financial crisis happened. As naïve teenagers, my friends and I were more concerned with the upcoming Homecoming Dance rather than the stock market crash.

My mother, Judy Kim, owns a small dress store in LA’s historic Java Market (so I guess you can say every girl in school was jealous of me). Fall is traditionally a hot season because of high school dances (i.e. Homecoming, Winter Formal), but profits suddenly declined after the crisis.

“After 2008, people just weren’t spending,” Judy says. Since beautiful dresses are a luxury, Judy’s small business has been effected largely by cyclical shifts in the economy.

“Most of our customers were blue collar folks. Even so, we had parents who came in every week for months to pay off a 500 dollar dress for their daughter’s Quinceañera. As the recession got worse, more and more customers would beg for a refund. Some people just stopped showing up and did not pick up their phones.”

Judy had to make changes in sales tactics in order to make up for the loss during the recession. First and most obvious, she cut prices. Instead of the normal 50% return, the store now had a mark-up of 30%. The store is now constantly having a sale, but customers are always haggling the price more than ever. Judy came up with the idea of selling all-inclusive packages to entice customers. For example, a Quinceañera set can include: customization of a dress, a headpiece, and a pair of gloves with the girl’s initials embroidered on it.

The store also reduced the amount of employees. One summer, Judy taught herself how to use a sewing machine, and started doing alternations on the dresses herself. She taught me how to use Excel so I could record sales and calculate the commission of each employee. During the past tough years, everyone in my family was expected to contribute.

One glaring factor that contributed to Judy’s decline in sales was that her specific target consumer demographic experienced the hardest hit during the recession: the Hispanic population. “In the Fashion District, Jewish people own many of the buildings, and Koreans work in wholesale. Many stores employ Hispanics, and majority of the shoppers in the area are also Hispanic.”As a first-generation Korean American, Judy is not completely fluent in English—in fact, she is more fluent in Spanish. Located in Downtown Los Angeles, Judy’s store caters to a high Hispanic consumer base, which explains why there are three main types of dresses at her store: wedding, prom, and Quinceañera.

The Hispanic population in Los Angeles is almost 5 million according to a 2012 report by the US Census Bureau. According to a 2010 congressional report released by the Congress’ Joint Economic Committee, Hispanics have been named as the group that has experienced the hardest hit during the recession. The report showed that the Hispanic unemployment rate was only slightly above the overall national unemployment rate in 2006, when my mother’s dress shop was enjoying considerable profits.

However, by 2009, the rate soared to 13.1%, around 3 percentage points higher than the national rate. The disproportionate impact on the Hispanic community is partly due to the housing bubble’s impact on the construction sector. Information from the report also suggest unauthorized immigrants may have experienced the most impact in employment.

The decrease of disposable income has caused customers to be incredibly price conscious. Judy’s biggest competition has been online retailers. Start-ups like “Rent the Runway” allow users to rent a dress for a much cheaper price. Since dresses are not exactly necessities, people who are looking to save money find renting a wedding or Quinceañera dress is an economically smarter alternative than buying one and never wearing it again. Many of the dress stores have closed down, but Judy does not plan on giving up anytime soon.

“In this business, it is all about standing out. We are constantly trying to find a way to offer our customers something they cannot find anywhere else, including the internet.”

One huge advantage Judy has had over the years was that her sister is a fashion designer. Another secret weapon of hers is that her brother also has a dress shop, not too far from her own. Having the support of her family has been her greatest asset. The Kim siblings actually had plans of starting a retail website. However, my mother still has one huge reservation.

“Social media scares me. One bad review can kill your whole business, and kids are mean these days!”

Amazebowls: a refreshing insight into the trendy food truck industry

Amazebowls – acai bowls topped with fruit and granola

Desmond Ng is the co-founder and owner of “Amazebowls,” a trendy, popular food truck that can usually be found situated on the outskirts of USC. Contrary to the stereotype, Amazebowls doesn’t sell the stereotypical greasy street fare one might expect; instead, this bright purple truck offers customers fresh and tasty acai (ah-sigh-ee) bowls, topped with fruit and granola. Described by Ng as a “healthy alternative to ice-cream or sorbet,” these vegan and gluten-free treats offer health-conscious students a delicious replacement to the usual fast food options offered at USC.

Amazebowls was founded in August 2013 by Desmond Ng and Bryan Leong after the two came across the concept in Santa Barbara. “I pretty much fell in love with them,” Ng admitted. “However, when I came back to LA, I realised that hardly anyone was selling it. Places that did sell it were either too expensive or not that good at all. So I started making them at home, and my friends told me that if I wanted to start something with it they’d invest in it. So we tested it out at SC – we trialled it at a couple of different events like Taste of Downtown LA, KXSC-fest, Springfest, Study Nights… and the response was really positive.”

One of the most difficult obstacles for a small business is finding initial capital – whether that be through loans, investors, or one’s own savings – especially in the current economy. According to Gallp Inc., 28% of small businesses indicated that they were less optimistic about their business’ future going into 2014 than they were going into 2013. While Ng was fortunate enough to have two close friends who were willing to invest in him and the product, he too struggled to initially start his business. “We wanted to start a store, but we couldn’t find a good location at a good price,” said Ng.  “A food truck was our next best option.”

As Amazebowls is a relatively new business, it hasn’t had much time to adapt to the ever changing economic cycles. Furthermore, its main customer base – USC students – doesn’t seem, at least in the short-term, too frugal about spending their disposable income. “We haven’t really been affected so far from the recession,” said Ng.

However Amazebowls still had is main share of challenges. Ng lists the factor of uncertainty as one of the biggest challenges in running his business. “It’s [the food industry] very competitive,” explained Ng. “We have to do a lot to make ends meet – even though we get a lot of sales, the costs are really high. The costs of running the truck, wages, running costs, etc. It all adds up.” Furthermore, the recent opening of “Nectar,” a juice bar on campus serves as another competitor to Amazebowl, targeting a similar audience.

While Ng doesn’t have to pay rent, owning a food truck offers a different set of challenges. “Sourcing a food truck is not cheap, and a lot of people don’t realise how big the expenses are,” explained Ng. “Also, a lot of things are just out of our control. It’s not like a store where things are fixed and people can deliver to you – we only have a certain amount of space in the truck and we have to restock every day. It takes a few hours for us to get all our supplies. It can also be difficult finding parking. If we don’t find parking in the morning, we can lose crucial hours of business which cuts into our profits.”

Amazebowls is also heavily affected by the weather and the seasons. “The weather definitely affects our business – even more so because we’re a food truck. People don’t like coming to food trucks when it’s cold,” said Ng. “We also definitely felt that there was less business after big holidays like New Year’s and Christmas – people had spent too much during that  time and were not as willing to go out as much to eat.” Furthermore, the colder weather has not only decreased their customer base but also increased costs. For example, since the summer, the price of strawberries – a main fruit in the acai bowl – have gone up dramatically, further affecting Amazebowl’s profit margins.

A major concern which has not only Ng but other food truck and small business owners worried is the possibility of minimum wage going up. “Right now, we’re reworking our cash flow just in case minimum wage goes up,” explained Ng. “That’s a big thing. A lot of food truck owners that I speak to are worried that the increase in minimum wage will affect their businesses. Basically you’ll have to either raise your prices or absorb the losses – and that eats into your profit a lot.” When asked whether Ng will resort raising prices if wages do go up, Ng showed reluctance. “I’d rather not,” he admitted. Instead, Ng hopes to be able build a larger, loyal customer base with aggressive and clever marketing techniques so that profits maintain high.

In the future, Ng hopes to be able to expand Amazebowls into an actual store – however the challenges that come with that are immense. Rent is a main factor, with the average price per square foot in Los Angeles increasing 13.8% from last year to $428. “A lot of food trucks try and get into stores and they end up being unsuccessful,” said Ng. “We did a lot of research, and it’s a lot easier for a restaurant to get a food truck than a food truck trying to become a restaurant. We have to do a lot more research, and wait for both us and the economy to be in a good place.”

 

Tuhao, let’s be friends!

Tuhao, a Chinese word, has been getting very popular since last September on the Internet. BBC magazine translated it as “nouveau riche”, someone who comes from a poor peasant background, and has made it rich quickly – but  doesn’t quite have the manners or sophistication to go along with it. “Tuhao, lets be friends!” has become one of the hottest topics in China.

According to National Bureau of Statistics of China, GDP has increased 7.7%  from last year, which is higher than the predicted number 7.5%. However, that is the lowest increase since 1995.  International trade also decreased from  2012. A famous economist, Nouriel Roubini said to CNNMoney last week that  50% of China’s economic growth comes from the government.  That’s not sustainable. Honestly, China could be called as a big Tuhao with its GDP increase, but most Chinese people are not even rich with 38,420.38 RMB GDP per capita. China is experiencing an inflection point now. The magic “8” growth rate helped some people to be very rich fast and then they started to invest all over the world. As we know, investments, exports and consumption are three supporting elements for China’s GDP increases.

“Tuhao” style investment- Vineyards buying

A Chinese businessman who just bought a vineyard in France died in a helicopter crash after his vineyard tour with his son, according to The Wall Street Journal. Vineyards investments unveiled because of the news. Chinese businessmen bought more than 60 vineyards in the past five years. The Chinese population consumed about 156 million 9-liter cases of wine in 2011, placing it in fifth place among the top wine-consuming nations worldwide, according to Vinexpo’s study. It also predicts a 36% increase in wine consumption in China vs. 9% in the rest of the world, a 54% rise from 2011 to 2015.

“Tuhao” style investment- Luxury shopping

According to United Nations World Tourism Organization in 2013, Chinese travelers became the world’s biggest spenders, shelling out about $102 billion overseas. It predicts that by 2015, total Chinese spending abroad will exceed total global luxury sales. The reason that so many Chinese travelers buy luxury goods from outside country because its extreme high import duties, which add up to 60% to the original price in China, according to Quartz. Therefore the rich Chinese people prefer to travel outside China.

“Tuhao” investment- Expensive houses

china-tourism-luxury-versus-global-luxuryAccording to the National Association of Realtors, Chinese are now the second-largest foreign buyers of homes in U.S., accounting for $7.4 billion of sales in the 12 months ended March 2011. Because of the housing bubble in China, more rich people choose to investment homes in U.S.. Most of them probably concern about China’s political instability, inflation, food safety even pollution.

“Tuhao” investment-Venture Capital

The China’s top political advisors discussed reform in science, innovation and technology last December, which put forward proposals on the management of investment for scientific and technological development…building an environment for promoting innovation, the transformation of scientific achievement, according to Xinhua news agency. At the same time, more U.S. tech startups hope to find investors from Chinese and start their business in China. Chinese venture capital firms backed 28 U.S. companies in 2011, nearly double the number two years earlier, according to Dow Jones VentureSource. China’s magic growth, large population and government’s desire set a stage for more deals between China and U.S. technology companies.

“Tuhao” China has developed so fast these years. I think it’s the time to slow down and wait for the people.

 

 

 

 

 

 

 

 

 

 

 

 

 

Read China’s politics and economy from Macau

A research team from Reuter’s posted a pair of charts (see Figure 1 below) with nearly paralleled curves back in 2011 which suggests that Macau’s gaming revenue tells a lot about China’s economy. The curves reveal not only how China’s collective wealth has grown, but also where that big chunk of money is going, given the fact that many managed to legitimize shady income amid the buzz at the world’s new casino capital.

China’s GDP boom since around 2003 has created new wealth among heads of national conglomerates as well as regional manufacturing-oriented powerhouses. Some city officials – the likes of Bo Xilai and Liu Zhijun – also took their share from doing “favors” to businesses cutting deals for government contracts. Whatever their day jobs may be, these people are the “high-fliers” when they land at Wynn’s VIP room in Macau. And change in Wynn’s gaming revenue often suggests tweaks in the Chinese government’s grip on its economy and its mega rich.

Figure 1. Macau Gaming Revenue and China GDP
Macau's gaming  revenue vs. China GDP
Chinese high rollers made up nearly two thirds of Macau’s gaming revenue, not out of their love for throwing dice, but because they saw Macau a good fit for money laundering, according to an article from The Economist. With enough help from an apt junket, a corrupted government official who has taken bribes in yuan can readily swap his filthy money into Macanese pataca at a gambling table. A billionaire who has cut corners to get rich and wants to elude future scrutiny when political tide changes can turn most of his fortune into foreign dollars and hoard them better. In some other cases, the rich simply don’t want to put his money at home.

These are the main players in China’s economy, and the way they’ve chosen to do with their money reveals two things: a) a big chunk of the new wealth has left China instead of being reinvested into sustainable economic activities; and b) there is a trust issue between China’s nouveau riche and Beijing because the latter still has authority to crush someone’s property for no solid reason.

When China’s new leadership laid down rules in early 2012 to crack down on lavish spending and its more recent rein in corruption, we’d expect them to have an impact on Macau’s gaming revenue much as they did to the sales of foreign luxury brands. The cynical ones on social media, however, said the new measures would always be staying just on paper.

If we check Macau’s gaming revenues for answers, it presents a different story, as world-class alcohol makers and watchmakers took hit from Beijing’s gift crackdown.

China’s inflation-adjusted GDP changed less in 2013 than a year earlier, going upward by 7.2 percent and 10.3 percent respectively (see figure 2 & 3 below for real GDP calculation).

Figure 2. China GDP Annual Growth Rate 2006-2013
 
Figure 3. China Inflation Rate 2006-2013China's Inflation Rate 2006-13
During the same period, however, Macau’s gaming revenue kept climbing in two consecutive years despite a slowdown in China’s economy. The number went up first by 13.5 percent in 2012, and again by 19 percent one year later, according to Yahoo News and The Wall Street Journal. Meanwhile, there has been a flurry of Chinese tourists touring and buying real estates in the U.S. The rich folks may have sped up transferring their money outside China as Beijing’s new leadership tightens its grip.

The Price of Labor

At Advanced Cleaners on the corner of Vermont and 29th, price tags have remained unchanged for 8 years for one reason: it serves Trojans, or, USC students. The owner, Hertsel Mofarrah, adorns the storefront as if it were an alumni house. Much of its red counter is covered with snapshots of USC life, and most words left on the photos were addressed to Aunt Ruby, the front desk sweetheart lady who left the job half a year ago when she turned ill.

Ruby’s successor, Urania Blanco, is from El Salvador, the smallest and the most densely populated country in Central America. She rushes out from the rear of the store when the doorbell rings, collects the dirty pieces, and numbers each one of them before putting them in a to-go basket. In the afternoon, Mofarrah comes in and picks up the batch. He sends the clothes to Royal Cleaners on Robertson Boulevard, and drops them off again at his USC cleaner a day later. The shirts and suits have been properly cleaned and pressed. Blanco does a last shave and hangs them in order on a conveyor.

Mofarrah runs both cleaners, but he hasn’t become his own chauffer until the USC business took hit of the recession in 2008. He used to have a line of seven workers at Advanced Cleaners attending to every step of the dry cleaning process. When business turned sour amid the larger economic downturn, the full-fledged crew was reduced to nothing but one receptionist at the counter. He halved the 1,800-square-feet place, leasing the other part out. The machines were also removed. At what later became Mofarrah’s main storefront on Robertson, he had to let go of two people that year to survive the national crisis.

But he says the profit is still shrinking mainly due to a rising cost of labor. Five years into a sluggishly rebounding economy, 70 percent of his business revenue still goes into offsetting expense in climbing wages, chemicals and utility. “The minimum wage has gone up, and my guys don’t settle for the minimum wage because the dry cleaning business relies on trained professionals with rich experience,” says Mofarrah.

He hires five people at Royal Cleaners, where a dry cleaning machine and other amenities are stationed. When a customer brings in a pair of pants for dry cleaning, it goes to the spotter first. The spotter, who gets paid $14 an hour to remove all types of stains using the right chemicals, holds the most lucrative position of all five employees. The tailor has the second fattest paycheck. The whole team has enjoyed raises in the past few years, says Blanco, who worked among them before being transferred to the location near USC.

When Gov. Jerry Brown signed into law the bill that would raise California’s minimum wage to $10 an hour by 2016, it left workers upbeat and small businesses worrisome. While the raise comes in two phases in the next two years, the 25 percent hike would push California to be on top of every other U.S. state in terms of minimum wage and is estimated by the L.A. Times to deliver extra money to around 2.4 million Californians.

For Mofarrah, the USC branch of his laundry business seems self-perpetuating once he bought up the place in 1998. Costs are easily contained now that there is only one employee. And the utility fee is just a tiny fraction of what he pays at Royal Cleaners, where rent has also climbed up by five percent each year. To fulfill a daily task of cleaning 500 pieces, from both storefronts, he now pays a monthly of $1,000 for gas, and another $1,000 for water and electricity. Even the price of plastic bags has doubled from 5 years ago, he says, and the government ridiculously charges him $7 per gallon when its people comes in to collect barrels of chemical waste. The price tag was $2 fifteen years ago.

In response, Mofarrah raised the price for dry cleaning by an average of 50 cents at the end of last year — at Royal Cleaners only. The price for dry-cleaning a pair of pants climbed from $5 to $5.5. But USC students still get the old price of $5, or 50 cents less on discount. “We know it’s hard for students to spend a lot on laundry, so we keep the price low,” the father of a USC Medical School alumnus says.

Mofarrah’s USC business receives about 150 pieces every day, and handles the cleaning of theater costumes and marching band uniforms. But summer strikes him as a truly bleak season for his laundry business because 80 percent of Advanced Cleaners’ customers will be gone. “The students are home, and there is nothing,” he says. Blanco became so bored last summer that she made a pair of crochet stool covers in her free time at work, in red and yellow. They are now part of the store’s USC flair.

Price of fresh produce might increase due to severe drought in Califonia

Harry’s Berries Gean Family Farm, an organic fresh produce grower, plans to increase some of its products’ prices in next month if the record-breaking severe drought facing California prolongs this year.

Jennifer Gean, the owner the 27-year-old organic produce firm, projected a one-dollar-per-three-packs uptick next month for most of the organic berries her farm produces because the water price has gone up significantly for the past year resulting from the third straight year with below normal rainfall in California.

“As a berry specialty grower, we are very much depending on the water supply. Last year, it might probably be OK, but if the dry situation continues, we have to start very worrying, “ said Gean.

In effect, the firm has increased its products’ prices from time to time in the past few years.

“Last year, it went up a dollar because of related-overheads increase like fuels and supplies. Another thing is that we pay a much competitive rate to our employees. They are very well trained and hard-working. That does add to our overheads as well,” said Gean.

But according to Gean, the multiple price increases do not affect the farm’s revenue even though in financially difficult times because of its good reputation, combined with people’s perpetual willingness to eat healthy.

“Despite the sluggish economy in recent years when people have to be a little frugal out of necessity, they are still willing to pay it because of the quality. A good thing for us is we are in food industry and we are doing fresh produce. It the last thing people will save money on. We have royal customers to support us regardless of we having to increase the price and they continue to shop. It is a long-term investment to health,” said Gean.

Despite the deepening drought plaguing California, not every organic farm has experienced price fluctuation resulting from severe water shortage. Organic Santa Babara Pistachio Company is one of them.

Mary Mills, a worker at the farm, said the prices of the companies’ pistachio are pretty much stable in the past two years.

“The water shortage does not affect pistachio because pistachio trees do not require much water as other trees. But most of my neighboring famers are struggling. They drill the wells and they have to drill deeper and deeper, and they have to invest a lot of money on that. Then they will have to increase the price to make up for the investment,” said Mills.

Compared with economic cyclical shifts, many farmers say, their business is far more dependent on weather factors. Many of them rather use their own properties than taking out loans from the bank except in financial woes.

“We take our small business loans and things like that. We will have to plant out strawberry every year and new plants are big investment. If we have a not good financial year, we will have to resort to borrowing. But for the most parts, we tried to save up enough thought the year. We make more during those peaks of the seasons in the summer and save for the winter,” said Gean.

23rd St Café

“Until this year I did not feel the recession at all – this is really weird” says Gopal “Paul” Sood.  Paul runs the 23rd St Café in the North University Park neighborhood of Los Angeles and for five out of six years it has been a success. Since August Paul has at had to reduce manpower by more than half to keep his restaurant running “I only have two or three people working here now. Between three and six pm I tell them to go home, take a break, they see their kids after school.” What has changed?

One culprit is that his operating costs have increased. According to Paul “Utility rates have gone up” as well as commodity prices for basic food produce. Energy costs have increased steadily and water will only worsen due to the drought year.  Paul also pointed out that it is harder for small “mom and pop” businesses because “we don’t get the utility tax breaks like the big companies.”

The government has tried to make access to capital easier to stimulate the economy by keeping the federal funds rate near 0%.  If Paul has plans to expand then the question of access to capital through loans becomes relevant except contrary to the capitalist business model of continuous expansion Paul states: “I’m not looking to expand – but bank loans have high interest rates; so I’m holding back to invest.” His response may suggest that government policy meant to help the economy is maladjusted to helping small businesses.

Paul had found that his weekday clientele was down “50-60%” which he saw as the loss of working customers on lunch breaks due to the downsizing and disappearance of small businesses on Washington Blvd a few blocks away. “I know my customers, some were staff at the SEIU Union, I don’t see them anymore.” Paul knows he has a reliable core of customers that are USC students “I’m still busy Friday, Saturday, Sunday from the students still coming but it’s the business and maybe the local schools downsizing.” In fact it’s been a year of downsizing and pay freezes for the L.A. Unified School district.

New competition isn’t a problem either – “we are a neighborhood café not a ‘gourmet’ café,” referring to the “Nature’s Brew” café which opened up last year on S. Union Ave. Asking Paul what changes he might have to make he said “I don’t want to raise prices – when I’ve tried doing specials it doesn’t change the number of people coming in.” On the changing nature of downtown Paul replied that “23rd street is too far to feel the downtown revival…” and on USC’s impact on the neighborhood: “this is a low-income area and USC is creating their own market, only big companies are willing to pay into it” referring to the commercial spaces made available to by new housing constructions and the plans to renovate the University Village. Indeed rent for most of those spaces is in the ballpark of $10 per square foot while rent is about 2$ in older buildings that house local businesses.

The outlook isn’t entirely grim though as social media has been a source of new customers for Paul’s restaurant. “What really helps me are reviews on Yelp, I’m getting tourists from the science center and museums, even people going to LA Live.” Indeed the 23rd St Café gets 4/5 stars on Yelp. For Paul, this success is due to something the franchises don’t have: “I have specialty food – so I have a loyal following.”