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.”

From Restaurants to Retail: Businesses Flock to Downtown Los Angeles

Cities: LA 3, scape

In the past 15 years the neighborhood of downtown Los Angeles has seen a dramatic rise in the number of businesses that have decided to open up shop downtown. But what is driving this dramatic rise in demand for businesses to open downtown? Definite signs of gentrification have been seen, and the catalyst of this movement is in large part due to the creation of the Staples Center in 1998. According the official Staples Center website, this multi-purpose stadium hosts over 250 events and around 4 million visitors a year, an outstanding number of people to see the revitalized downtown neighborhood. Before the completion of the arena, downtown was best known for the juxtaposition of skid row and financial businesses in the financial district. In the early 1990’s, banks located in downtown began to consolidate and merge their offices, thus creating empty office buildings and spaces throughout the neighborhood.

Los Angeles is a city that, despite the economic woes of its state, can be seen as a beacon of hope with a global interest. This sentiment has become increasingly more evident with the construction of the Wilshire Grand building that is owned by Korean Airlines. The Wilshire Grand building will become the eighth largest building in the United States, once completed. And as an economic indicator of a city, the more skyscrapers and tall buildings a city has, the healthier its economy is. That is not always true, but in this case it demonstrates that Los Angeles, and the booming downtown, want to compete on a global scale. Sure, the rebuilding of the downtown neighborhood has been a slow process since the late 1990’s, however, according to Nate Berg, “many in the city are hopeful that the Wilshire Grand is part of a new wave of investment downtown that will help the city compete internationally” (Nate Berg, The Guardian). It seems as though Nate’s sentiments are justified in terms of the investments being brought to the neighborhood, when there are plans for chains like Whole Foods, retailers like Urban Outfitters, and several local restaurants who have decided to expand to the downtown area.

Cities: LA 4, graphic

In order to put the rise of downtown in the context of data, towards the end of 2013, “Six parking lots in downtown Los Angeles recently sold for $82 million” according to Dawn Wotapka of the Wall Street Journal. A staggering amount of money for some parking lots that have plans to be turned into an apartment complex. This is just one deal of many that have transpired over the past 15 years, and the figures seem to keep rising.

However, the other side of this story is the issue with occupancy rates, and whether or not there are too few apartments or too many people. Wotapka reports that “With more people flocking downtown, the vacancy rate for apartments has fallen. In the third quarter, downtown Los Angeles had a vacancy rate of 3%, down from 3.3%” Along with the dropping vacancy rates in downtown, which means in increase in demand, the consequence is that the average price of rent jumped almost 4% in the final quarter of 2013.

To shed more light and data  on the rise of housing in downtown, Wotanka found “There are about 14,000 apartment units in downtown Los Angeles. About 5,100 units are under construction, and more than 3,400 units were built between 2008 and 2013, according to Polaris Pacific, a real-estate sales, marketing and research firm. More than 3,000 additional rental units have been approved, with another 7,000 proposed. Meanwhile, there are only 17 condo units for sale and 68 under construction.”

Although there are some concerns that there has been such a vast amount of investment for housing downtown that we could see a drop in prices, the consensus among real-estate executives is that the demand will still stay fairly constant and strong. This prediction is justified by a recent report on the diminishing availability of apartment buildings and the relationship with rent prices. Since 2010, rent in the downtown neighborhood has increased by an outstanding 18.2% and is still predicted to grow because of the strong demand.

Another major indicator of the downtown area boom, although it may seem trivial at first glance, is the addition of Whole Foods to the flourishing neighborhood. The development of a Whole Foods in downtown serves not only high-priced, fair trade organic groceries, but as a symbol of the seriousness of downtown as a vital area in Los Angeles. As David Pierson of the Los Angeles Times reports, he calls it “a major development in the neighborhood’s gentrification efforts.” He is not the only one praising the development of the high end grocery store with City Councilman Jose Huizar recently stated “”Downtown Los Angeles is like a city within the city that needs a diverse range of services – including grocery stores,” Huizar said in a statement.  “Bringing Whole Foods Market to downtown is long-awaited news that represents a major coup.”

But Whole Foods is not the only tremendously successful chain that has chosen to explore the downtown area, the recently remodeled United Artists Building now called the hip Ace Hotel provides another example of what downtown has become. With locations in London, New York, and Panama to name a few, the expansion to the downtown area exemplifies the “hip” and “young” vibe that the area now exudes.

Downtown has made tremendous strides and has hurdled many obstacles to get the state that it is in today, and many real estate executives believe that the best has yet to come for this burgeoning neighborhood. With rising rents and diminishing vacancy rates, an interesting few years are expected to come in the housing market, with several apartment complexes to be completed. However, in retrospect, you have to look back to the addition of the Staples Center and the subsequent development of L.A. Live as the genesis of this downtown explosion.

 

Sources: http://www.theguardian.com/cities/2014/feb/14/world-largest-concrete-pour-la-trucks-los-angeles, http://www.aegworldwide.com/facilities/arenas/staplescenter, http://online.wsj.com/news/articles/SB10001424052702304281004579220210670242326, http://articles.latimes.com/2013/jul/31/business/la-fi-mo-whole-foods-downtown-20130731,

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.

A Rich Man’s Game – A Glance into the Art Market

In November 2013, a Francis Bacon piece was sold for $142 million at Christie’s auction house, which gave the piece the title of “the Most Expensive Artwork Ever Sold at an Auction.” Only in this past year a Picasso was sold for $155 million, a Warhol for $105 million, a Pollock for $58 million, and a Lichtenstein for $56 million. Although arts has long been seen as an investment and a long-term profit, with new collectors from emerging countries such as China and Russia, and with the market experiencing substantial growth in the past 25 years, it is not surprising that prices are increasing dramatically for the finite art pieces – especially those by artists who are no longer alive, often referred to as DWMA (dead white male artists) – causing the market to be known as a Rich Man’s Game.

 

How much money each artist grossed at auction in each year from 1998 to 2013 adjusted for inflation (Salmon, Reuters).

 

The art world is one we ‘commoners’ have a hard time understanding and making sense of. It is a totally different parallel universe, where millions are spent momentarily to buy a painting, a sculpture, or an art piece by a recognized artist. While we debate over and over if going through with a 20-year mortgage to get an apartment is a good idea, people in the art world would go through with a transaction worth millions instinctively over a conversation they have with their art consultants. The market has its own unique economic indicators, which explains why supply-demand theory doesn’t apply in this case.

 

It is a market, in which the price confirms the objects worth; as Ernst Beyeler, Swiss art dealer who helped found Art Basel said: If [you] can’t sell something, [you] just double the price.” It is a rare market that defies simple economics by functioning without the notion of exchange value. An art piece is worth more one day and less the other, just because an auction house creates hype over a specific artist, or a Russian billionaire drives the prices up for a piece that wouldn’t be considered valuable before. If a consultant or a collector agrees with a dealer on the worth of a piece, that becomes its value – it’s as simple as that. It’s what psychologists refer to as ‘anchoring bias’, which is fancy wording for saying that when a specific art piece is linked to a price, the anchor is set and that becomes its ‘natural’ price – no questions asked. Arne Glimcher, founder of world-renowned Pace Gallery, justifies this by his statement: “all you need is two people to make a market.”

 

Although one imagines that a market dominated by the richest people in the world would not even slightly be affected by the changing economy, taking a look at the statistics, it is safe to say that the stock market crash in the 90s and in 2008 extremely impacted the market, causing price to decrease by 30%. Olav Velthius notes that confidence in the art market had dropped 40% in just a few months after the 2008 crash, bursting the bubble of confident auction houses, dealers, and collector. There is definitely a correlation between the art marker and the financial environment; simply because if the economy is doing well or is stable, the consumer confidence index will be higher, where collectors would be expected to be more actively buying within the market. Today, with recession coming to an end and the stock markets doing well, the consumer confidence is higher; and richest of the richest are competing to buy art worth billions of dollars again, driving the prices up in rocket speed.

 

Another approach to look into the relation between the art market and the economy is that people buy art in unstable economies, with the belief that it is a better investment since it’s more tangible and lucrative. A study by New York University economist Michael Moses supports the argument that art is a solid investment. Through applying economics theories and equations, Moses found that art as an investment showed significantly better returns than any class of bonds. These are not the billionaires though; they are upper middle class collectors, more interested in pieces worth 5 figures rather than millions. Their activity in the market, again in which they compete with other collectors for a finite number of pieces, result in driving the prices high in the overall market. Swapnil Pawar, chief investment officer at Karvy Private Wealth, suggests that “during the global financial meltdown, the works of most artists saw a steep fall in prices [while] [well-known artists] remained on top.” He claims that after the recession, qualitative works of renowned artists are now more in demand than ever, as they proved to be lucrative investments.

 

An additional argument to why the prices are increasing in the art market is the exponential growth of the market itself. In 1990 the market was valued at $27 billion, whereas this figure doubled by 2013 ($56 billion). There are now more buyers, more auction houses, and more dealers than ever before. More of everything except for the most sought after art pieces, which are finite in number since they’re mostly by DWMA. The main cause for the market growth is primarily the increasing demand of the newly rich from the emerging countries such as Russia, China, and India. This is now a global market, in which China accounts for 25% of sales, with United States leading with only 33%.

 

These newcomers, often in search of an identity for themselves in the elite world, turn to the art market to justify their presence. They are attracted to the glamorous life the market promises: parties, art fairs, and biennales. Eli Broad, a Los Angeles based collector, proving that buying art is the way to justify one’s position in society says, “spending [money] on huge yachts is despicable. I have a lot more respect for the people who put their money in art.” They are most often attracted to DWMA because they want to their names to be heard, and what better way to announce their presence than buying a $50 million worth Pollock? “It’s become extraordinarily unpleasant to compete for work in this market with people buying for social-status reasons… What you have now is more buyers overpaying and creating misaligned values,” Dean Valentine, a major art collector states, because while purchasing respect and status through purchasing art, the newly rich drive up the prices in the art market.

 

While the prices of DMWA art keep rising as collectors compete for “super-status” effect, the mid-market is slowly and steadily dying down. Small galleries are closing, emerging artists are struggling, and niche art is disappearing. Polarization in the market is evident, with the super rich driving up prices for the super valued finite art pieces, and a handful of auction houses benefitting from these major transactions. However, the mid-market is struggling and looks far less optimistic. With creativity no longer valued as art, and art being valued for what it is said to be worth, it seems that the market has become a rich man’s game – maybe all you need is two rich man to make a market after all.

 

 

Sources:

 

http://www.bbc.com/culture/story/20130417-why-is-art-so-expensive

http://www.newsweek.com/why-art-so-damned-expensive-65919
http://nymag.com/arts/art/features/16542/#print

http://businesstoday.intoday.in/story/invest-in-art-for-sound-gains—not-trading-but-investment/1/18151.html

http://www.scmp.com/news/world/article/1427264/global-art-sales-hit-record-high-china-top-buyer-fourth-straight-year

http://www.newsweek.com/blake-gopnik-pop-goes-art-bubble-63443

http://blogs.reuters.com/felix-salmon/2013/12/16/art-market-chart-of-the-day-auction-gross-edition/

 

Indian Gastropub Adds Spicy Twist to Downtown LA Buzz

“The most badass chicken tikka out there,” that’s what Badmaash LA, Downtown Los Angeles’ revolutionary Indian Gastropub, offers. Mention Indian food and the natural instinct is to think of a staid restaurant with faded red carpeted floors and sitar-music.

Enter Nakul and Arjun Mahendro, the two Canadian Indian brothers who started Badmaash. Serving traditional indian food icons with an innovative twist, the brothers have brought subcontinental flavour and western favourites to Downtown LA (DTLA) while taking advantage of the area’s economic upswing.

“We wanted to create a cool restaurant with great food and a fantastic atmosphere,” says Nakul.“Something that pays homage to our past but departs from the traditionally drab Indian restaurant. We want to redefine the indian dining experience as a whole.”

image Walk into Badmaash and it becomes instantly clear what the brothers are talking about. The familiar overwhelming buffet-style dishes are replaced with portion sized plates paired with a selection of hand-picked artisan beers. The LCDs blaring Bollywood songs are gone, swapped for a cool, silent Indian classic projected on the large wall. A set of Warhol-like portraits of Mahatma Gandhi wearing coloured aviators lines the wall.

Debuted in May 2013, the two ‘americanized desi boys’ have turned Badmaash, the Hindi word for ‘badass,’ from a risqué and somewhat idealistic concept into a veritable business. Almost a year later, the buzzing eatery, has put the figurative spice back into the subcontinental cuisine.

Badmaash’s location in Downtown LA, I found out from Nakul, puts it at the start of more than just a culinary revolution. The brothers entered the Downtown market just as it began gaining speed. In 2000, the Median Sales Price for DTLA hovered between $150K and $200K. After a steep decline during the recession worsened by its own micro-housing bubble, DTLA rates climbed back to almost $550K by end 2013. 

Median Sales Prices are steadily rising as the economy recovers and Downtown becomes more popular

Median Sales Prices are steadily rising as the economy recovers and Downtown becomes more popular

Debuted in May 2013, Badmaash has managed to evade most of the economic instability. Today investments in Downtown LA are “sound and growing” stresses Nakul. But business has not always been easy. The brothers’ previous Toronto-based restaurant, Jaipur Grille, felt the effects of recent economic turmoil. The restaurant group that worked with Jaipur Grille, Nakul explains, had to accept significant losses and dramatic dips in business.

Indeed, though many industries worldwide slipped into decline after the 2008 Wall Street Crash, few were as hard-hit as the restaurant industry.

According to data released by the Federal Reserve and the Bureau of Economic Analysis, overall consumer spending dropped dramatically from 2008 through 2010. In addition, a comparative analysis by Beacon Economics details how taxable sales for the City of Los Angeles, which bottomed out in the Q2 of 2009, saw a 18.6% decline from peak to trough. A triple hit, lowered consumer spending complemented by heavy job loss and the inherent increase in available time to cook, meant few people were inclined to eat out.

Consumer spending dropped dramatically during the crisis. Restaurants suffered significant losses in 2009 in particular.

Consumer spending dropped dramatically during the crisis. Restaurants suffered significant losses in 2009 in particular.

In my conversation with Nakul my questions about the economy’s impact required little elaboration. With spending reduced to bare-necessities, eating out became a luxury most could no longer afford. 

More interesting, however, was his positive outlook.

“This is an extremely great time for the U.S. and an event better time for Downtown LA,” he said. “Everyone is look to Downtown LA as the next great American city.”

In the last few months, publications like GQ have written about Downtown LA, painting it as a crossroads of innovative cuisine, alternative shopping, and an edgy, somewhat nostalgic culture. It was interesting to hear about the area’s rise from someone with an on-the-ground perspective. Nakul explained that Downtown LA is growing rapidly, just less noticeably.

Traditionally, the Downtown economy is restricted mostly to the daytime, catering to the office workers that file in and out of its high-rises each day. By night, its derelict and supposedly ‘crime-ridden’ streets make for a disheartening vision.

Yet, as Nakul points out, the area is rapidly changing. According to a survey by the Downtown Center Business Improvement District, there was a 6% rise in Downtown’s population between 2011 and 2013. More than 92% of people reported they ‘lunch out’ at least once a month. Notably, 93% of permanent residents (i.e. not employees or visitors) dine out at least once a month. Finally, close to 68% of respondents said they wanted more mid-level restaurant options.

Web

Asked what the increase in population might mean for Badmaash, Nakul underscored that heightened demand means more supply must be created.

“The more people that move here, the more demand for eating options. The more restaurants that open up, the better” he said. At such an early stage there is still ample opportunity and room for expansion without the risk of market saturation, it seems. 

Nonetheless, Downtown property rates have “skyrocketed,” according to Nakul. With the openings of establishments like the Ace Hotel, Downtown’s micro-economy is certainly on the rise.

Economic indicators notwithstanding, I realised from my conversation with Nakul that Downtown’s business environment is actually much more promising for small businesses than that of its West LA counterpart.

The saturated, unfamiliar, and expensive market of Beverley Hills or West Hollywood is hardly conducive to starting an unconventional restaurant concept, especially without financial backing.

“In Hollywood, the chairs alone were $1000 a piece. It would have completely changed our business. In Downtown, we found ones for $100,” Nakul highlighted to me.

Interestingly, though Downtown’s low-cost economic environment made it easier, the City of Los Angeles’ policies, as other interview posts have mentioned, left much to be desired. 

Nakul described the process of opening a restaurant  in LA as “very bureaucratic, almost inaccessible.”

More importantly, he emphasised the need for more support for starting small businesses, particularly in a budding micro-economy like that of Downtown LA. Support from the Downtown Business Improvement District helped push through a lot of Badmaash’s permits. Beside this however, Nakul stressed the need for a city- or country-wide program to provide micro/local economic stimulus through support of small businesses. Assuaging the need for capital through long-term loans,while lowering the barriers for entry are essential if Downtown is to continue growing, he said. 

“Restaurants can become a sinkhole of money, a purveying nightmare,” he explained. “Access to capital is extremely important and any restauranteur knows that initial capital investment has to be really small, making funding and low costs all the more crucial.”

All in all, my interview with Nakul of Badmaash LA was enormously interesting and illuminating. As mentioned, Downtown is often said to be ‘on-the-rise,’ but this is only gradually becoming evident. This aside, Badmaash’s and Downtown LA’s burgeoning success points to the ability of unlikely, written-off economic environments to be a huge hotbed for small business success. Could this be extended to entire economies? Who knows…

BaadmashLA is located on 108 West 2nd Street #104 in DowntownLA. Be sure to visit if you’re ever looking for a fantastic place to eat!

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.