Special pleaders gonna plead specially

In what surely must be an April Fools’ joke, the former CEO of Walmarts complained that Amazon was too big and was putting small competitors out of business.

Which small competitors?

Toys R Us and J C Penny.

No, really he said that with a straight face.

Just a reminder for those not living in a country without a Walmart or one of their subsidaries; Walmart is a retailer with $500 billion annual revenue. It’s also the largest private sector employer in the USA with 2.3 million staff.

Ask the owner of an independent local store in small town USA how they feel about the prospects of a Walmart’s outlet being built in the neighbourhood and you’ll hear opinions not dissimilar to those expressed by Bill Simon;

Let’s examine those claims, shall we?

“Destroying jobs”

If we take a narrow view of the economy, the jobs lost at Toys R Us for example, this statement seems true. However, the products purchased online at Amazon rather than at a Toys R Us outlet are still required to be manufactured (mainly in China in both cases, but let’s ignore that as applying equally), packaged and distributed to the consumer. In addition, the consumers who have saved money by purchasing the same product at a cheaper price will now have the product PLUS some extra dollars which they will spend elsewhere in the economy, thus creating employment.

“Destroying value in the sector”

This is a quite vague statement and leans very heavily on how one defines “value” and from which subjective viewpoint one is looking. From the point of view of the CFO of Walmart, yes value is being destroyed, in terms of balance sheet and share price. In terms of the consumer, value is being created with savings, convenience and increased choice.

Simon’s comments were in response to President Trump’s tweet on the subject;

….which seems to be claiming Amazon is a bad actor for using a government service (the postal service) that happens to be provided at a loss.

Bill’s Opinion

Bill Simon and President Trump should really know better than to spout these economic fallacies. Perhaps they do and are being mendacious.

Simon was perfectly at ease with using the size of the corporation he ran to undermine the business models of hundreds if not thousands of smaller competitors. In fact, what a wonderful advertisement for the creative destruction of the free market that even companies as powerful as Toys R Us, JC Penny and Walmart can have their business models disrupted to the benefit of the consumer.

If President Trump doesn’t like the way the US Postal Service is run or the rules under which it operates, he should probably write a stern letter tweet to himself describing which changes he should make.

Special pleading, especially when using unemployment as a reason, is always at the detriment of the consumer who, by the way, has already unanimously-voted with their wallets.

16 Replies to “Special pleaders gonna plead specially”

  1. I’m currently working at a direct insurer. The number of customers dishonouring payments has quadrupled since this time last year. I think many more retailers will join Toys R us in going down the toilet. Myers looks primed for death. Even Amazon will find its limit to growth…

    Amazon may have its own issues. If enough people get upset about social media privacy then Amazon could find itself less loved, even though it isn’t exactly a social media. Wouldn’t it be hilarious if there was societal back lash against social media and other internet based businesses. After being revered for 30 years it’s about time the pendulum swung against internet businesses. Problem is the government will start to regulate the shit out of it because it will a popular thing to do.

    1. Cheers for the comment.

      I can think of few worse businesses to be in than retail right now. There’s very little I buy in person these days, even specialist items like skiing equipment I check out in a shop and then (cheekily) order online elsewhere.

      I don’t see much real news in the social media “backlash”. It feels very much a hope and desire of the few remaining journalists whose careers have been impacted by the internet, smart phones and social media but were too slow to spot it. People are very comfortable handing over vast swathes of their data and the fact that Obama, Trump or Brexit used this to target adverts is of little concern.

      In fact, it’s has all the hallmarks of the left’s distaste for the underclass with their low expectations being hidden by a call to “protect” the poor people from being brainwashed by the powerful.

  2. The other good thing about Amazon is that rents and land prices jump up when they move into the neighbourhood.

          1. When Amazon moves in, residential and commercial property taxes have to increase to pay the bribe Amazon was promised. I should think this would put a damper on the property market.

  3. Sounds like the US version of Gerry Harvey. Innovation is fine if you are the beneficiary.

    To me, these retail businesses have had the equivalent of management and shareholders of those that were running the legacy media businesses a few years back. My favourite story being Roger Corbett dropping a Saturday version of The Smage onto the boardroom table with a solid thud and declaring that he didn’t want anyone telling him (or his board) that no one would buy a car, house or look for jobs without it. This was reportedly in 2004. The story is on Crikey.

    Fairfax opened Tullamarine printing works the year before this and had a significant investment in this site at that time. It was closed and sold within ten years, at some loss.

    Myer and other legacy retailers are loaded with long term leases that partially funded the pillage by private equity, and created a material time bomb for future shareholders. These shareholders should have known better, given most of them had probably started shopping online by the time they bought these shares. These companies will never make the sales per sqm required to make these leases pay and are essentially fucked with their current footprints. Changes to contract law in administration I am still getting across may make this an interesting space over the next year or two.

    1. Ah, the multi-millionaire retailer who was petitioning for a sales tax to be applied on all parcels entering Australia?

      Another “pull the ladder up” capitalist, obviously.

      I’m still chuckling at President Trump complaining that a service he is ultimately accountable for is delivered at a loss and people taking advantage of this are immoral.

  4. The people to watch are the property trusts that own the sites that a leased to retailers. They are next. That is why the Lowy’s sold.

    1. There’s always a canary in any industry. In 2007/8 it was the insurers most exposed to sub-prime, AIG being the main example.

      For housing markets, the share prices of construction companies with large land banks are good to watch as well as insurers exposed to lender’s mortgage insurance.

      In other industries, there’s usually a significant sub-contractor/supplier that tanks before the main players go down. Spotting those and cleaning out the “noise” from the signal would probably be a good technique for shorting, if one were that way inclined. Personally, I’m not as I don’t have the courage of my convictions.

  5. As Tim Worstall is fond of pointing out – jobs are *a cost* and the goal is to minimize them. What politicians (and the public at large, I suppose) don’t understand is that this frees up someone to perform higher-value work.

    1. Quite. The statistics on farm employment in the USA is a good example of this.

      Millions of jobs were “lost” over a hundred years… to employers like GM and Ford who also provided a work environment with a roof.

      1. Millions of jobs were lost. The uptake by industry was far from instantaneous. Stop and think for a moment. If you’re working on a farm for wage X and meanwhile jobs for higher-value work are unfilled, are you not going to take the non-agricultural job at wage X²? The Nineteenth Century was not a highly traumatic time for workers in the US and possibly in Oz as well, as they had territorial expansion to mop up excess labour, but it did not go well in the UK. In the Twentieth Century, GM and Ford did indeed offer jobs to ex-farmers, for a brief while until the Great Depression hit. In the long run, a lag of twenty-five years in uptake of surplus workers is only a blip on the chart, but in personal terms it means generations put out of work, never to find steady work again as the youngest will always get first preference. Worstall’s logic is a bit shaky here; he needs it to taken without question to prop up his argument that AI does not cost jobs.

        1. I play in this space professionally. Efficiency is responsible for millions being lifted out of poverty but behind that statistic are many personal tragedies, not least because of an inability to adapt through little fault of their own.

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