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Pet Owners Pamper Cats And Dogs Through Recession

I’ve been hearing more stories of pets being abandoned as of late, so the following from Bloomberg’s Nadja Brandt was something a little bit different. And I emphasize “different.” Brandt wrote today:

The recession is little deterrent for Los Angeles residents who insist on body wraps, massages and aromatherapy — for their dogs and cats.

“I definitely would first stop coloring my hair before not taking my dogs to get pampered,” said Adriana Merida, 36, owner of two Havanese named Otis and Zoe. She takes the dogs to members-only The Club Beverly Hills, where they can partake of yoga, Jacuzzi soaks and kosher meals.

Such indulgence contrasts with an increase in animals surrendered to shelters across the U.S. by owners who can’t afford their pets because of economic setbacks. Southern California has enough wealth to sustain companies that supply upscale pet care, said Joan Storms, a retail stocks analyst at Wedbush Morgan Securities.

In Hollywood, LA Dogworks offers day care with aromatherapy and hydrotherapy, along with a so-called Fetchmobile to chauffeur pets for its 2,000 clients, who include actors Jake Gyllenhaal and Nicole Richie. It plans to open a second 11,000-square-foot (1,000-square-meter) facility in West Los Angeles later this year. LA Dogworks charges $45 for 12 hours of day care and $75 for a one-hour massage.

Which one’s the princess?

On the other hand, Brandt pointed out that not all pets were getting the celebrity treatment. She added:

At the city’s shelters, meanwhile, animal intakes increased 20 percent last year, mainly because of the housing crisis, according to the Web site of Los Angeles Animal Services.

“The current economic crisis has definitely worsened the situation,” said Martin Mersereau, a spokesman for People for the Ethical Treatment of Animals in Norfolk, Virginia. “People whose homes have been foreclosed often evilly and cruelly leave their animals behind. We have seen this across the U.S.”

Source:

“Doggy Yoga, Massages Thrive in Los Angeles as Shelters Overflow”
Nadja Brandt
Bloomberg, February 25, 2009

Weekend Video

From the CNN Money website this afternoon:

The Saturday before Christmas is typically the busiest shopping day of the year for retailers.

This year, merchants are especially desperate to squeeze out the last-minute sales. Most big chains are offering discounts as deep as 60% to 80% in the final make-or-break weekend of the 2008 holiday shopping season…

Sell, or die, it seems…

Zombie Nation, “Kernkraft 400” (1999)
YouTube Video Link
Warning! May Not Be Appropriate For Minors

Shopping Center Blues

Are your local government and business leaders pinning their hopes (and your tax dollars) on a new shopping center anytime soon? Good luck. CNN Money’s Parija Kavilanz wrote earlier today:

As the recession leaves more retail casualties in its wake, rising store bankruptcies and mall closures could have devastating economic consequences.

As more stores exit malls, vacancies in regional malls could rise past 7% by year-end, a level not hit since the first quarter of 2001, according to real estate research firm Reis.

Major cities across America will be affected, said David Birnbrey, Chairman and co-CEO of Atlanta-based The Shopping Center Group, a retail real estate services firm…

Many municipalities are heavily dependent on retailers for the tax revenue and jobs that they generate…

The impact will be felt on local police service, schools and roads, said Birnbrey.

The CNN Money senior writer painted a gloomy picture for retail in the near term. Kavilanz wrote:

The International Council of Shopping Centers (ICSC), in its most recent forecast, expects that 6,100 chain stores will shutter this year, the highest level since 2004 “as the U.S. recession continues to take its toll on the retail sector and its job market.”

In 2009, the ICSC estimates that store closings could exceed 3,100 in just the first half of the year. However, the number of potential closings rises exponentially when the firm takes into account both public and private sector businesses.

The ICSC projects that about 148,000 retail establishments – both public and private – will go out of business this year and another 73,000 stores will close in the first half of 2009.

And what is the outlook for retail employment in this environment? Kavilanz added:

The ICSC projects that about 625,000 retail jobs will be eliminated this year “with little change in the pace for early 2009.”

Source:

“The dead mall problem”
Parija Kavilanz
CNN Money, December 17, 2008

Commercial Real Estate Crisis Grows

Bad news is quickly shifting from residential real estate to the commercial real estate market. Matt Apuzzo of the Associated Press wrote Thursday:

The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

“We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Apuzzo explained that the CRE crisis could grow into a full-blown meltdown. From the piece:

Companies have survived plenty of downturns, but economists see this one playing out like never before.

In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

Unlike home mortgages, businesses don’t pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens ‘n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won’t have the money. Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won’t write mortgages as long as investors won’t purchase them.

Look at the bright side. At least the mall rats will be back.

I know, stick to my day job…

Scene from “Mallrats” (1995)
YouTube Video Link
Warning! Foul language and animal cruelty… sort of

Source:

“Malls, hotels next victims in new mortgage crisis”
Matt Apuzzo
Associated Press, November 27, 2008

Signs Of The Time, Part 29

Bloody savages…

Black Friday took a grim turn when a Wal-Mart employee in New York died after bargain hunters broke down the doors to the store.

The 34-year-old male employee was pronounced dead one hour after shoppers broke down the doors to the shopping center in Valley Stream, N.Y., and knocked him down at around 5 a.m. Friday, police said.

“He was bum-rushed by 200 people,” Jimmy Overby, the man’s 43-year-old co-worker told the New York Daily News. “They took the doors off the hinges. He was trampled and killed in front of me. They took me down too … I literally had to fight people off my back.”

A 28-year-old pregnant woman was also taken in for observation and three other shoppers suffered minor injuries during the incident, police said.

Wal-Mart Stores Inc., in Bentonville, Ark., would not confirm the reports of a stampede at the Valley Stream outlet but said a “medical emergency” had caused them to close the store.

“Local authorities are looking into the situation,” said Wal-Mart representative Dan Fogleman. “Until such time that they’ve completed their assessment it would be inappropriate for me to share any additional information.”

Source:

“Wal-Mart Worker Dies When Shoppers Break Down Doors”
FOX News, November 28, 2008

Great Depression 2 Right Around The Corner?

Scary stuff from MarketWatch columnist Paul Farrell the other day. On Monday, Farrell wrote:

Now it’s time for my 2008 update, a look into the future where things will get far worse during the next presidential term. And given human behavior, especially in the deep recesses of Wall Street’s “greed is good” DNA, it seems inevitable that no matter how well-intentioned the new president may be Wall Street and Washington’s 41,000 special-interest lobbyists will drive America into the Great Depression 2.

Farrell then goes and rattles off 30 ‘leading edge’ indicators of the next Great Depression. From the piece:

Every day there is more breaking news, proof Wall Street’s greed is already back to “business as usual” and in denial, grabbing more and more from the new “Bailouts-R-Us” bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 “leading indicators.” Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America’s credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new “shadow banking system”
3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The “antitaxes” message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

And “leading indicator” number 30? Farrell wrote:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.

He sees “nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds.” It’ll get worse because “the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government.”

Reuters concludes: “Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’”

Farrell’s conclusion?:

We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

Geez. Looks like I picked the wrong week to quit smoking…

Scenes from Airplane! (1980)
YouTube Video Link

Source:

“30 reasons for Great Depression 2 by 2011”
Paul B. Farrell
MarketWatch, November 17, 2008

For Whom The Bell Tolls, Part 6

Capitalism without bankruptcy is like Christianity without hell.

-Frank Borman, former NASA astronaut and CEO of Eastern Airlines (1975-1986)

Came across the following graphic in my research today. I have a feeling we haven’t seen the last of the bankrupt retailers…

Source: Los Angeles Times

For Whom The Bell Tolls, Part 4

The U.S. employment situation looks increasingly bleak. From the CNBC website yesterday:

Planned layoffs at U.S. companies jumped 26 percent in July from June, depicting further deterioration in the labor market, a report showed on Monday.

Planned layoffs at U.S. companies totaled 103,312 in July, compared with June’s 81,755, employment consulting firm Challenger, Gray & Christmas Inc said.

Announced job cuts at U.S. companies last month were the second highest total so far in 2008, more than double the 42,897 a year earlier, the report said.

The transportation industry hurt by sky-high fuel costs accounted for the most planned cuts in July with 17,051. The financial sector battered by the credit crisis followed with 15,517 cuts. Retailers facing a pullback in consumer spending came next with 12,160 layoffs.

Employment data from the first half of the year was also dismal. According to CNBC:

From January to July, planned layoffs totaled 579,260, up 33 percent from the same period a year ago.

The outlook for Wall Street and the financial sector doesn’t look too good either. From the CNBC piece:

Financial companies, in particular mortgage lenders, have been slashing their payrolls, prompted by billions of losses and write-downs tied to soured investments on housing and mortgages.

So far this year, planned layoffs in the mortgage and subprime sector has reached 92,547, already surpassing the 2007 tally of 86,126.

With no end in sight, job hemorrhage in the financial sector could surpass the last year’s record total of 153,105 by the end of October, Challenger predicted.

Keep an eye out for those used Maseratis…

Source:

“Companies Step Up the Pace of Layoffs”
Reuters, August 4, 2008

Vacancies Up At Strip Malls, Regional Malls

Because of this blog and other projects I am working on— I don’t get out much these days. But when I do manage to escape the cage, I’ve noticed more and more empty storefronts in business districts, strip malls, and regional malls around the Chicagoland area. It’s not like I specifically look for them either. Even my father noticed it as we drove back from breakfast this morning. “Look at all those empty stores,” he remarked, as we drove through the downtown area of one of the western suburbs.

So I wasn’t too surprised when I came across a piece by Illaina Jonas of Reuters UK, which said the second quarter was the worst quarter for strip malls in 28 years due to store closings and cutbacks. Using data provided by real estate research firm Reis, Jonas wrote this past Monday:

Strip malls, which are usually anchored by grocery or drug stores, saw average vacancies spike 0.5 percentage points to 8.2 percent, a level unseen since 1995, according to the report released on Monday…

For the first time since 1980, more space became available to rent at strip malls than was rented out – about 3.2 million square feet more. Part of the available space came in the form of 5.7 million square feet of new development that came on the market during the quarter.

Looking For A New Hangout?
Jay & Silent Bob From “Clerks 2” (2006)

Jonas talked about the sources of the strip mall woes. She wrote:

A growing list of retailers shuttered stores ahead of lease expirations or chose not to renew leases, and as newly completed space hit the market without signed tenants…

Consumers are constrained by increases in food and energy costs, as well as the cost of servicing debt run up during the housing boom. In addition to cutting back on clothing, jewelry and nonessentials, they have turned to lower-price grocers such as Wal-Mart at the expense of the upper end usually found at strip malls, such as Whole Foods Market Inc., Reis said.

It’s not just the strip malls that are hurting. The Reuters reporter noted:

Vacancies at regional malls rose 0.4 percentage points to 6.3 percent, the highest level since the first quarter of 2002, according to the preliminary results.

The result of growing vacancies, Jonas said, was downward pressure on rents charged by landlords.

Not a good time to be a mall tycoon…

Source:

“US retail property 2nd-qtr worst in 30 yrs – Report”
Ilaina Jonas
Reuters (UK), July 7, 2008

Consumers Buying What They Need, Not What They Want

This afternoon I read an interesting article by the Associated Press’ Jeannine Aversa about consumer spending at a time when the U.S. economy is slowing and prices for items such as food and gas are rising. According to a recent government report on retail sales, clothing stores, furniture and home furnishing retailers, electronics and appliance stores, building materials and garden supply places, and health and beauty shops were among those merchants who saw their sales drop last month. Sales at bars and restaurants posted a modest increase from the previous month, as did sporting goods, hobby, book and music stores.

Aversa noted how consumers are changing their spending habits:

• 60% of the American public say they are now less comfortable buying a big-ticket item, such as a home or a car, than they were just 6 months ago, according to the RBC Cash poll conducted by Ipsos, an international polling firm, earlier this month. 12 months ago, 48% said they were less comfortable about making a major purchase.
• 53.6% of people surveyed focused more on what they needed, rather than what they wanted, when they went shopping over the last 6 months, according to BIGresearch, a firm that tracks consumer behavior. Pam Goodfellow, a senior analyst at BIGresearch, says the focus is more on smart shopping and bargain hunting.
• Because declining home prices and rising prices at the pump cannot be controlled, consumers are “controlling the little things… filling up the cart and putting things back at the check out,” said Candace Corlett, principal at consulting firm WSL Strategic Retail. She warned, “They are learning restraint and that is deadly for commerce.” Although, most Americans aren’t giving up things like medications, cell phones, and cable TV.

Photo by Ruth Elkin, stock.xchng

The research firms pointed out specific areas that were suffering from the pullback in consumer spending. 35.2% of people polled were scaling back vacation plans, according to BIGresearch. WSL Strategic Retail said fashion accessories, home decor items, premium brands of food and specialty coffees, eating at restaurants and take-out foods, and tickets to entertainment, are the top areas where consumers are cutting back.

Marshal Cohen, chief retail analyst at consumer and retail research firm NPD Group said video games, toys, and skin care products are the three areas he believes are least likely to see spending cuts.

Source:

“People’s decisions to cut back add up to weaker economy”
Jeannine Aversa
Associated Press, April 25, 2008

Recession? Send In The Fashion Police

Hell must have frozen over. Who would have ever thought that fashionistas would be discussing such “mundane” topics as the U.S. economy and recessions— unless, that is, they were involved in the business side of things? Yet, I’ve started to detect some of this chatter in world of fashion. Of course, just the discussion of such issues is reprehensible to some. According to one fashion blogger:

So many writers spend their days viewing society with a cynical magnifying glass — and oftentimes, bloggers are the worst….

I feel overwhelmingly bad about the state of… politics, celebrities, fashion, the world, etc. Instead of rose-colored glasses, I feel like I’m viewing things through black lenses. And goth is not my style.

Whatever you say. But some are actively discussing the prospect of a recession, and its potential impact on the industry. Yesterday, Isabelle O’Carroll wrote in the blog “Catwalk Queen” that:

We’re nearing the end of the fashion season and disgruntled rumblings are already being heard about the clothes. Even from designers such as Prada who usually wear their eccentric hearts on their sleeves the mood has been conservative and dare I say it a little sombre as the spectre of a US recession casts a shadow over the fashion world.

The hype surrounding the so-called ‘credit crunch’ which has led to repossessions and increasing debt in the US has sparked fears of a worldwide recession. The weak dollar has prevented buyers from large stores such as Saks Fifth Avenue and Barneys attending London Fashion Week. “London designers are the icing on the cake,” said Averyl Oates, the fashion director of Harvey Nichols. “And these days no one needs extra icing.”

With the prospect of an economic contraction looming, how have fashion designers responded? By attacking the recession head-on with even more opulent shows and extraordinarily creative designs. You go, girl! According to the Associated Press on February 25:

Luxury brands pulled out the stops in Paris on Monday with creative displays designed to ward off fears of recession that have cast a pall over the retail sector…

Guests including “Cashmere Mafia” star Lucy Liu watched the parade, set in a tent in the Tuileries gardens against a spectacular set of cascading water.

The no-expense-spared bash was Dior’s antidote to a retail climate undermined by fears of a U.S. recession, rising energy prices and a weak dollar.

“When times are tough, the mistake is to throw in the towel,” Dior CEO Sidney Toledano told The Associated Press. “I always use this metaphor: when the kids are not hungry, you have to cook even nicer dishes to stoke their appetite.”

“When times are tough, models grab orange mocha frappuccinos”
YouTube video link

Lauren Goldstein Crowe wrote on February 5 in Condé Nast’s Portfolio.com that:

You’d never know there was a recession looming from looking at the shows. They’ve been more opulent than ever…

Retailers fight recession in a number of ways. But for those at the top of the heap — stores like Bergdorf Goodman or Harvey Nichols — the best plan of attack is to bring in the most special pieces possible. Averyl Oates, the fashion director at Harvey Nichols said that while they are keeping an eye on the number of pieces they buy at the 8,000 pound mark, it is by and large, their lower priced goods that suffer in recession. It’s simply too easy for people to trade down to the high street for their jeans and casual clothes. But once you’ve worn a feather-adorned designer gown, or gold painted coat, or giant fur collared jacket, you’re just not going to be happy at Zara.

Will the fashionistas be able to defeat that menace known as recession? Will the author of this piece ever update his grunge-era wardrobe? Stay tuned…

Vanguard Founder Says Recession Odds At 75 Percent

Earlier today, CNN Money posted the answers to questions Fortune readers asked of John Bogle, the 78-year-old founder of mutual fund giant Vanguard. With $1.3 trillion in assets, Vanguard is now the second-largest mutual fund company. Bogle talked about the odds of a U.S. recession, the U.S. housing market, the subprime crisis, and challenges to the U.S. economy, among other issues.

What are the odds of a recession right now?

I would put the odds of a recession at 75 percent. This economy is very much consumer-based, and I believe that 70 percent of the GDP is consumer spending. That’s a very high number. Two things are happening there: Consumers have fewer resources because from 2001 to 2005 they took $5 trillion out of real estate. That will not recur. This is a big drop. We also see weakness in auto sales and retail spending – we even see it at companies like Starbucks. There is another, equally important factor in consumer spending, and that is confidence. Consumers are not going to spend if they are worried about the future.

Will the real estate market improve anytime soon?

It doesn’t look so good. I really don’t see it improving soon. At some point homes will have to be built. But right now there is not much incentive to build new places when there are so many old places on the market. When those lines cross I don’t know. It’s complicated by the fact that many people have gotten into ARMs [adjustable-rate mortgages] who didn’t know what they were doing. I don’t know what is going to happen to those people when lenders foreclose. When banks were community banks, they were more careful. But when banks sell loans in a bundle, they are clearly not going to be concerned about mortgage quality. So we have to have a better system in the future to make sure we have a much better element of credit quality in mortgages.

How does the U.S. subprime mess compare with other crises you have seen in your career?

I’d say the most similar example was the S&L crisis of the late ‘80s and early ‘90s. The issues were somewhat the same: Institutions borrowed short and lent long.

The immediate concern for most investors is the subprime market, but over the long term what do you see as the biggest challenges facing the U.S. economy?

Externally, we are faced with $1.5 trillion already poured into Iraq and Afghanistan. So you have enormous expenditures in a corner of the world that is important to us, but it is very unwise to think we can bring democracy to a place that doesn’t share our values. There are also the challenges from low cost production in China and India. At home, we have a tremendous future financial problem with the federal deficit. We’ll have to take action on Social Security someday. Government spending has gotten to the point where we will have to either cut spending or raise taxes. Another problem is this deadlocked Congress. And I see the quality and caliber of our presidential nominees, and I am not impressed.

It raises the question of whether this country is even able to run itself anymore.