The American Model of "Growth": Overbuilding and Poaching   (November 19, 2013)


Why has this doomed model of overbuilding and poaching sales become so dominant? Look no farther than the cheap-money policies of the Federal Reserve.

The rising Gross Domestic Product (GDP) and other simulacra of "growth" are masking the real model of growth in America: overbuilding and poaching, as in poaching customers and sales from competitors.

No matter how many outlets a company has, there's always room for a few hundred more somewhere. Now that there's a Starbucks on every corner, you might think the opportunities for expansion are limited. No way--now there are Starbucks in bookstores, Safeway supermarkets, subway stations (BART), etc.

Not only is there a coffee outlet of some sort everywhere you look (hey, how about a Starbucks in every Home Depot?), Starbucks is getting into everybody else's business as well--even occasionally hawking music CDs, for example, at least until CD sales plummeted to the point it wasn't worth poaching the declining sales.

Dollar stores are proliferating at a phenomenal rate, as are drug stores in various sizes and iterations--all aimed at poaching customers from WalMart and Target. There is a certain irony in this, as WalMart and Target expanded rapidly by poaching customers from the entire spectrum of retail competitors--supermarkets, department stores, drug stores, sporting goods, and so on.

Everybody's getting into everybody else's business. If there is a profit to be made, suddenly every gas station mini-mart is stocking the line of goods, as are dollar stores and drug stores coast-to-coast.

In the department store/luxury outlet space, the scrimmage for the top 10% and "aspirational" consumers is fierce. Macys, Nordstrom, et al. successfully poached the upper-middle class and "aspirational" consumers with credit (if they could buy luxury brands with discretionary cash, they wouldn't be aspiring to look wealthy, they would be wealthy) from mid-range retailers such as Sears and J.C. Penny.

Countless catalog retailers have opened discount outlets while still poaching customers from other bricks-and-mortar retailers with blizzards of catalogs pitching "crazy low prices" to the marginalized middle class who cannot afford luxury outlets but seek brands above the WalMart level.

Look no further than the enormous success of surf-watersports brands as evidence that an "active youth" brand can sell millions of units to paunchy shark-bait couch potatoes, effectively poaching customers from other sectors on the middle-class retail spectrum.

Specialty retailers are busy poaching customers from competitors, and if that fails then they merge. Witness the absurdly overcapacity office supply space. The fleeting success of BBQ World quickly spawns BBQ Galaxy and BBQ Universe, a manic cycle of overbuilding/poaching that ends in ruination of all three retailers, which then merge and close hundreds of (mostly empty) stores.

That is the operative model of "growth" in America: rapid expansion/overbuilding in pursuit of poaching customers from existing competitors, a strategy that leads to massive overcapacity/redundancy and declining profits that then leads to mergers and shuttering hundreds of redundant outlets.

This overbuilding is especially nonsensical given that the "Brown Truck Store" delivers virtually anything you want to your doorstep: The Inevitable Decline of Retail (September 19, 2012).

Why has this doomed model of overbuilding and poaching become so dominant? Look no farther than the cheap-money policies of the Federal Reserve: Take It To The Bank (The Burning Platform):

This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income.

If this is the engine of "growth" in America, a period of degrowth will be needed to clear the system of unprofitable deadwood and Fed-incentivized malinvestment.



go to Kindle edition
The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

If you want to understand:

  • Why higher education is failing students and the nation
  • The parts of the economy that are expanding
  • The future of higher education
  • How to get a practical education and a job without student loans
  • You need this book

    Read the Foreword, first section and the Table of Contents.

    print: $20           Kindle: $9.95



    go to print edition Why Things Are Falling Apart and What We Can Do About It

    If you want to understand:

  • Why the wheels will come off the global economy in 2014 - 2015
  • The five forces that doom the status quo
  • How to change your life and finances to prosper in the coming crisis
  • You need this book

    Read the Introduction and the Table of Contents

    Kindle: $9.95       print: $24



    NOTE: gifts/contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

      Thank you, Robert M. ($5/month), for your supremely generous re-subscription to this site-- I am greatly honored by your support and readership.  


    "This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
    --Walt Howard, commenting about CHS on another blog.




    Or send him coins, stamps or quatloos via mail--please request P.O. Box address.

    Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings.

    At readers' request, there is also a $10/month option.

    What subscribers are saying about the Musings (Musings samples here):

    The "unsubscribe" link is for when you find the usual drivel here insufferable.

     
     
    Your readership is greatly appreciated with or without a donation.

    All content, HTML coding, format design, design elements and images copyright © 2013 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.

    I am honored if you link to this essay, or print a copy for your own use.

    Terms of Service:
    All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


                                                                             
    blog     My Books     Archives     Books/Films     home


     





    Making your Amazon purchases
    through this Search Box helps
    support oftwominds.com
    at no cost to you:


    Add oftwominds.com
    to your reader:


    Free Page Rank Tool

    Oftwominds.com #7 in CNBC's
    top alternative financial sites

    #25 in the top 100 finance blogs