The Fabuless Life » Business

Trust Fund Baby

L.Jay — Tue, 17 Nov 2009 16:49:31 +0000

What if, with the government’s help, every baby could start out life with a trust fund, no matter what the family’s financial circumstances? While some would certainly call this a great idea, detractors call it one more step toward socialism.

Congress is considering a bill that would give each child born in the United States a $500 savings account, with the goal of promoting savings that would later be used for education, a first home or retirement. Under the ASPIRE (America Saving for Personal Investment, Retirement and Education) Act, low-income children would receive additional funding, and all participants could add to their accounts over time.

It would seem that ensuring that American children have some small amount of financial security from birth is a positive for a number of reasons. The new plan would give kids at all income levels financial education, as they work to make the modest initial deposit grow. The importance of learning about saving and finances can’t be overstated – part of the problem with our economy today stems from a lack of appreciation for debt and future planning.

The purpose of the accounts would be to get people invested in their futures, allowing those who never had an asset to change their mindset and learn from the experience. Although $500 doesn’t sound like much, properly invested and amortized, it’s possible to build significant savings over time. The ASPIRE Act also would pair the creation of the accounts with financial literacy programs in schools.

A similar program has been underway in the United Kingdom since September 2002. It’s different than the U.S. version in that there are no restrictions on how recipients can spend the money.

Lawmakers are expected to reintroduce the ASPIRE Act before the end of the year, and it already enjoys bipartisan support. The challenge will be how to justify spending on the program during a time of financial crisis and budget deficits. The proposal is estimated to cost about $37.5 billion initially, then $3.25 billion per year.

Job Competition Is Fierce

L.Jay — Wed, 28 Oct 2009 15:34:40 +0000

The Labor Department is reporting that, on average, there are about 6.3 unemployed workers competing for each new job opening. That’s the highest rate since the department began tracking job openings nine years ago. The figure is way up from only 1.7 workers when the recession “officially” began in December 2007.

The highest point of competition after the 2001 recession was 2.8 workers per opening in July 2003.

Businesses have cut a net total of 7.2 million jobs during the downturn. While layoffs are slowing, unemployment is climbing past 10 percent, and the new report shows that any sort of robust hiring has yet to begin.

Those looking for a job already know that the competition is tough out there – now it’s been quantified. In fact, the employment crisis is expected to worsen as companies remain reluctant to hire with the economy on a teeter-totter. Despite reports that the country’s economic outlook is getting better, most experts predict a jobless recovery until more effort is put into job creation.

Booming Businesses

L.Jay — Sun, 18 Oct 2009 00:16:41 +0000

While it may not be a classic Darwinian case of survival of the fittest, it’s clear that in the dog-eat-dog business world, certain companies are thriving, while others are now buried bones.

It's a Dog Eat Dog Business World

The recession has bankrupted companies from Filene’s Basement to Circuit City. But as the herd thins, other businesses have turned the situation to their advantage, whether through better management, less debt-load, or just being in the right place at the right time.

U.S. News & World Report crunched the numbers to figure out which corporations have seen gains since the recession began, between the years 2007 and 2009, and came up with a top ten list.

Here are the top performers:

Aaron’s – Rent-to-own furniture may have been the dirty little secret in the living room for many, but with high unemployment and low wages, it’s become a necessity for a larger slice of the population. U.S. News reports that Aaron’s stock prices have risen 50% since the recession began and the company has been buying up competitors and aggressively expanding. This, coupled with the inability of many to get financing for furniture purchases, has made Aaron’s an attractive option for consumers and small businesses. This boost has meant a 21% revenue increase for the rental company.
Aeropostale – U.S. News reports that Aeropostale’s stock has risen 68% since 2007 and it’s had a 28% revenue increase. Competitors like Ambercrombie & Fitch have struggled for a foothold amidst controversy and lackluster sales. Part of Aeropostale’s charm – lower prices and a laid-back style that has caught on with the teens.
Amazon.com – No surprise here. Amazon has become the go-to clearinghouse for just about any product you can imagine, with a range of prices to fit every budget. With EBay waning in popularity, Amazon has emerged as a powerhouse of online purchasing (along with Overstock.com), allowing people to shop from the comfort of their couch, and save gas. U.S. News says Amazon is poised to be the Wal-Mart of the web, with a recession revenue increase of 38%.
Buckle – A youth clothing chain store doesn’t immediately come to mind when you think of revenue generation, but never underestimate the power of the teeny-bopper. Buckle’s strong performance is linked to its diverse brand of offerings, including Guess, Lucky, Billabong, Hurley and Converse, and the company has also had a 38% revenue uptick in the past two years.
Dollar Tree – How could a dollar store not be popular in this economic climate? But with competition among the $1 retailers fairly stiff, Dollar Tree has emerged as exceptionally strong, posting a 16% revenue increase since 2007. Not the largest, but with 3400 stores and aggressive expansion, DT has tried to distinguish it’s low-budget offerings through store ambience and diverse offerings. And with share prices rising 108% since the recession began, according to U.S. News, DT is poised to be the $1 sales leader.
GameStop – Fabuless Life readers may not be avid gamers, but apparently there are plenty of people who are. As the biggest video game retailer in the U.S., GameStop has continued to post market share and profit margin gains. Its revenue increase of 26% is expected to rise as the popularity of video games grows.
O’Reilly Automotive – I have to admit I’d never heard of O’Reilly Automotive, but since the recession began, the company has reportedly shown an 84% revenue increase. According to U.S. News & World Report, O’Reilly Automotive:

…sells fan belts, alternators, headlights and other components to two sets of customers: professional installers and at-home tinkerers who work on their own cars…

The gangbusters business has revved up as consumers hang onto their cars longer and need more repairs.
Priceline.com – Flights have stayed pretty pricey, despite all the propaganda about “sales” and discount fares that airlines churn out on a regular basis. Looking for cheap flights can be a real roll of the dice, and Priceline has apparently become the go-to gamble for those looking for good rates. Priceline stock has been skyrocketing, up 54% since the recession began, and it’s had a revenue increase of 46%. Plans to expand abroad could further elevate Priceline’s success.
Staples – With competition from Office Depot and Office Max, Staples has managed to stand out from the crowd and keep it’s bottom line strong. Adding copying and printing services to its office products business, along with smart acquisitions have been a boon. Staples’ revenue is up 26%.
Ulta Cosmetics & Fragrances – Ulta has turned into somewhat of a big box retailer for everything beauty. The full-service stores even offer hair styling and facials. Ulta stocks a fabuless selection of products at its 333 superstores, allowing it to compete with drugstores and department stores as a one-stop shop. Revenue has increased 25%. Ulta’s success is just proof positive that you can still be fabuless, despite the economic downturn!

Frugalista Controversy

L.Jay — Sat, 10 Oct 2009 13:46:47 +0000

Target ads have a new theme – the “Frugalista”. From what I can gather from the commercials, the Frugalista is a woman with style, class and family who appreciates nice things, but is on a budget. Sounds Fabuless! The commercials are engaging and fast-paced, and definitely try and beat in the point that Target is your go-to store for available items in every category – from dishware to cosmetics to clothes.

We are a fan of the big box retailer that competes with Walmart by offering higher-end discount shopping. There are indeed good deals to be had at Target (particularly in the women’s clothes department!) and their Superstores offer a dynamic variety of produce and other goods, particularly compared to Walmart. Target’s Archer Farms grocery line is innovative, and definitely appeals to fabuless tastes.

Target’s coining of the term frugalista is pretty hot, although it’s a bit rough on the tongue. And really, we’re just glad they didn’t start calling the women in the ads “fabuless”!

But apparently there is one Miami news reporter/blogger who is unhappy with other’s use of “frugalista”. U.S. News reports that Natalie P. McNeal, a Miami Herald blogger, has hired a lawyer to send cease and desist letters to other bloggers who call themselves “frugalistas”. McNeal has filed for a trademark on the word “frugalista”, but similarly, so has Target, for the term “fashionista frugalista” (wow that’s a mouthful).

According to the U.S. News article, the term “frugalista” is so prevalent that it appears in the dictionary, and it is used by dozens of bloggers. But McNeal’s lawyer defended her legal move to the magazine reporter:

[attorney Alexis Hart]McDowell emphasizes that other writers can still use the word “frugalista” in their stories—which may seem obvious, given the fact that it is a commonly used word—but that they cannot identify themselves as a “frugalista.”

At least one blogger has changed her name after receiving a cease and desist letter from McNeal’s lawyer. But based on the parameters McNeal outlines for trespass on her trademark, Target may be in the clear.

Who wants to tackle Target anyway??

Blue Chip Bankruptcies

L.Jay — Sun, 04 Oct 2009 00:45:04 +0000

Just about every week there is a story about the economy getting better. And during the same week you usually find another story about the economic situation getting worse.

One of the biggest indicators of a stalled economy is the unemployment rate. But another sad sign of the times is the number of former “establishment” businesses going bankrupt.

A recent report in The Business Insider predicted which high-profile publicly traded corporations have the highest probability of declaring bankruptcy, primarily because of high debt loads. Here is the list, which includes some businesses that might surprise you:

Hertz – car rentals
Textron – business jet sales
Sprint Nextel – cell phone service
Macy’s – department store
Mylan - pharmaceuticals
Goodyear – tire sales
CBS – television and radio news and entertainment
Advance Micro Devices – computing and graphics
Las Vegas Sands – hotel and casino
Interpublic Group – advertising and marketing

These esteemed businesses are in good bankruptcy company. In the past few years, Washington Mutual, Tribune, Bennigans, Chrysler, General Motors, CompUSA, Circuit City, Sharper Image, Linens N Things, among others, have all gone bankrupt. And that doesn’t even include blue chip Wall Street firms like Lehman Brothers and smaller banks around the country.

If this seems like an interminable list, it pretty much is. Companies that seemed as solid as a rock have crumbled like sand castles. It’s a sign of the times, and seems like things will continue to get worse before they get better.

Luxury Real Estate For a Steal

L.Jay — Sun, 27 Sep 2009 14:10:51 +0000

Buy Your Dream Home

The real estate boom and bust has left a trail of foreclosures, short sales and desperate home sellers in its wake.

When the economy crashed and layoffs soared, many well-heeled and nouveau riche found themselves unable to make their mortgages and unable to sell their overpriced homes. In addition, the subprime lending market allowed people to buy homes well above their means. High demand, house flipping, and inflated prices blew up the housing bubble, and now excess inventory is dragging down prices, meaning – there are bargains to be had!

If you are in the market for a new home, and you do have the money, it’s the best time to buy luxury real estate in years. The peak demand for homes over $1 million was four years ago, and sales of these high-end properties has dropped by more than 50 percent in the 20 largest metro areas, according to the Associated Press.

According to the National Association of Realtors, nationwide, overall home sales are down about 27 percent. In the month of August, sellers with homes priced above $2 million were cutting prices by an average of 14 percent, compared with the national average of 10 percent, as reported by Trulia.com.

But who can afford these million-dollar homes? A buyer would need to earn at least $200,000 a year, and be able to afford a $4,900 a month mortgage (not including property taxes). Only about 4 percent of Americans fall into that tax bracket in these economic times.

Bankrate.com shows the average interest rate for a 30-year “jumbo loan”, which is a mortgage over $729,750, at 6.18 percent, while a conventional fixed-rate mortgage is about a point lower. That means the mortgage payment for a $1 million home (with a down payment of 20 percent) would run about $4,900 a month, not including property taxes.

Of course, the value you can expect depends on where you live. For example, in Michigan, formerly million dollar homes can be purchased at bargain basement rates. Luxury real estate in Florida that was way overpriced to begin with hit the bubble and burst wide open, and prices have fallen off a cliff.

Expensive homes in other cities that didn’t experience the same price inflation show a more incremental reduction in prices.

Crocs Chokes

L.Jay — Wed, 02 Sep 2009 01:29:42 +0000

When an uber-popular shoe company like Crocs goes under, you know we’ve hit on hard times. They weren’t exactly cheap, like the flip-flop, but Crocs were ubiquitous nonetheless, worn by a cross-section of society.

I never understood the attraction – the couple of times I tried them on, they didn’t fit my narrow feet that well. And they weren’t exactly stylish…

But Crocs apparently were verrry comfortable for those folks who wore them all the time, and they were sold everywhere. (I noticed on their site that the shoes are selling for a great deal less than they used to – now you can buy a pair for $19.99. They used to retail for $30 and up) Now, after seven years, the Colorado-based company is having major financial troubles – to the tune of $185 million in losses. Read more about it here:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/15/AR2009071503672.html?referrer=emailarticle&sid=ST2009071701949

Interestingly, the brand has been built on comfort and durability – the latter meaning that you never need to buy a new pair, so growth potential is limited, unless the company were to expand it’s product offerings. Apparently as Crocs expanded for growth, the economy smacked them right back down, and now the shoes’ future is in jeopardy.

Cash For Clunkers

L.Jay — Sat, 25 Jul 2009 20:13:15 +0000

I would sure love to trade in my 2006 Pontiac Grand Prix for a sporty new model, but I don’t think the Cash for Clunkers program is for me. Despite the fact that I’m spending God-awful amounts of money on a car with very poor gas mileage, I’ll probably be stuck with my automobile for at least a short while longer. I should probably have thought ahead when I was purchasing the car three years ago – gas was high, but had yet to reach the stratosphere. Still, I was more concerned with the comfy seats and powerful engine (which led me, along with poor driving, into about 3 accidents in a one-year period). In my purchase defense, I did get a very good deal on the car after shopping around. It just wasn’t as good a deal after I realized how much my weekly gas bill was going to be (@ $45/wk).

But enough about my problems. I’m happily driving my husband’s Prius these days, and have the gas-guzzler parked. What I’m really wondering about is how many people are really eligible for the government’s Cash for Clunker’s incentive. Here is a link to an article about the program from MSN Money that has more than you thought you’d need to know:

http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/cash-for-clunkers-the-rules.aspx?GT1=33009

From what I have gathered, you really need an old, gas-hog of a vehicle to come close to qualifying. And it seems likely if you’re driving this kind of a clunker, you probably can’t afford a new car payment. However, the MSN article says there are cars out there for under $10,000 (the Ford Fusion pictured here is reasonably priced and gets good mileage). But there are exceptions to every rule, and I’m sure there are some people who will benefit… it will just be interesting to see how many.

Importantly, the MSN Money recommends buyers limit loans to four years and put down at least 20% of the price of the car. Her car-buying rule of thumb: Keep payments to no more than 10% of your monthly gross income. You can also use the $4500 government voucher as your down payment, so that’s pretty sweet. But in this economy, if your credit isn’t stellar, it makes no sense to spend money on a new car, if you have one that’s paid off and actually runs.