Watching Old Habits Come Back to the Fore
I first became a business reporter in 2005, interning for the St. Paul Pioneer Press, and used my car-geek status to report on the crazy automotive incentives as my first big-time story that led the paper’s business section. I’ll never forget the feeling of accomplishment at the time from my editor liking my story pitch, and then calling my mom over the lunch hour to share the good news. It feels like a world ago, now almost 13 years in the rearview, but I’m seeing some of the same worrying trends both in the auto realm and also within the greater business community.
If you don’t remember, the economy was generally in tatters in the years following 9/11, propped up by government rebate checks sent out to everyone, competitive pressure from overseas markets, and a general over-reliance on sub-prime customers to juice the all-important automotive and housing markets.
“Buy an Escalade and get a Chevy Cobalt for free!” Insane incentives like this weren’t exactly common, but they happened (among many other terrible ideas) to artificially spur sales as automakers and banks alike needed consumers to keep on buying, whether they could afford it or not. Hopefully we all remember how that worked out for the United States.
Here in the Franchise Times newsroom, we’re always talking about evidence we call “top of the cycle”—whether it’s a concept we agree would struggle amid a recession—think dog spas, escape rooms, or that one crazy franchise that lets stressed-out people break stuff. No offense to anyone currently killing it in those respective industry categories.
The housing market is much different today than it was back then, but look at all the TV renovation shows that glamorize flipping houses. Sometimes, if you recall, treating housing like an investment commodity can go horribly wrong.
I’m also seeing it in the automotive world, with General Motors running its “employee pricing” deals. Going along with new articles about how subprime auto lenders are struggling, and once again feeling addicted to chasing sales at any cost, I worry about our current place on the economic spectrum. We humans are supposed to learn hard lessons.
Here in franchising, many brands in retail and restaurants have battled declining traffic numbers, causing an intense war of competition both for customers and new franchisees. Now, many of the largest brands don’t even waste their time with mom-and-pop franchisees, preferring the easier work and less intense infrastructure required to work solely with massive, multi-unit franchise operators. This trend concerns me, and feels like it is part of the reaction of two really important industry categories that are over-built. Allow me to predict that this won’t end well.
Many in this industry talk about the grave concern they have at rising wages. I would counter that a successful business shouldn’t be predicated on the labor of the cheapest, lowest-cost employees the country has to offer. Even those jobs are hard to fill in many markets.
My twin hopes for the coming year are prudence and moderation. We’re not seeing much of either in Washington these days. I’m not convinced the greater business community is much better. We need rising incomes and productivity to fuel healthy customers. We need companies to take slow-and-steady approaches rather than chasing the next quarterly figure above all else. We need franchising—one of the great outlets for upward mobility–to remain accessible to average Joes and Janes cashing out their 401k portfolios to take the ultimate risk.
For decision makers and for us all, do not chase volume at any cost. We may be at the top of the cycle, but it’s always true that what goes up will come down. Let’s hope for a soft landing, or the low-and-slow upward grind that followed the awful years of the Great Recession. Anything is better than artificial growth and riding the waves of a rolling sugar high.