Lululemon's dilemma: Higher quality, better prices, lower profit

When Lululemon's stock shares decreased from $16.82 to $14.94, the company decided to lower the price on its yoga mats and other accessories. This attempt to encourage shoppers to take up yoga resulted in a more than 40% spike in sales due to consumers attitudes to purchasing more unnecessary products in the midst of the recession. The new prices are sure to hurt the company's gross profit which had already decreased 42.8% in the first quarter. While the best selling yoga mats were marked down from $54 to $28, some consumers are still steering clear and believe that the lowered price is still too much.

I think Lululemon can be considered an oligarchy because of its choice in products. It has made itself exclusive and the horseshoe logo can be recognized by females (and many males) everywhere. The company can be fairly confident in its product when competing with other clothing companies (consumer acceptance barriers) but it still has to be considerate of the consumers reaction to price changes. If the price is too high, there are a few similar brands the consumer can turn to. In this article, Lululemon is using product quality as a non-price competitive strategy and is changing its product by improving the zipper without passing extra costs on to consumers.

In my opinion, the company shouldn't have lowered its prices to that degree. Consumers who were willing to pay for the brand before, will still most likely be willing to pay in a recession because of the image or prestige that comes with buying the product. By lowering the prices, Lululemon is not only lowering its profit, but it is lowering the competitive barriers that are in place of being an exclusive athletic clothing store, inviting more competitors into the market.

http://www.theglobeandmail.com/globe-investor/lululemons-dilemma-higher-quality-better-prices-lower-profit/article1177692/

Italy public debt hits record in February

In February, the Bank of Italy announced that its public debt had increased to 1.708 trillion euros. It had risen nine billion dollars in just one month and has caused the income from tax revenues to decrease sharply. This meant the Italian government had about 2.685 billion dollars less to work with. The article states that Italy has the third largest public debt in the world which equaled more than their annual GDP. Furthermore, it is predicted that the economy would shrink by 3.7% this year (the worst performance for more than 50 years) which puts a strain on the resources needed to eventually pay off the debt.

Public debt is the money owed by all levels of government and has an impact on inflation. To the average citizen, the concern over the public debt is tied to rising prices because increased borrowing and spending by governments create an increase in demand for goods and services. The burden to pay off the debt is on citizens (who pay through raised taxes) and maybe present for future generations. It is often seen as unfair because the politicians who created the problem are not in power, yet their problem must be solved by the people living 20-30 years from now.

For people in school right now (GRAD '09), we should be concerned about what our parents and their votes towards politicians. The mess that they make could make us shake our heads and think "how stupid", but it also means that we may be cleaning it up afterwards. A decade from now when we are starting jobs, families, ect. the public debt and how much of it is paid off will impact our taxes. In order to finance government borrowing and spending, the marginal tax rate must be raised which means less money in peoples pockets. To pay off a high public debt, incomes are decreased and the ability to spend follows which decreases any confidence the public has on its elected government.

Retailers' Pain in the Cards

To be able to offer credit cards as a payment option, businesses have to pay an average 2% fee which has started to put a toll on their expenses. Premium cards which offer travel insurance, financial rewards (air miles), have small businesses in a tough situation. The interchange fees for regulars like Visa and MasterCard range from 1.6-1.9% but premium cards require a high fee of 2.3-2.5%. Mr. Simmonds, one business owner, says "It has increased our average monthly cost of credit card processing for Visa by 10%, and for MasterCard by 18%." It is a big cost but recently the Senate and Commons committee has started to investigate the issue, due to companies across Canada suffering through the recession.


There are individuals who are willing to buy(demand) and lend money(supply). At times, the consumer also has to pay a service fee when they decide to bring out the plastic. If the government decides to put a limit on intercharge fees, consumers may be more willing to borrow the money and businesses aren't sweating to provide the payment option. This increases the amount of money circulation in Canada which influence the levels of unemployment and economic growth. (If people spend more, jobs are created, and more money is put into consumers hands.)




I think that credit or debit cards are a great option when trying to get consumers to buy more. Using the card almost doesn't hurt as much as using money because no actual money is being exchanged. It is almost like paying with someone else's money, although you are paying at the end of the month. Credit cards allow companies to create money by creating deposits through loans. If more money is loaned out, more money can be created. I think limiting the intercharge fees will help both consumers and businesses in the recession because it allows them to keep more money.



http://www.vancouversun.com/business/fp/story.html?id=1393636

Lowering Interest Rates to Stimulate Economy

In an effort to fuel the declining economy, the Bank of Canada governor Mark Carney has cut interest rates from 4.5% to 0.5% (within 15 months). The idea is that other banks will also be influenced to change their rates, giving people more incentive and a better chance at borrowing money, as well as paying it back. Statistics Canada report indicated that Canada’s economy had shrank by 3.4%, and while lowering interest rates are supposed to stimulate the economy, there will be a slow (12 to 18 months) or very minimal effect. The decline in the last quarter of 2008 has been the biggest since the recession of 1991 and Prime Minister Stephen Harper will only comment, "the economic plan of the minister of finance has spoken very clearly about the government's views on this and our action plan to deal with it."

GDP refers to the value of goods and services produced in Canada in a given year. When the level of savings and investments equal, GDP is said to be at an equilibrium (or stable). In an economic recession, people tend to try and save money which reduces the amount of money circulating (for businesses). Without consumers spending, businesses must cut back on production or lay off workers to maintain their profit (cutting costs). This reduces the flow of money to consumers and households have a lower amount of disposable income. If people do not spend money, business investment (spending) also decreases. When there is little investment, the GDP falls. With lower interest rates, consumer spending should increase because it is sometimes necessary for people to borrow money before they spend it. With low interest rates, the cost of borrowing is little (barely anything at 0.5% interest) and the opportunity cost of not saving is also less.

In most households, spending is determined by future prices and levels of income. During a recession, future incomes are definately not secure which leads people to believe that they need to save now so they will be ready to absorb a likely job loss. With lower bank rates, consumers are only affected indirectly and only affects consumers who are willing to spend money during a recession. Consumers don't benefit right away (like they do if the PST or GST is declined) which is what they need now to reassure them that they should be spending. I think that decreasing interest rates are a good thing, especially in the long run because recessions don't go away overnight. Eventually, as the situation gets worse, people will have the ability to obtain credit and spend money.

http://toronto.ctv.ca/servlet/an/local/CTVNews/20090303/BoC_cut_090303/20090303/?hub=TorontoNewHome

Vancouver's Downtown East Side

The Downtown East Side has a reputation for being a poverty stricken neighbourhood where the average annual income of a person is $14,024 - and half of this is covered by government subsidies. About 38% of the residents do not yet have their high school diploma which leads to a problem for those who would like to participate in economic life. While the unemployment rate is low (5%), 60% of the people in the DTES aren't counted as being part of the work force. (Being part of the work force includes having a job or looking for a way to participate in the economy in some way - or looking for a job.) The homeless, may or may not be part of this figure because they do not get counted in the census and it is difficult to know how many actually get counted. Aboriginals are also concentrated in this area, possibly because housing costs are much lower.

Unemployment is a big issue for both the individual and the government. The Labour Force Survey (which is taken on a monthly basis) account for the labour force which includes anyone who presently has a job, or does not have a job but is looking for one. The unemployment rate measures the percentage of the labour force who does not have a job. This does not include people that are in prison, in the army, or live on Indian reserves. According to the article, the low unemployment rate may not reflect what the situation actually is on the DTES. Most likely, the large number of homeless people, Aboriginals, and are not accounted for in this figure. Since these figures help the government effectively use their resources, how helpful are they in reflecting the issues in the Downtown East Side?

If the government is going to put money and effort into having a Labour Force Survey, I think the numbers should be a little more accurate. Anyone who looks at the survey results and has visited the DTES would probably agree that they contradict each other. The hidden unemployed (members of the population who are not actively seeking a job because they do not believe there are suitable jobs available) should definitely be factored into this survey because this includes the homeless who, if they don't have a high school diploma, may believe that there wouldn't be any jobs for them. I think this would be important so the governement can be forced to look at the situation for people in the DTES and help them accordingly.

http://www.theglobeandmail.com/servlet/story/RTGAM.20090209.wdtes_whatworks0209/BNStory/thefix/

Social Services in Canada

Although his weekly income had decreased by $250, 43-year-old Scott Campbell says he is alright. However, for many other unemployed workers, the recession and job cut offs have been tough. (Foreclosed houses, assets claimed) Unions and critics are fighting for fewer restrictions on who can receive the insurance and to increase the amount received as well as the duration of receiving the benefits. Economist Toby Sanger agrees there is a lack of coverage because approximately 40% of unemployed people receive these benefits. With the auto industry laying off workers, what are the 60% of people who don’t qualify for unemployment insurance to do?

Social services is the largest component of government spending. Employment insurance benefits require the bulk of the percentage total. In 2001-2002, over $11 billion was spent on aiding temporarily laid off workers. While each level of government spends money on social services, the federal government holds most of the responsibility. To do this, they must obtain revenue from different taxes and during tough times, the government requires more money to provide the services its citizen’s demand. Canada’s progressive tax approach (the more you make the more you pay in taxes) allows vertical equity by decreasing the difference between income groups.


Having social services is very important because it gives Canadians an opportunity to get back on their feet. Many people who lose their jobs may be very hard workers but during times of recession, bad luck cannot be helped. Although it may seem unfair at times to be paying taxes which don't benefit you personally, but go to someone else's family, you could be in their situation just as easily. In conclusion, taxes that are used for social services are like giving indirectly to chairity. Although it may hurt a little bit, it is neccessary for Canada to function and people to get much needed help.




http://www.thestar.com/News/Canada/article/533875

Privatization of Prisons

Arkansas is once again toying with the idea of private prisons. Arguments for this include the amount of money the state would save if there were some prisons run by private companies. It would also help the constant overcrowding of state prisons. If other companies were allowed to have their own prisons, the state penitentiaries would be under less stress to humanely house their occupants. A past failed attempt causes caution. In 1990, the state let the Wackenhut Correction Corp. take over two prisons. After only 3 years, they were taken over by the state because of allegations of poor conditions.

Privatization is the transfer of control of a company from government to private ownership. It has raised more than $600 million worldwide for governments from 1992-2002. It is economically very efficient for governments because money doesn't have to be spent on maintaining such Crown corporations and politically difficult decisions could be made more easily. However, profit is generally the motive of privatization and most Crown corporations protect the interests of society. Maintenance is a high priority because the voting citizens can pressure the government to provide effective and efficient services. This would not be so for private companies who could do as they wish to make a profit.

I think that such unmet public goods or services such as prisons and the postal system, it is better to have the power in the governments hands. Political parties are governed by the people that they represent and therefore must act on the people's wishes. I think it would be a very bad idea if private organizations got a hold of such powers because they don't have to obey or follow the morals of society. Their main concern would be making a profit and I believe that the services provided wouldn't be up to the standard of government run corporations. Although criminals have done bad things, giving them a reasonably humane place to serve their sentence should be mandatory, and therefore, prisons should not be privatized.

http://www.canada.com/windsorstar/news/letters/story.html?id=35af9fea-e91e-44cc-bd9c-435bcb44291a