Note: A slightly modified version of this post first appeared on aGNARchy.

This past week there’s been a big shakeup in the snowsports industry. An online retailer (sierrasnowboard.com) deeply discounted Burton merchandise, apparently breaking some retail agreement. As a result, Burton is pulling the plug on Sierra who will no longer be allowed to sell Burton snowboards and softgoods. Sierra says,

Last week after our two day hardgood sale, Burton decided to pull the plug on our dealer agreement with them. This means that at this time we no longer have the opportunity or ability to buy or sell any additional product of theirs. Yes, we do have dealer agreements about when we can discount and how much, but we’re not the only ones who play with fire like last week.

—No More Burton Discounts on Sierra

This has prompted a firestorm among snowboard bloggers and folks who follow the industry news. There’s hate on both sides, because Sierra is like the “Wal-Mart” of snowsports (except they sell name brands) and Burton dominates market share for hard- and soft-goods. I blogged about this briefly yesterday morning trying to keep it as unbiased as possible; keeping with that spirit I wanted to get my economics on.  Let’s get some details out of the way, first.

1. People get bent out of shape because Sierra is allegedly using discounts trying to superwin, but Burton at one time tried to claim intellectual property on the entire idea of “snowboarding”, essentially trying to take royalties on every snowboard ever made by anyone, anywhere, ever. They’re just looking out for their own bottom-line, too.
2. Burton is flexing their muscles more because they recently entered the retail game, with their own direct-to-consumer sales on the interhighway and flagship stores. But you know what? They’re only doing this to make more money and take more market share. Double-standard, anyone?
3. The fact of the matter is that even with the discounts, the internet only accounts for ~18% of snowboards and ~25% of softgoods sales, so they’re hardly “ruining” the industry (via Transworld Business).
4. Industry sales are down like 9%, but Burton sales are down close to 15%. Ouch!

Consider the Spin

If the retailers were banding together to keep prices high, people would raise hell over price-gouging, collusion, and cartelization. This is not different, it’s just being spun differently. When some retailers break stride with the industry and buck trends, (of course they’re just trying to make money, but that’s not a freaking crime, yet), the competition’s spin-factories start working over time, pumping out the “RUINZ TEH INDUSTRY” arguments, and you take it hook, line, and sinker. Unbelievable.

Plus, I kinda thought everyone liked low prices? Remember when CD players cost like $700? Or when a 128kb mp3 player cost like $150? They give those things away now for about $20. The companies are still making money, and we’re all happier for it.

Do Discounts Ruin the Industry?

One popular argument is based on the “war chest” myth, really an economic fallacy. It goes like this: the big corporation has a”war chest” of monopoly profits which it uses to sustain itself while taking price and driving its competition out of business, after which point it will raise prices again and thus be bad for everyone in the long run. The “war chest” argument is total B.S. for at least two obvious reasons:

1. They don’t have a war chest of monopoly profits.
2. Taking price on large market share means taking astronomical losses, it’s the equivalent of doubling your losing bets while playing blackjack.

It’s simply not a sustainable business model to sell product below cost, and nobody who uses this tactic remains in business for long. What I said before is important, and true:

[O]nline and discount sales hasn’t killed any industry yet. But we constantly hear about how it’s going to destroy snowboarding or the music industry or whatever. What it does do is to force change in the way things are done. … It’s the organizations which are most able to adapt to changing pressures that succeed in the long run.

The “online” is changing the way product is pushed to consumers, and in many ways this game is still evolving. This is the nature of our dynamic environment, there is no stasis. People are always going to try and find a better, faster, cheaper way to do things. Thirty years ago the airline industry told the FAA that Southwest Airlines was going to destroy the airline industry. Didn’t happen (what did happen was air-travel became more accessible and affordable to more people). In the long run, competition benefits all of us.

It’s Not Fair to Small Retailers and “Core” Shops!

An important lesson in economics and law is that most legislation aimed at fostering “competition” in order to “save the industry” usually ends up protecting certain competitors at the expense of the consumers.

The correct response to “it’s not fair to the small retailers” is that what’s “not fair” is the MSRP agreement in the first place. Of course there is inequity because Sierra has the clout to reneg on this agreement, but the root of the problem is ultimately market-power gained in an unfree market. Keep this in mind at all times.

If the manufacturer wants to prop up the small retailers, then charge a higher price and don’t give bulk discounts to the online megastores; build their “minimum acceptable price” in to the wholesale price and discriminate against different retailers. Certainly a brand like Burton (Anon, AK, Foursquare, Forum, etc.) has the market power to do this. Unfortunately, you could probably dig up a dozen precedents in anti-trust case law which would explicitly preclude the manufacturer from offering favorable pricing terms to certain retailers and “unfavorable” terms to others.

The fact of the matter is that “core” shops are going to survive. They’ll go online if they haven’t already, and market nationally as well. This flattens prices and margins everywhere. And they’ll still thrive on foot-traffic and personal service.

H.R. 3190 – A Legislative Solution?

Enter government… H.R. 3190 recently passed the House judiciary committee, it would “effectively ban manufacturers from dictating minimum prices to dealers.” But MSRP agreements are always forward looking and so Resolution 3190 ultimately isn’t going to solve the problem.

My take is that this is typical reactionary legislation that we should expect from government which is constantly trying to fix problems of its own creation. Otherwise, if a manufacturer wants to “dictate” the price, they can ask (i.e., require) their retailers to adhere to certain terms, and if the manufacturer disapproves of the retailers marketing/sales tactics, pull the plug like Burton is doing to Sierra.

Summing it Up

The idea that people would still be buying all this equipment at full MSRP if it wasn’t discounted is in direct contradiction to everything we know about price theory. All else being equal, for normal goods, people will buy a larger quantity of a product when it is offered at a lower price. If there is excess supply in the market, prices need to drop to reach equilibrium and clear out inventory.

Someone once told me that every year Ferrari takes orders for its new model. Maybe they get 1,000 people who put down a deposit to reserve a brand new Ferrari. So Ferrari goes ahead and manufactures exactly 999 new cars, thus ensuring that they’re not overproducing, in order to maintain command over a super-premium price.

Now, obviously I’m not proposing anything that extreme. It couldn’t be done with the snowsports goods, anyways, but you get the picture. There are brands out there that don’t over-saturate the market. Never Summer comes to mind, but they only make like 13,000 boards every season. The Lib Tech T-Rice is pretty hard to find these days, too. No idea how many of those they made, but what matters is they made approximately the right amount to command full MSRP on all of them.

The bottom line is that when you overproduce, there is going to be a loss on unsold merchandise, or a loss on discounted merchandise. Seems to me like Burton wants their retailers to absorb the lion’s share of these losses, and that’s not “good for the industry”, either.

Full Disclosure: I’ve bought merchandise from Sierra in the past. I’ve owned a Burton board (which I coincidentally bought from Sierra at a super-steep discount!), I love my Burton Cartel bindings, and some of my softgoods are Burton, too. I don’t have a vested interest in either side of the argument.

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1. Restoring My Faith in Humanity (Kind of…)

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An old thread on a forum I participate in was revived the other day, and I had an (ahem…) interesting discussion with a self-described police officer about drug legalization. Can you see where this is going? I’d rather not bore you with the ins and outs of the discussion (if you could call it that…), but suffice to say he was no stranger to shifting goalposts and reductio fallacies. I won’t rehash that, chances are you’ve had similar “discussions” with similar people in the past.

At one point, someone else must’ve asked him how he can possibly sleep at night. The guy says he turns off “cop mode” when he goes home, and sleeps soundly every night. Apparently, he thinks “cop mode” is a lightswitch. Turn it on or turn it off, at will.

Thing is, his words indicated otherwise—that he was completely incapable of flipping that switch to the “off” position. You know, like, everyone who’s ever smoked pot is a “thug” or a “worthless hippy” and they’re ruining ‘Merica and they all deserve to go to jail and when he goes to work tonight he’s just itching to bust someone for “possession of marijuana”. That’s how irate, how flat-out vindictive he gets when people challenge the legitimacy of a law—he wants to bust some kid merely because some other people on the internet disagree with him.

Too bad his “dickhead mode” didn’t come with an on/off switch. But I digress.

This lightswitch mentality is a huge part of the problem. It’s compartementalization, it’s what sociopaths do. It is what leads people down the path of “I was just following orders,” or “I was just doing my job,” or “I don’t make the rules, I just enforce them,” and so on.

The idea that you become something other than a belligerent with a gun and a club the moment you punch out at shift’s-end is how people rationalize, how they convince themselves that what they’re doing isn’t wrong at all. When they leave work, they’re just a “regular guy” like you and me; they have families and feelings and they like baseball and apple pie.

No, you’re fucking not a “regular guy”. A “regular guy” isn’t vindictive and belligerent. A “regular guy” doesn’t make thinly-veiled threats on internet forums (he actually said he was going to report the thread to local law enforcement—as if talking about legalization is a crime!). A “regular guy” doesn’t get a hard-on every time someone says that just maybe the war on drugs is a stupid idea and just maybe responsible adults should be allowed to be responsible on their own time.  A “regular guy” doesn’t think it’s OK for people to be shot to death for smoking a joint.

No. You’re pretty fucking far from “regular”.

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In response to my recent post, Government Employees Are Overpaid, someone objected via e-mail, I believe to one of my statements in the comments section, “Most of them don’t know it, because they’ve never had an honest, reflective thought in their entire lives, but they’re all thieves” (to be fair, many n the “private” sector fit that bill in one way or another too, so I’m not trying to single anyone out).

I know government = bad, but you know a guys gotta eat.

“Yes” a guy’s gotta eat. And “Yes” I’d steal a loaf of bread to feed my starving family. I can rationalize it, but it’s still probably theft. Sure, it gets insanely complicated and quick-like, because now you can take some of Chartier’s points and start overlaying them: perhaps the people you’re “stealing” from are really thieves to begin with, and you’re just reclaiming what is rightfully yours. Perhaps they owe you that debt (I’m sure they do).

Now we look around and we can’t say with very much certainty, who is (or is not) a thief. And among the thieves, who is the most heinous, who is the real thief. Behavior like this isn’t natural; we’re the smartest goddamned species on the planet, and we’re perfectly well capable of taking care of our own. We shouldn’t have to grovel. How do we find ourselves here?

Ask instead why you find yourself in such a situation, where perhaps welfare is your only option, or if you’re lucky maybe a government job is your only or best option?

Gary Chartier has posted 11 points about poverty and the State; a list which I’d be hard-pressed to modify in any manner. I’m trying not to just regurgitate what Chartier says, but take a look at his top three – this is all great stuff and he gives a lot more detail, I just want to tee it up because it’s relevant:

1. States don’t treat recipients of their aid well.
2. States actively make and keep people poor.
3. States raise the cost of being poor.

As my Public Finance prof used to advise, “People respond to incentives,” no matter how perverse they are. When the job market for your skills has been co-opted by some bastardized union, or when some government program crowds out private initiatives, where do you turn? what do you do? When that same government offers income, or food, or employment security (even after taking so much from you), most people take it. It’s instinctual, and for most people it jives with all the propaganda that they’ve swallowed their entire lives and they’ve been conditioned to accept it.

But this is what I mean when I say that government destroys community. It’s pitting us against our own. Everyone starts clamoring, in a sense, begging for what’s theirs.

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A lot of people make a big fuss when the federal employee salary and benefit figures come out. There’s an article in USAToday that highlights the ever-widening gap between public and private compensation.

For occupations that “exist both in government and the private sector,” government employees took home an average of about $68,000 in salary, compared to only $60,000 for their privately-employed counterparts. That’s a pretty sizeable gap. What’s more alarming is the value of fringe benefits: pensions, health insurance, vacation allowances, etc. Government employees took home an average of about $41K, compared to only $10K for comparable private workers.

Do the math: that’s about a 50% premium. Many of them also get such unheard-of-in-the-private-sector benefits as: all federal holidays off work, four or more weeks paid vacation, 20-and-done for retirement, etc.

Now, I’m all for people getting paid what they’re worth. But that’s exactly the problem with any of the government functions—there is no market for the ditch-digging that most of them perform, and so it’s impossible to gauge the value of their work. And even if we could, they have one unique advantage which they use to exploit the rest of us: those of us who are paying their salaries do not have a choice as to whether we want to keep buying from them. As long as they show up to work, we get stuck with the bill.

Most of them are nothing but leeches, consuming and destroying wealth, draining productivity from the economy. The fact is that most of these occupations shouldn’t exist in the first place, but they do, and they’re being paid extravagantly for doing non-work.

Most of them don’t know it, because they’ve never had an honest, reflective thought in their entire lives, but they’re all thieves.

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At my office, a few months ago they discontinued styro-foam cups, which means I have to remember to bring in a coffee mug each morning, even if I don’t prepare a cup of home brew. Kind of inconvenient.  What’s really inconvenient is after like 11am, when I don’t want coffee.

I want some water.

I can’t put water in my mug, because after you’ve tainted a stainless steel mug with coffee, everything tastes like coffee.

I could walk to the drinking fountain every few minutes, but that’s not terribly productive. Or I could walk to the vending machine and purchase a bottle of water. But that means I’m wasting money, and to be honest, a plastic bottle is about as recyclable as a styro-foam cup, isn’t it?

This was ushered in under an “environmentally friendly” memo. I suspect it’s really a “cost-cutting” policy.

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A guest post from an anonymous friend of mine, who fired off this rant this morning. Sometimes you just need to vent… I’m sure he’s not the only one who has experienced something like this in corporate America.

Begin rant

Today is a special day here at my place of employment; there is a man here, a supervisor (let’s just call him Bob), who is retiring after 42 years at the SAME JOB.  In this day in age especially with our Gen X crowd moving jobs every other year to find the mythical brass ring.  A ring filled with fame and fortune beyond all comprehension.  This is an accomplishment that most of us will never know of.  Loyalty like this used to be rewarded with such cheesy luxuries like a watch, a clock or plaque something that took thought and a little more than a memo to a secretary to make sure it got done.  It was followed by a hand shake full of meaning and praise and appreciation for a man who had dedicated his life to company.  What does he get here at the wonderful company I work for……..Pizza and Cake for lunch!

This, ladies and gentlemen, is the current state of business today.  A market with so little regard for the working men and women of our country that they don’t even take an employee’s personal life into consideration when wishing him well onto the next stage of his life.

Pizza and Cake?

Bob is a healthy guy; he eats healthy lunches, exercises regularly and is an avid outdoorsman who takes pride in his appearance and has no time for cheesy shit like Pizza and Cake.  In our grandfathers time companies knew their people and appreciated the pride they took in their job and how well they performed everyday.  The plant manager knew their kids and wife had them over for dinner and what do I hear this morning?

“Oh yeah Bob was a good guy, but you know what.  He’s replaceable”

It’s that kind of shit that should piss us all off.

He may be “replaced” but he isn’t replaceable, not by any root of the meaning replace which as we all know is: To put something new in the place of; and implies a filling of a place once occupied by something lost, destroyed or no longer usable.  Is that how management views this great man, no longer usable?  This man of 62 years gets more done in a day than 85% of the people I know.  His work ethic is unstoppable.  Even today on his last day of work for the rest of his life he is getting shit done and getting it done right. He has the care and attention to detail the likes of which hasn’t been seen since, I don’t know, Van Gogh.  Is this how you would reward Van Gogh with a shitty lunch of fatty foods and sugars for the younger slovenly generation to gorge themselves on?  I think not.

So, today, we should all raise up our glasses to Bob.   A man who is a member of a work force the likes of which we may never see again.  Not because we do not have the motivation but because of the society we live in.  A society that has no honor, no loyalty and no chivalry whatsoever.  Sure there are those of us who recognize these failings and do our best to represent our elders and be the men and woman who they are or were.  We are the ones who refuse to honor excess and greed, celebutants and the fat pigs who hang out on MTV and VH1 reality shows fighting for their 15 minutes.

Today lets honor people like Bob.  People, who work for their money; who get up everyday and make the trek to a job that gets them by and lets them live their life the way they want to, with no excuses.  Here’s to you; we should all be so lucky.

/End rant.

Pizza and cake? That’s the same thing they serve when they celebrate all the February birthdays on the first Tuesday of the month.  Pizza and fucking cake! Christ…. – dz

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