THIS IS MY 124TH BLOG ON UNDERSTANDING MONEY
TOOLS
In this blog we will look at industries that have reached
their peak, and don’t have a great deal of upside in our ever-changing
world. If you are young, starting
college, or perhaps older looking at changing a profession you might take
notice as to what is happening.
It is my intuitive nature to look around at how we are
living and quickly moving changes.
I am one that does not like change and is quite rooted, but notice
changes in how we do things.
If you are ready for college I am sure you are seeing a
school counselor for advice; you need to.
The liberal arts degrees have been useless for quite some time. You most likely have heard to shy away
from history, philosophy, sociology, art, photography, perhaps architecture,
retail, etc. It is true. You are
going to end up needing very advanced degrees in these subjects to perhaps
teach, or will be out of work. Always
look to see what will be needed in the future, not what is needed now. As an option to college tech schools
and learning a trade may be a wise decision pending the right fields.
The following statement will not be shocking to you, but
sometimes we fail to believe it.
Looking around there is less and less need for humans to work. Since 1980 most pay scales have dropped
in professions. The greatest note
is in manufacturing. Unions at one
time held power, and could structure great contracts to favor the middle class
worker; then we went abroad for manufactured goods. Big corporations have re-structured pay scales
downward. Instead of W-2 employees
and managers receiving a salary more companies are going to a lower hourly rate
and then quarterly bonuses based upon performance, not equating to a good
salary level. A few quarters of
under-performance and you are out the door.
Let’s look at retail.
Manufacturing, the start of retail; unless it has a unique niche they
are going to be out of business.
In retail there are many stores including J.C. Penney, K Mart, Sears and
more that lack a strong identity and probably not going to make it. This is the inexpensive market place
competing directly with on-line stores.
There has to be desired uniqueness. A mistake troubled companies make is they sell off their
best assets or subsidiary companies as those are the ones that will sell. The problem is then they remain with
crap. If opening retail, make it a
“destination type” of business where people will be willing to drive distance
to your location because you are unique/necessary and stand out.
I see misleading financial public relations with company
growth. As mentioned many times
before, retail companies are expanding with cheap borrowed money from Wall
Street, issuing bonds, expanding in secondary and tertiary markets. They promote that gross sales will
increase significantly this year.
Not hard to do when opening new stores. What we need to watch is “same store” net pre-tax, bottom
line or earnings.
In jewelry I see inexpensive items flooding retail. A lot of merchandise comes out of the
Far East including China. The
millennials aren’t desiring
fashion jewelry and watches. For
hourly time they look to their cell phones.
In general retail stores are having a tough time. Shopping
centers are going to various means to keep customers coming to malls, this
includes entertainment like music/bands and little treats like food. I have noticed that movie theaters in
malls now open their food/drink area to the public. Normally it was after you bought your movie ticket you came
into the food and beverage area.
Now food/beverage sales come first, then you buy the ticket to the
movie. Smart, opens up the market.
Elon Musk has brought a very interesting concept to the auto
industry with his Tesla cars. He
avoids the dealership concept and goes directly to the customer. One place he sells cars is in shopping
malls. To test drive a car you
typically go with a sales person to parking and find a separated enclosed area
with his demo cars. As you most
likely know, dealers are not in favor of him, he’s breaking from tradition!
Automobile mega centers are the new thing; one-stop shopping
for all. Very competitive and
saves the interested buyer time.
The fast food industry went to this long time ago. McDonalds had the best market research,
so then other fast food companies centered around McDonalds; one stop shopping
for each taste.
In the auto industry I question the long term for the auto
parts industry. It has been
growing rapidly with the availability of low interest rate money from Wall
Street and banks. Dealerships will
put pressure on manufacturers to sell only component parts for cars to hurt
this industry, and favor their dealership service departments. They want people
to buy new cars. The second thing
I see with auto parts is that there are three types of buyers: wholesale to the
repair shops and the older cars, older people who still can and want to work on
their cars/classic cars (they are dying off), and thirdly people who can’t
afford repair shops and “need” to work on their cars. As cars age parts get
scarce.
I’m going to include home building in the mix of matured
industries. We, like much of the
Western world, have an aging population.
Married couples are not having the expected 2.2 children to meet the
demands of the attrition. The Western world is resting upon immigration to hold
the numbers. The big housing market is in the $300,000 and under price range
where government loans like FHA and GI (military) play a large part. Older people won’t be buying homes,
however moving into assisted living places and nursing homes. These are very expensive and can cost
$3,500 to $7,500 per month and more for specialty care. I am not sure how many elderly can
afford this, and no one seems to know what we are going to do nationally to
bear the costs.
There is not much room for the small, private financed
homebuilder in major popular spots competing against the big public
companies. In residential
subdivisions, sometimes referred
to as “track” housing, homebuilders expect a net pre-tax profit of about 9-10%,
and then perhaps another 3-4% when options are added in. The publicly traded companies borrow
upon issued bonds with Wall Street, thus paying about 3-4% for money. You, and I, as small builders need to
go to a bank and the going rate is 10-11%. Yes, that is on an annual basis and you can build such a
home in 90-160 days, but you will be way behind the major builders as they
normally have tied up the best workers in various trades like framers, plumbers
and electricians. They purchase
materials in quantity, you won’t.
If you are building homes go to areas of demand where you aren’t in
competition with the big builders.
As retail in cities and towns weakens there is less need to
build shopping malls and retail space.
Large urban downtown cities may be different. Be careful of overbuilt office space for the same reasons.
In the nature of matured industries you can take hot
industries and pick them apart.
There are both good and sketchy areas even in technology and medical. As an example, in the technology area
stay away from website design in general unless very specialized. Just a couple years ago friends working
in this realm were making $75 to $150 per hour, but not any longer. Companies like Google and GoDaddy offer
free consultation and photos. Hard
to compete with free! If you want
a person to do a website there are “honest” sites where you can contract with a
foreign individual, let’s say in India, and have them do the work. These sites rate the workers. A top rated tech person can be had for
about $3.50 an hour. You make
payment to an intermediary party like PayPal. After you are satisfied with the work, payment is made. Here too, I have a couple friends still
doing website work, and they use such trusted labor. They mark the project up to $85 per hour when billing
clients. Not bad leverage if you
can get the work!
Computer hardware is going smaller and compact. Cell phones are getting a bit larger
with more functions replacing computers for everyday use. In tech the need for software design
against theft and fraud will only increase. The government and finance industry will be good employers.
Think outside the box example: In 1990 after the oil and gas business took a dive, my old
partners and I looked into missed opportunities. We found out that theft and lost cars in the auto rental
market was enormous, multi-million dollars. These cars most likely were rented
under false ID’s and autos headed out of the country for Mexico and South
America. We had meetings with Avis
and Hertz. Our business plan had a
tracking device that could be attached within a car. For a locator we had investors willing to launch a
satellite to spot cars. There was one big deterrent. In those days instead of a chip, which would be used today,
our implant in a car was the size of a large battery. We did not move ahead with the project. The reason I tell you the story is that
if you look, you can find needs.
Then, one needs to resolve the situation.
Quickly, I will add in the obvious waning industries of
paper newspapers/magazines and industries where the young are shying away. Printing on paper product is the
same. Companies can send
information to China and have the
printed product back in a couple days.
I will include sports here.
Except for country clubs the younger people aren’t playing golf and
tennis like years back. Public
tennis courts are growing weeds!
The cities and counties don’t have the money to pay for
maintenance. Golf is rather
expensive for the average person.
I hope this helps in your thinking process and determining
the right path. Everywhere I look
I see matured industries that no longer will be here or needed in 3-5 years.
Cheers!
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