If you make more progress than you thought you would, don't compensate by slowing down. You're doing great, so raise your expectations even higher and keep going strong.
If you fail to make as much progress as you had planned, don't get discouraged. Remind yourself of why you're making the effort, and re-commit to getting it done.
Consistent, purposeful effort will reliably bring the results you seek. On some days you'll move faster than on other days, yet every day you'll keep going forward.
Never forget that there is great power in small actions that are repeated again and again. Though the path may be long and winding and uneven, by continuing to put one foot in front of the other, you'll reach your destination.
Celebrate the small victories and learn from the small defeats. Then, keep on moving steadily toward the goal you've chosen.
Put the power of consistent effort to work. And each day, you'll bring new value to life.
Friday, November 20, 2009
Wednesday, November 11, 2009
The substance of style - The Economist
“THERE are four main elements to our business model—product, distribution, communication and price,” explains an executive at LVMH, the world’s largest luxury-goods group. “Our job is to do such a fantastic job on the first three that people forget all about the fourth.” For decades LVMH’s formula has worked like a spell: seduced by beautiful status-symbols, perfect shops and clever advertising, millions of people have swooned forgetfully towards the firm’s cash registers. At Louis Vuitton, LVMH’s star company, the model’s pricing power has yielded consistent profit margins of around 40-45%, the highest of any luxury-goods brand.
These days customers are finding it far harder to forget about price. The seriously rich, of course, are still spending freely. But much of the industry’s rapid growth in the past decade came from middle-class people, often buying on credit or on the back of rising house prices. According to Luca Solca of Bernstein Research, 60% of the luxury market is now based on demand from “aspirational” customers rather than from the wealthy elite. The recession has quickly reversed the trend to trade up, and people are delaying expensive purchases. Bain & Company, a consulting firm, expects the industry’s sales to fall by a tenth in 2009, to €153 billion ($225 billion).
Some executives even expect a lasting shift in customers’ preferences, towards discretion and value. Bernard Arnault, chairman and chief executive of LVMH, believes that the whole industry needs to rebrand itself. “The word luxury suggests triviality and showing off, and the time for all that has gone,” he says. Brands which sold “blingy” easy-to-sell products, milking old names, he says, will fare particularly badly in the new environment. LVMH, by contrast, has never taken such an approach, he says, instead emphasising quality, innovation and creativity.
To underline these values, the group is going back to basics in its daily operations. “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price,” says an executive. A few years ago, for instance, at the height of the boom, one LVMH brand was putting diamonds all over its watches, so that it was almost difficult to tell the time. “Now we are getting back to what really matters, which is nice movements and design,” he says.
For some luxury firms, the recession’s effects have already been brutal. Private-equity firms and other outside investors which rushed into the industry at its peak have suffered most. “At the top of the market this industry was perceived as easy by outsiders,” says Mr Arnault. “You borrowed 80% of a target’s asking price and hired a good designer, but the strategy has not been successful in several cases.”
Lenders to Valentino, an Italian fashion house, are reportedly trying to renegotiate its debt. Permira, a private-equity group, bought the firm in 2007 in a deal valuing it at €5.3 billion. Permira has since written down its equity investment of about €900m by more than half. Prada Holding, through which Miuccia Prada and her husband control Prada Group, another Italian house, recently restructured its loans in order to defer payment to banks. Prada Group has denied that there are talks to bring in a minority shareholder. Two particularly weak firms, Christian Lacroix, a Paris-based ready-to-wear and haute couture label which used to be part of LVMH, and Escada, a German maker of luxury womenswear, filed for bankruptcy earlier this year.
Amid this turmoil, LVMH is performing relatively well (see chart 1). It has benefited from an established pattern in the luxury industry: when people have less, they spend what they do have on the best quality. Shoppers are going for fewer, classic items—one Burberry raincoat, rather than three designer dresses, or a single Kelly bag by Hermès, a French luxury-goods group, instead of four bags from various lesser designers. For this reason, says Yves Carcelle, chief executive of Louis Vuitton and president of fashion and leather goods for LVMH, “Vuitton always gains market share in crises.”
As reliable and sturdy as one of its own handbags, therefore, Vuitton is carrying LVMH fairly comfortably through the recession. In the first half of 2009 the group’s revenues were about the same as a year before, though profits were 12% lower. Two divisions—wine and spirits, and watches and jewellery—were the worst affected: their revenues each fell by 17% and their profits by 41% and 73% respectively (see chart 2). Rapid de-stocking by retailers exacerbated the effect of falling demand. But the falls were offset by Vuitton, where revenue rose by a double-digit percentage, registering gains in every market. “It is incredible that in a downturn the consumer still buys so many Louis Vuitton bags, but she or he does,” says Melanie Flouquet, luxury-goods analyst at JPMorgan in Paris.
Vuitton’s performance, and the overall robustness of LVMH, a global conglomerate with more than 50 brands and revenues of €17.2 billion in 2008, should allow it to take advantage of its competitors’ weakness in the recession. “In the next few years we expect several failures in the industry and good opportunities to acquire assets at attractive prices,” says Mr Arnault. Shareholders in the firm are particularly preoccupied by what he might buy and sell in the next few years.
What explains Vuitton’s resilience? Beneath the gloss of advertising campaigns, catwalk shows and each season’s fleeting trends, Vuitton brings a machine-like discipline to the selling of fancy leather goods and fashion. It is the only leather-goods firm, for instance, which never puts its products on sale at a discount. It destroys stock instead, keeping a close eye on the proportion it ends up scrapping (which it calls the “destruction margin”). In 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. “In this they’re the most professional in the industry,” he says.
Unlike most other luxury marques, Vuitton never gives licences to outside firms, to avoid brand degradation. Its factories use techniques from other industries, notably carmaking, to push costs down ruthlessly and to allow teams of workers to be switched from one product to another as demand dictates. It has adopted methods of quality control, too: one quality supervisor came from Valeo, a French auto-parts supplier. The result is long-lasting utility, beyond show, which is valuable in difficult times.
Owning shops gives Vuitton control over levels of stock, presentation and pricing. It was not therefore affected by the panicked price-slashing of up to 80% by American luxury department stores in the run-up to Christmas last year—a “catastrophe” for others in the industry, according to Mr Arnault. Although other LVMH divisions have been hit by outside retailers de-stocking during the crisis, Vuitton has managed its own inventory, with no competition for space from other brands. With a global network, says Mr Carcelle, the firm can move poorly selling stock to shops where it has performed better.
The luxury of diversity
Vuitton’s ability to offset the steep falls in other divisions shows the value of the diversified conglomerate model in luxury goods. Richemont, the industry’s second-largest company, has a less varied portfolio and greater exposure to watches and jewellery, demand for which has been especially weak. According to a recent trading statement, its sales fell by 16% in the five months to the end of August.
A group structure also yields savings when negotiating deals for advertising space, property and credit-card fees. It helps to have a specialist beauty retailer, Sephora, and a chain of airport shops, DFS, to sell perfumes and cosmetics. When Vuitton develops watches, say, it can call on the talents of TAG Heuer. But LVMH’s breadth also comes in for criticism. Although there is undoubtedly value in some diversification, some people ask whether 50-odd brands under one roof are too many. Vuitton, for instance, would doubtless like to see disposals of weaker brands as a result of the crisis, and a greater concentration of resources on the group’s key businesses.
The group’s executives devote the bulk of their attention to the most important of these: Louis Vuitton, Moët Hennessy in drinks, TAG Heuer in watches, Christian Dior in perfumes and cosmetics, Sephora and DFS. The group has many smaller businesses, and these get much less attention in such a big group. LVMH does not disclose financial figures for individual brands, but at its presentation of first-half results the group’s finance director replied to an analyst asking about fashion and leather-goods that a “handful” had lost money “somewhere”. There is speculation that Celine, a ready-to-wear clothing and accessories label, Kenzo, a fashion brand which analysts have long suggested LVMH dispose of, or Loewe, a Spanish leather-goods brand which has so far failed to win much of a following outside Spain and Japan, are among the less profitable.
Nevertheless, the group can use the might of Vuitton to support its smaller, upcoming brands. A department store, for instance, may be asked to take Loewe or Celine in order to get Vuitton. That often frustrates people at Vuitton, however, who would prefer to use the power of the brand for its own benefit, says a person who knows the company well. “They’ve never heard of another of LVMH’s brands saying, ‘Either give this to Vuitton or I won’t come’,” he says. Apart from the synergy in watch design, Vuitton does not find that it benefits much from the rest of the group.
The reason why LVMH has many small brands which aren’t quite making it, says another person familiar with the company, is that Mr Arnault is an optimist who believes that every property can at some point be turned around. That can pay off: some years ago Mr Arnault halted the imminent sale of a make-up line. Thanks to the distribution muscle of Sephora, it has since turned into a bestseller in America. Investors, however, are nevertheless wary of what they see as Mr Arnault’s tendency to collect brands.
The crisis has also underlined the fact that Vuitton dominates the group’s results. Were it not for Vuitton, estimates one analyst, LVMH’s sales would have fallen by 3% in the first half of 2009 and profits would have plunged by 40%. In normal times Vuitton contributes about half of the group’s profits, and most of the rest comes from Moët Hennessy. In the first half of this year, however, Vuitton contributed an estimated 70% of profit. That leads some people to question whether LVMH is overly dependent on the leather-goods firm.
“You can argue that there’s nothing as good as Vuitton in LVMH’s portfolio,” says Pierre Mallevays of Savigny Partners, who was formerly director of acquisitions at LVMH, “but that simply states the fact that LV’s business model is the gold standard of luxury brands; no other brand in the world compares to it.” The biggest risk to LVMH is Vuitton, argues Ms Flouquet, since it accounts for such a big proportion of profits; the company depends on it, she says. The risk to Vuitton, in turn, is that it could fall out of fashion or lose its exclusivity in the eyes of consumers.
So far there is no sign of fatigue with the brand. LVMH’s senior managers have devised ways to refresh it. In the late 1990s, for example, Mr Arnault saw that there was a risk that as a maker of leather goods alone, Vuitton could be perceived as boring. In 1997 he hired Marc Jacobs, then a relatively unknown designer, to design a fashion line. The aim was to generate seasonal buzz and press coverage. Vuitton’s senior executives at the time were against the idea, fearing that adding fashion could undermine a timeless image, but Mr Arnault’s move proved successful.
To avoid overexposure of its signature “Monogram” print, Vuitton has taken care to develop a wide range of products and other patterns. “We increase the number of product lines and we are careful to have several different colours and shapes,” says Mr Arnault. Thus Vuitton sells reasonably priced handbags—the smallest Speedy Bag costs €430 in Paris—but also wildly expensive custom-made luggage, reinforcing its exclusive image. Another effective tactic is to make limited-edition handbags which are hard to get hold of.
Five or so years ago Vuitton depended to a large degree on one market, Japan. Most Japanese women owned at least one Vuitton product—and hence provided a large proportion of Vuitton’s profits, which worried analysts at the time. Yet the Japanese market for luxury goods was souring. Spending on such items in Japan has fallen sharply since the end of 2005, according to a recent report by McKinsey, a consulting firm. Young women are more individualistic than their mothers, and are seeking out lesser-known brands. “You used to see thousands of Vuitton bags coming at you in the Ginza shopping district but far fewer now,” says Radha Chadha, author of a book, “The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury”.
That reliance on one country is no longer so marked (see chart 3). Fortunately, Vuitton has since rapidly established a strong position in what it hopes will become another Japan: China. “The Chinese consumer is in a love affair with the Vuitton brand,” says Ms Flouquet. According to LVMH, in the first half of 2009 sales to Chinese people (at home and travelling) made up 18% of Vuitton’s revenue. Despite widespread concerns about counterfeiting in the country, the Chinese are now Vuitton’s biggest customer base after the Japanese. The key to the firm’s success, says Mr Arnault, has been approaching the market exactly as if it were a developed market. “We treat the Chinese customer as being very sophisticated.” Many competitors, by contrast, have at times lowered their standards for shops in China, he says, using inferior furniture or positioning their stores poorly.
Going into new markets and developing new product lines will enable Vuitton to continue producing double-digit growth for years to come, says Mr Carcelle. On every trip to mainland China—he makes five or six a year—he tries to discover a new city and meet its mayor. Mr Carcelle is also tackling other new frontiers: in October he will open a shop in Sukhbaatar Square in Ulan Bator. “Already if you go to an upmarket disco in Ulan Bator you will see a significant number of our bags,” he says.
Vuitton’s expansion into China, Mongolia and new product lines such as watches and shoes, suggest that the leather-goods firm will continue to be LVMH’s main source of growth. However, it also means that the group may become more rather than less reliant on Vuitton. In theory, the answer could lie in strengthening some of LVMH’s smaller names, such as Fendi, a fashion and leather-goods brand. But buying a big, established, global brand with potential for growth could be both a quicker and a surer route.
A new collection?
Analysts and bankers are convinced that Mr Arnault wants to buy the Hermès Group, a producer of leather goods and fashion which matches Vuitton for quality and design. Because Hermès is run so conservatively, says an investment banker who knows LVMH well, it is only a quarter of the size that it could be. “Mr Arnault would grow it while preserving its values,” he says. Earlier this year, there were rumours that LVMH would sell Moët Hennessy to Diageo, the world’s biggest spirits group, which already owns 34% of the business. Such a sale could raise money to buy Hermès. Mr Arnault, however, refuses to be drawn into commenting.
For the moment, such an acquisition is impossible, since the family which controls Hermès does not want to sell, and the firm is strongly defended against takeover. Nevertheless, says the banker, the family which controls it has several branches, all with different views. “It’s a pressure cooker and some day it will blow up,” he says. Chanel, another closely held global luxury brand, could also make a desirable target for LVMH. Some people recommend a merger with Richemont, which, Mr Solca argues, would address LVMH’s relative weakness in watches and jewellery.
Any such deals, or selling Moët Hennessy, would radically change the balance of the group. “I would be surprised if LVMH sold Moët Hennessy. The business has high margins, high cashflow and it is well managed,” says Ms Flouquet. “They would probably only sell it if they had a large deal ahead.” Shareholders are nervous that LVMH will pay too high a price for a large acquisition. For this reason the group’s valuation may not fully reflect its performance during the crisis. Such concerns are not likely to deter Mr Arnault, who has demonstrated his confidence in LVMH’s prospects in luxury by raising his stake in the group over time: he owns 47%. If LVMH does go shopping, it will probably behave like one of its best customers: with price in mind, but willing to spend on enduring prestige.
http://www.economist.com/displaystory.cfm?story_id=14447276
These days customers are finding it far harder to forget about price. The seriously rich, of course, are still spending freely. But much of the industry’s rapid growth in the past decade came from middle-class people, often buying on credit or on the back of rising house prices. According to Luca Solca of Bernstein Research, 60% of the luxury market is now based on demand from “aspirational” customers rather than from the wealthy elite. The recession has quickly reversed the trend to trade up, and people are delaying expensive purchases. Bain & Company, a consulting firm, expects the industry’s sales to fall by a tenth in 2009, to €153 billion ($225 billion).
Some executives even expect a lasting shift in customers’ preferences, towards discretion and value. Bernard Arnault, chairman and chief executive of LVMH, believes that the whole industry needs to rebrand itself. “The word luxury suggests triviality and showing off, and the time for all that has gone,” he says. Brands which sold “blingy” easy-to-sell products, milking old names, he says, will fare particularly badly in the new environment. LVMH, by contrast, has never taken such an approach, he says, instead emphasising quality, innovation and creativity.
To underline these values, the group is going back to basics in its daily operations. “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price,” says an executive. A few years ago, for instance, at the height of the boom, one LVMH brand was putting diamonds all over its watches, so that it was almost difficult to tell the time. “Now we are getting back to what really matters, which is nice movements and design,” he says.
For some luxury firms, the recession’s effects have already been brutal. Private-equity firms and other outside investors which rushed into the industry at its peak have suffered most. “At the top of the market this industry was perceived as easy by outsiders,” says Mr Arnault. “You borrowed 80% of a target’s asking price and hired a good designer, but the strategy has not been successful in several cases.”
Lenders to Valentino, an Italian fashion house, are reportedly trying to renegotiate its debt. Permira, a private-equity group, bought the firm in 2007 in a deal valuing it at €5.3 billion. Permira has since written down its equity investment of about €900m by more than half. Prada Holding, through which Miuccia Prada and her husband control Prada Group, another Italian house, recently restructured its loans in order to defer payment to banks. Prada Group has denied that there are talks to bring in a minority shareholder. Two particularly weak firms, Christian Lacroix, a Paris-based ready-to-wear and haute couture label which used to be part of LVMH, and Escada, a German maker of luxury womenswear, filed for bankruptcy earlier this year.
Amid this turmoil, LVMH is performing relatively well (see chart 1). It has benefited from an established pattern in the luxury industry: when people have less, they spend what they do have on the best quality. Shoppers are going for fewer, classic items—one Burberry raincoat, rather than three designer dresses, or a single Kelly bag by Hermès, a French luxury-goods group, instead of four bags from various lesser designers. For this reason, says Yves Carcelle, chief executive of Louis Vuitton and president of fashion and leather goods for LVMH, “Vuitton always gains market share in crises.”
As reliable and sturdy as one of its own handbags, therefore, Vuitton is carrying LVMH fairly comfortably through the recession. In the first half of 2009 the group’s revenues were about the same as a year before, though profits were 12% lower. Two divisions—wine and spirits, and watches and jewellery—were the worst affected: their revenues each fell by 17% and their profits by 41% and 73% respectively (see chart 2). Rapid de-stocking by retailers exacerbated the effect of falling demand. But the falls were offset by Vuitton, where revenue rose by a double-digit percentage, registering gains in every market. “It is incredible that in a downturn the consumer still buys so many Louis Vuitton bags, but she or he does,” says Melanie Flouquet, luxury-goods analyst at JPMorgan in Paris.
Vuitton’s performance, and the overall robustness of LVMH, a global conglomerate with more than 50 brands and revenues of €17.2 billion in 2008, should allow it to take advantage of its competitors’ weakness in the recession. “In the next few years we expect several failures in the industry and good opportunities to acquire assets at attractive prices,” says Mr Arnault. Shareholders in the firm are particularly preoccupied by what he might buy and sell in the next few years.
What explains Vuitton’s resilience? Beneath the gloss of advertising campaigns, catwalk shows and each season’s fleeting trends, Vuitton brings a machine-like discipline to the selling of fancy leather goods and fashion. It is the only leather-goods firm, for instance, which never puts its products on sale at a discount. It destroys stock instead, keeping a close eye on the proportion it ends up scrapping (which it calls the “destruction margin”). In 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. “In this they’re the most professional in the industry,” he says.
Unlike most other luxury marques, Vuitton never gives licences to outside firms, to avoid brand degradation. Its factories use techniques from other industries, notably carmaking, to push costs down ruthlessly and to allow teams of workers to be switched from one product to another as demand dictates. It has adopted methods of quality control, too: one quality supervisor came from Valeo, a French auto-parts supplier. The result is long-lasting utility, beyond show, which is valuable in difficult times.
Owning shops gives Vuitton control over levels of stock, presentation and pricing. It was not therefore affected by the panicked price-slashing of up to 80% by American luxury department stores in the run-up to Christmas last year—a “catastrophe” for others in the industry, according to Mr Arnault. Although other LVMH divisions have been hit by outside retailers de-stocking during the crisis, Vuitton has managed its own inventory, with no competition for space from other brands. With a global network, says Mr Carcelle, the firm can move poorly selling stock to shops where it has performed better.
The luxury of diversity
Vuitton’s ability to offset the steep falls in other divisions shows the value of the diversified conglomerate model in luxury goods. Richemont, the industry’s second-largest company, has a less varied portfolio and greater exposure to watches and jewellery, demand for which has been especially weak. According to a recent trading statement, its sales fell by 16% in the five months to the end of August.
A group structure also yields savings when negotiating deals for advertising space, property and credit-card fees. It helps to have a specialist beauty retailer, Sephora, and a chain of airport shops, DFS, to sell perfumes and cosmetics. When Vuitton develops watches, say, it can call on the talents of TAG Heuer. But LVMH’s breadth also comes in for criticism. Although there is undoubtedly value in some diversification, some people ask whether 50-odd brands under one roof are too many. Vuitton, for instance, would doubtless like to see disposals of weaker brands as a result of the crisis, and a greater concentration of resources on the group’s key businesses.
The group’s executives devote the bulk of their attention to the most important of these: Louis Vuitton, Moët Hennessy in drinks, TAG Heuer in watches, Christian Dior in perfumes and cosmetics, Sephora and DFS. The group has many smaller businesses, and these get much less attention in such a big group. LVMH does not disclose financial figures for individual brands, but at its presentation of first-half results the group’s finance director replied to an analyst asking about fashion and leather-goods that a “handful” had lost money “somewhere”. There is speculation that Celine, a ready-to-wear clothing and accessories label, Kenzo, a fashion brand which analysts have long suggested LVMH dispose of, or Loewe, a Spanish leather-goods brand which has so far failed to win much of a following outside Spain and Japan, are among the less profitable.
Nevertheless, the group can use the might of Vuitton to support its smaller, upcoming brands. A department store, for instance, may be asked to take Loewe or Celine in order to get Vuitton. That often frustrates people at Vuitton, however, who would prefer to use the power of the brand for its own benefit, says a person who knows the company well. “They’ve never heard of another of LVMH’s brands saying, ‘Either give this to Vuitton or I won’t come’,” he says. Apart from the synergy in watch design, Vuitton does not find that it benefits much from the rest of the group.
The reason why LVMH has many small brands which aren’t quite making it, says another person familiar with the company, is that Mr Arnault is an optimist who believes that every property can at some point be turned around. That can pay off: some years ago Mr Arnault halted the imminent sale of a make-up line. Thanks to the distribution muscle of Sephora, it has since turned into a bestseller in America. Investors, however, are nevertheless wary of what they see as Mr Arnault’s tendency to collect brands.
The crisis has also underlined the fact that Vuitton dominates the group’s results. Were it not for Vuitton, estimates one analyst, LVMH’s sales would have fallen by 3% in the first half of 2009 and profits would have plunged by 40%. In normal times Vuitton contributes about half of the group’s profits, and most of the rest comes from Moët Hennessy. In the first half of this year, however, Vuitton contributed an estimated 70% of profit. That leads some people to question whether LVMH is overly dependent on the leather-goods firm.
“You can argue that there’s nothing as good as Vuitton in LVMH’s portfolio,” says Pierre Mallevays of Savigny Partners, who was formerly director of acquisitions at LVMH, “but that simply states the fact that LV’s business model is the gold standard of luxury brands; no other brand in the world compares to it.” The biggest risk to LVMH is Vuitton, argues Ms Flouquet, since it accounts for such a big proportion of profits; the company depends on it, she says. The risk to Vuitton, in turn, is that it could fall out of fashion or lose its exclusivity in the eyes of consumers.
So far there is no sign of fatigue with the brand. LVMH’s senior managers have devised ways to refresh it. In the late 1990s, for example, Mr Arnault saw that there was a risk that as a maker of leather goods alone, Vuitton could be perceived as boring. In 1997 he hired Marc Jacobs, then a relatively unknown designer, to design a fashion line. The aim was to generate seasonal buzz and press coverage. Vuitton’s senior executives at the time were against the idea, fearing that adding fashion could undermine a timeless image, but Mr Arnault’s move proved successful.
To avoid overexposure of its signature “Monogram” print, Vuitton has taken care to develop a wide range of products and other patterns. “We increase the number of product lines and we are careful to have several different colours and shapes,” says Mr Arnault. Thus Vuitton sells reasonably priced handbags—the smallest Speedy Bag costs €430 in Paris—but also wildly expensive custom-made luggage, reinforcing its exclusive image. Another effective tactic is to make limited-edition handbags which are hard to get hold of.
Five or so years ago Vuitton depended to a large degree on one market, Japan. Most Japanese women owned at least one Vuitton product—and hence provided a large proportion of Vuitton’s profits, which worried analysts at the time. Yet the Japanese market for luxury goods was souring. Spending on such items in Japan has fallen sharply since the end of 2005, according to a recent report by McKinsey, a consulting firm. Young women are more individualistic than their mothers, and are seeking out lesser-known brands. “You used to see thousands of Vuitton bags coming at you in the Ginza shopping district but far fewer now,” says Radha Chadha, author of a book, “The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury”.
That reliance on one country is no longer so marked (see chart 3). Fortunately, Vuitton has since rapidly established a strong position in what it hopes will become another Japan: China. “The Chinese consumer is in a love affair with the Vuitton brand,” says Ms Flouquet. According to LVMH, in the first half of 2009 sales to Chinese people (at home and travelling) made up 18% of Vuitton’s revenue. Despite widespread concerns about counterfeiting in the country, the Chinese are now Vuitton’s biggest customer base after the Japanese. The key to the firm’s success, says Mr Arnault, has been approaching the market exactly as if it were a developed market. “We treat the Chinese customer as being very sophisticated.” Many competitors, by contrast, have at times lowered their standards for shops in China, he says, using inferior furniture or positioning their stores poorly.
Going into new markets and developing new product lines will enable Vuitton to continue producing double-digit growth for years to come, says Mr Carcelle. On every trip to mainland China—he makes five or six a year—he tries to discover a new city and meet its mayor. Mr Carcelle is also tackling other new frontiers: in October he will open a shop in Sukhbaatar Square in Ulan Bator. “Already if you go to an upmarket disco in Ulan Bator you will see a significant number of our bags,” he says.
Vuitton’s expansion into China, Mongolia and new product lines such as watches and shoes, suggest that the leather-goods firm will continue to be LVMH’s main source of growth. However, it also means that the group may become more rather than less reliant on Vuitton. In theory, the answer could lie in strengthening some of LVMH’s smaller names, such as Fendi, a fashion and leather-goods brand. But buying a big, established, global brand with potential for growth could be both a quicker and a surer route.
A new collection?
Analysts and bankers are convinced that Mr Arnault wants to buy the Hermès Group, a producer of leather goods and fashion which matches Vuitton for quality and design. Because Hermès is run so conservatively, says an investment banker who knows LVMH well, it is only a quarter of the size that it could be. “Mr Arnault would grow it while preserving its values,” he says. Earlier this year, there were rumours that LVMH would sell Moët Hennessy to Diageo, the world’s biggest spirits group, which already owns 34% of the business. Such a sale could raise money to buy Hermès. Mr Arnault, however, refuses to be drawn into commenting.
For the moment, such an acquisition is impossible, since the family which controls Hermès does not want to sell, and the firm is strongly defended against takeover. Nevertheless, says the banker, the family which controls it has several branches, all with different views. “It’s a pressure cooker and some day it will blow up,” he says. Chanel, another closely held global luxury brand, could also make a desirable target for LVMH. Some people recommend a merger with Richemont, which, Mr Solca argues, would address LVMH’s relative weakness in watches and jewellery.
Any such deals, or selling Moët Hennessy, would radically change the balance of the group. “I would be surprised if LVMH sold Moët Hennessy. The business has high margins, high cashflow and it is well managed,” says Ms Flouquet. “They would probably only sell it if they had a large deal ahead.” Shareholders are nervous that LVMH will pay too high a price for a large acquisition. For this reason the group’s valuation may not fully reflect its performance during the crisis. Such concerns are not likely to deter Mr Arnault, who has demonstrated his confidence in LVMH’s prospects in luxury by raising his stake in the group over time: he owns 47%. If LVMH does go shopping, it will probably behave like one of its best customers: with price in mind, but willing to spend on enduring prestige.
http://www.economist.com/displaystory.cfm?story_id=14447276
Thursday, November 5, 2009
Celestial sacrifice - The Economist
LONG before singers became superstars by surviving humiliating television contests, they did so by surrendering much more than their dignity. For almost 200 years Europe’s biggest singing celebrities were the castrati: surgically snipped “man-boys” whose high voices and incredible breathing powers captivated audiences and commanded football-star salaries.
Cecilia Bartoli, a mezzo-soprano—and one of the few classical artists today who can claim sports-star fees of her own—is trying to resurrect the art of the castrati with her new Decca album, “Sacrificium”. This collection of 15 opera arias from the early 18th century (11 of which have never been recorded before) is packaged with notes that illuminate the castrati’s glamorous and tragic world.
Gelded male sopranos began falling from favour as the baroque era gave way to the romantic age and the robust sound of male tenors caught on. The 1870s finished them off when laws passed by a newly unified Italy made castration for musical purposes illegal. Even more important, an edict by Pope Leo XIII banned the hiring of castrati by the church. This made the practice unprofitable.
Apart from a handful of wax phonograph recordings of Alessandro Moreschi, who died in 1922, there is no audible record of this rich tradition of European music. In the years since Moreschi last sang, recordings of arias composed for castrati, most of them written by Handel, have been transposed an octave for baritones or are sung by sopranos or countertenors.
Ms Bartoli focuses on the music and influence of Nicola Porpora, a largely forgotten 18th-century Neapolitan musician. Like Schoenberg in the 20th century, Porpora was well-known as a composer—in London in the 1730s he was second only to Handel in popularity as a writer of operas—but equally famous for his students. He taught two of history’s most famous castrati: Caffarelli and Farinelli.
Farinelli created the title role in Porpora’s opera “Adelaide”. Hearing Ms Bartoli sing one of his arias (“Nobil onda”) in “Sacrificium,” the listener gets a sense of why the castrato was in such demand: the five-minute, lung-busting number makes Mozart’s famously treacherous “Queen of the Night” aria seem like a walk in the park. As a mezzo, Ms Bartoli cannot match Farinelli’s reportedly celestial tone, nor is she in possession of his man-sized lungs. What she does exhibit in the album is precision coloratura singing with her dark-hued voice, not to mention a studied sensitivity to the contours and rhythms of these almost 300-year-old songs.
Few question Ms Bartoli’s voice or musicality, but her critics contend that the singer is less a scholar than a fetishist. The project before this one was devoted to bringing Maria Malibran, a fellow mezzo with a brief but illustrious career in the 1830s, out of obscurity. But the album, “Maria”, resembled swag from a million-dollar theme party, featuring lavish photos of Ms Bartoli dressed up in Malibran’s jewellery and period costumes. A mobile museum of the singer’s personal collection of Malibran artefacts followed her on tour.
This sideshow element is less evident with “Sacrificium”—though the album features extraordinary images of Ms Bartoli’s head atop crumbling male statuary—but the singer’s immersion in the past seems complete. She speaks of Porpora and Caffarelli as if they were contemporaries and, as an Italian, finds it hard to believe “that in my country 200 years ago, they castrated boys like animals.” The “sacrifice” in the album’s title is Ms Bartoli’s way of reminding opera lovers of the barbarism that gave voice to these fine baroque melodies.
Cecilia Bartoli, a mezzo-soprano—and one of the few classical artists today who can claim sports-star fees of her own—is trying to resurrect the art of the castrati with her new Decca album, “Sacrificium”. This collection of 15 opera arias from the early 18th century (11 of which have never been recorded before) is packaged with notes that illuminate the castrati’s glamorous and tragic world.
Gelded male sopranos began falling from favour as the baroque era gave way to the romantic age and the robust sound of male tenors caught on. The 1870s finished them off when laws passed by a newly unified Italy made castration for musical purposes illegal. Even more important, an edict by Pope Leo XIII banned the hiring of castrati by the church. This made the practice unprofitable.
Apart from a handful of wax phonograph recordings of Alessandro Moreschi, who died in 1922, there is no audible record of this rich tradition of European music. In the years since Moreschi last sang, recordings of arias composed for castrati, most of them written by Handel, have been transposed an octave for baritones or are sung by sopranos or countertenors.
Ms Bartoli focuses on the music and influence of Nicola Porpora, a largely forgotten 18th-century Neapolitan musician. Like Schoenberg in the 20th century, Porpora was well-known as a composer—in London in the 1730s he was second only to Handel in popularity as a writer of operas—but equally famous for his students. He taught two of history’s most famous castrati: Caffarelli and Farinelli.
Farinelli created the title role in Porpora’s opera “Adelaide”. Hearing Ms Bartoli sing one of his arias (“Nobil onda”) in “Sacrificium,” the listener gets a sense of why the castrato was in such demand: the five-minute, lung-busting number makes Mozart’s famously treacherous “Queen of the Night” aria seem like a walk in the park. As a mezzo, Ms Bartoli cannot match Farinelli’s reportedly celestial tone, nor is she in possession of his man-sized lungs. What she does exhibit in the album is precision coloratura singing with her dark-hued voice, not to mention a studied sensitivity to the contours and rhythms of these almost 300-year-old songs.
Few question Ms Bartoli’s voice or musicality, but her critics contend that the singer is less a scholar than a fetishist. The project before this one was devoted to bringing Maria Malibran, a fellow mezzo with a brief but illustrious career in the 1830s, out of obscurity. But the album, “Maria”, resembled swag from a million-dollar theme party, featuring lavish photos of Ms Bartoli dressed up in Malibran’s jewellery and period costumes. A mobile museum of the singer’s personal collection of Malibran artefacts followed her on tour.
This sideshow element is less evident with “Sacrificium”—though the album features extraordinary images of Ms Bartoli’s head atop crumbling male statuary—but the singer’s immersion in the past seems complete. She speaks of Porpora and Caffarelli as if they were contemporaries and, as an Italian, finds it hard to believe “that in my country 200 years ago, they castrated boys like animals.” The “sacrifice” in the album’s title is Ms Bartoli’s way of reminding opera lovers of the barbarism that gave voice to these fine baroque melodies.
Saturday, October 31, 2009
The Smart Way to Influence Your Boss - John Baldoni
How can I sell this idea to my boss?
This is something that executive coaches hear regularly. It usually comes from someone seeking to lead from the middle. To begin to answer this question, let me tell you a story.
Ronald Reagan is credited with hastening the end of Cold War between the USSR and the USA. While he had long preached nuclear disarmament, his argument gained personal impetus after watching the made-for-TV movie, The Day After, which depicted the destruction of Lawrence, Kansas, after a nuclear blast. The movie, according to The Dead Hand, a recent history of the Cold War era by David Hoffman, left Reagan depressed for days and gave him even more resolve to seek nuclear banishment. Skeptics may scoff that it took a movie to influence the president, but as Hoffman explained on NPR's Fresh Air, movies helped to shape Reagan's world view.
Few managers who seek to influence upward have the resources to make a motion picture, but many managers have the cleverness and street smarts to craft an argument to win their cases. As I illustrate in my new book, Lead Your Boss, The Subtle Art of Managing Up, critical to developing a strong case is first and foremost to frame your argument according to the business case: why is it good sense for the organization to pursue your idea? Without a foundation based on either improving or saving the business, your idea has no chance; with it, you can begin.
To build upon your business case, you must frame your argument, in effect your sales pitch, in ways which appeal to the person with authority. Here's how.
1. Adopt your boss' point of view. Marshall Goldsmith taught me that if you want to influence the CEO then you need to see the world as he or she sees it. CEOs take a corporate-wide view of performance, of course, but each of them has hot button issues around products and services, employee morale, or their legacies. If you have a boss who's a cost-cutter, frame your pitch as a means of cutting costs, or at least reducing expenses. Likewise if you have a boss who is focused on customer issues — frame your pitch as a way to improve customer service or product benefits. The angle of your pitch depends upon the boss' interest.
2. Paint a picture. We saw how movies affected Reagan. Consider how your boss likes information. It may a straightforward spreadsheet or a narrative business plan. Do what makes sense but don't stop there. If your idea is big and bold, make it so by producing a video or using photographs. These options are effective when demonstrating customer concerns. A video of a customer expressing a desire or a concern about a product improvement or deficiency can be a powerful persuasive tool. If your initiative is about an internal improvement, interview end-users who will benefit from the adoption of your idea.
3. Make it come alive. When Eleanor Roosevelt was being courted by Franklin, she took him to the Lower East Side of New York City where she was doing relief work with the poor, chiefly immigrants. Taking the patrician Franklin in and out of decaying tenements opened his eyes to the fact that there was real poverty in the world. So to make your case, take your boss to the heart of the action. For example, if you are pushing for an improvement on the factory floor, bring him to the line and show him what you intend to do. Or if you want to demonstrate a customer need, invite the boss to a focus group with customers. There is nothing like real world examples to demonstrate your argument.
These steps to make your argument come alive do work, but they need something else — your credibility. If you want to lead up, you need to be perceived as competent. Therefore, it is more difficult to sell upward if you are brand new to your job, unless you were hired to do so (that is, shake things up with new ideas). Credibility is earned through example, especially by doing your job well over a period of time. Also, critical for those who manage in the middle, credibility is enhanced by the ability to collaborate with peers.
Pitching ideas upward and acting on them is essential to the process of leading up, which by nature is something that demands an ability to balance the big picture of what the organization needs with the day-to-day reality of what you do. When selling an idea to your superiors, even to the CEO, it is important to believe in your ability to effect positive change. Transformation may be sanctioned from on high, but it is men and women in the middle who make it become reality, and that is a persuasive case in itself.
This is something that executive coaches hear regularly. It usually comes from someone seeking to lead from the middle. To begin to answer this question, let me tell you a story.
Ronald Reagan is credited with hastening the end of Cold War between the USSR and the USA. While he had long preached nuclear disarmament, his argument gained personal impetus after watching the made-for-TV movie, The Day After, which depicted the destruction of Lawrence, Kansas, after a nuclear blast. The movie, according to The Dead Hand, a recent history of the Cold War era by David Hoffman, left Reagan depressed for days and gave him even more resolve to seek nuclear banishment. Skeptics may scoff that it took a movie to influence the president, but as Hoffman explained on NPR's Fresh Air, movies helped to shape Reagan's world view.
Few managers who seek to influence upward have the resources to make a motion picture, but many managers have the cleverness and street smarts to craft an argument to win their cases. As I illustrate in my new book, Lead Your Boss, The Subtle Art of Managing Up, critical to developing a strong case is first and foremost to frame your argument according to the business case: why is it good sense for the organization to pursue your idea? Without a foundation based on either improving or saving the business, your idea has no chance; with it, you can begin.
To build upon your business case, you must frame your argument, in effect your sales pitch, in ways which appeal to the person with authority. Here's how.
1. Adopt your boss' point of view. Marshall Goldsmith taught me that if you want to influence the CEO then you need to see the world as he or she sees it. CEOs take a corporate-wide view of performance, of course, but each of them has hot button issues around products and services, employee morale, or their legacies. If you have a boss who's a cost-cutter, frame your pitch as a means of cutting costs, or at least reducing expenses. Likewise if you have a boss who is focused on customer issues — frame your pitch as a way to improve customer service or product benefits. The angle of your pitch depends upon the boss' interest.
2. Paint a picture. We saw how movies affected Reagan. Consider how your boss likes information. It may a straightforward spreadsheet or a narrative business plan. Do what makes sense but don't stop there. If your idea is big and bold, make it so by producing a video or using photographs. These options are effective when demonstrating customer concerns. A video of a customer expressing a desire or a concern about a product improvement or deficiency can be a powerful persuasive tool. If your initiative is about an internal improvement, interview end-users who will benefit from the adoption of your idea.
3. Make it come alive. When Eleanor Roosevelt was being courted by Franklin, she took him to the Lower East Side of New York City where she was doing relief work with the poor, chiefly immigrants. Taking the patrician Franklin in and out of decaying tenements opened his eyes to the fact that there was real poverty in the world. So to make your case, take your boss to the heart of the action. For example, if you are pushing for an improvement on the factory floor, bring him to the line and show him what you intend to do. Or if you want to demonstrate a customer need, invite the boss to a focus group with customers. There is nothing like real world examples to demonstrate your argument.
These steps to make your argument come alive do work, but they need something else — your credibility. If you want to lead up, you need to be perceived as competent. Therefore, it is more difficult to sell upward if you are brand new to your job, unless you were hired to do so (that is, shake things up with new ideas). Credibility is earned through example, especially by doing your job well over a period of time. Also, critical for those who manage in the middle, credibility is enhanced by the ability to collaborate with peers.
Pitching ideas upward and acting on them is essential to the process of leading up, which by nature is something that demands an ability to balance the big picture of what the organization needs with the day-to-day reality of what you do. When selling an idea to your superiors, even to the CEO, it is important to believe in your ability to effect positive change. Transformation may be sanctioned from on high, but it is men and women in the middle who make it become reality, and that is a persuasive case in itself.
Wednesday, October 7, 2009
Doo-Doo Economics - William H. Gross
The world is turning “green” – global warming or not. Electric cars, free-range chickens, and White House vegetable gardens are the wave of the future, but the defining badge of environmentalists may be none of those and might, in fact, be colored blue, as opposed to green. Dog owners would be the first to acknowledge it. Having converted reluctantly to felines nearly ten years ago, I myself am only forced to humble myself by emptying the litter box once or twice a year when Sue is visiting the relatives. But dogs? Well, Bowser has to be walked, and Bowser owners these days are being forced to subserviently follow in step, holding those little blue “doo-doo” bags at the ready that keep the neighbors’ grass green instead of brown and minimize the number of summer flies to a billion per square mile. No longer will the current generation be allowed to use pooper-scoopers; they must in fact be pooper “stoopers,” bending down, turning the bag inside out to form a glove, and then – EEECH – making the grass environmentally friendly again by picking it up, reversing the bag and hurriedly looking for the nearest neighbor’s garbage can who might conveniently be at church or shopping at the grocery store. One can only hope that Fido is mildly constipated, if you get my drift. I can recall the diaper days with my three kids. It wasn’t a pleasant experience, but those non-environmentally friendly Pampers at least afforded one-stop dropping – easy on, easy off – no touchy, no feely. In those days, a doggie bag was something you asked for in a fine restaurant to take home the steak bones. Now it’s a blue plastic reminder that the world is changing and in many respects our daily routine is becoming a dog’s life.
A similar metaphor could be applied to the 45 million citizens of the State of California. Once “golden” and the land of entrepreneurial opportunity, the state has turned from filet mignon to ground chuck and its residents are now on a short leash as opposed to masters of their own universe. Unemployment at 12.2% is near the nation’s highest and its Baa bond rating is the country’s lowest. Its schools are abysmal, competing with Louisiana and Mississippi for the lowest rating in the federal government’s National Assessment of Educational Progress. While the air is much cleaner than it was 20 years ago, the freeways are stereotypically jammed and increasingly less free – the age of the toll road serving the exasperated (or simply the Mercedes owners) is upon us.
Our canine existence has many fathers. Perhaps more than any other state, California has been affected by its perverted form of government, requiring a two-thirds vote by state legislators to effectively pass a budget. In addition, the state’s laws are almost tragically shaped by a form of direct democracy more resemblant of the Jacksonian era, where the White House furniture was constantly at risk due to unruly citizens, high on whisky, and low on morals and common sense. Propositions from conservatives and liberals alike have locked up much of the budget, with Proposition 13 in 1978 reducing property taxes by 57% and Prop. 98 in 1988 requiring 40% of the general fund to be spent on schools. Recently, much of any excess has been gobbled not only by teachers, but unbelievably by a prison lobby that would be the envy of any on Washington’s K Street.
The result has been a $26 billion deficit that was supposedly “closed” in recent weeks, but which largely was a “kick the can” accounting scheme that postponed the pain, or better yet, pled for a federal solution to self-inflicted wounds. State budgets of course are required to be balanced each year, but that has long been a fiction throughout most of the country. Still, California’s 2009 fix was perhaps the longest kick of the can in history, refusing effectively to raise taxes, superficially cutting expenses, and shaming its fading image by refusing to disburse required billions to local counties and communities, as well as using accounting tricks that couldn’t fool a grade-schooler. In the process, they managed to reinvent the IOU, paying bills in virtual scrip that then traded at substantial discounts on eBay of all places. They have issued tax anticipation notes of all sorts with a multitude of lettered configurations that anagram aficionados would revel in. Just last week the state extended its begging bowl for $8 billion of “RANs” (Revenue Anticipation Notes) at an onerous money market rate of 1 1⁄2%. Previously they had issued “RAWs” (Revenue Anticipation Warrants). “BAGs” might be next – blue BAGS, that is, full of the doo-doo that California citizens have grown used to picking up.
There are signs that California voters are ready to make some tough choices, having recently refused to pass five propositions that would have extended tax hikes and failed to address spending. Whether or not Governor Schwarzenegger and legislators will agree to a constitutional convention to address the poisonous proposition plebiscite itself is a larger question that will likely be affirmatively answered only if the state economy continues to remain in the tank, which it likely will. But California’s problems, while somewhat unique and self-inflicted, are really America’s problems, and not just because the California economy is 15% of national GDP. While California’s $26 billion deficit is not directly comparable to the federal gap of $1 trillion-plus, they both reflect a lack of discipline and indeed vision to perceive that the strong growth in revenues was driven by the same excess leverage and the same delusionary asset appreciation that was bound to approach cliff’s edge. California’s property taxes, income taxes, and sales taxes were all artificially elevated by national and indeed global imbalances as the U.S. manufactured paper, and Asia manufactured things in mercantilistic exchange. Total tax revenues have actually fallen 14% over the past 12 months in California and substantially more in other states. At some point, that Fantasyland merry-go-round had to stop and whether the defining moment was marked by Bear Stearns, Lehman Brothers, or the tumultuous week that followed in September of 2008 is really not the point.
What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.
What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.
Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.
A similar metaphor could be applied to the 45 million citizens of the State of California. Once “golden” and the land of entrepreneurial opportunity, the state has turned from filet mignon to ground chuck and its residents are now on a short leash as opposed to masters of their own universe. Unemployment at 12.2% is near the nation’s highest and its Baa bond rating is the country’s lowest. Its schools are abysmal, competing with Louisiana and Mississippi for the lowest rating in the federal government’s National Assessment of Educational Progress. While the air is much cleaner than it was 20 years ago, the freeways are stereotypically jammed and increasingly less free – the age of the toll road serving the exasperated (or simply the Mercedes owners) is upon us.
Our canine existence has many fathers. Perhaps more than any other state, California has been affected by its perverted form of government, requiring a two-thirds vote by state legislators to effectively pass a budget. In addition, the state’s laws are almost tragically shaped by a form of direct democracy more resemblant of the Jacksonian era, where the White House furniture was constantly at risk due to unruly citizens, high on whisky, and low on morals and common sense. Propositions from conservatives and liberals alike have locked up much of the budget, with Proposition 13 in 1978 reducing property taxes by 57% and Prop. 98 in 1988 requiring 40% of the general fund to be spent on schools. Recently, much of any excess has been gobbled not only by teachers, but unbelievably by a prison lobby that would be the envy of any on Washington’s K Street.
The result has been a $26 billion deficit that was supposedly “closed” in recent weeks, but which largely was a “kick the can” accounting scheme that postponed the pain, or better yet, pled for a federal solution to self-inflicted wounds. State budgets of course are required to be balanced each year, but that has long been a fiction throughout most of the country. Still, California’s 2009 fix was perhaps the longest kick of the can in history, refusing effectively to raise taxes, superficially cutting expenses, and shaming its fading image by refusing to disburse required billions to local counties and communities, as well as using accounting tricks that couldn’t fool a grade-schooler. In the process, they managed to reinvent the IOU, paying bills in virtual scrip that then traded at substantial discounts on eBay of all places. They have issued tax anticipation notes of all sorts with a multitude of lettered configurations that anagram aficionados would revel in. Just last week the state extended its begging bowl for $8 billion of “RANs” (Revenue Anticipation Notes) at an onerous money market rate of 1 1⁄2%. Previously they had issued “RAWs” (Revenue Anticipation Warrants). “BAGs” might be next – blue BAGS, that is, full of the doo-doo that California citizens have grown used to picking up.
There are signs that California voters are ready to make some tough choices, having recently refused to pass five propositions that would have extended tax hikes and failed to address spending. Whether or not Governor Schwarzenegger and legislators will agree to a constitutional convention to address the poisonous proposition plebiscite itself is a larger question that will likely be affirmatively answered only if the state economy continues to remain in the tank, which it likely will. But California’s problems, while somewhat unique and self-inflicted, are really America’s problems, and not just because the California economy is 15% of national GDP. While California’s $26 billion deficit is not directly comparable to the federal gap of $1 trillion-plus, they both reflect a lack of discipline and indeed vision to perceive that the strong growth in revenues was driven by the same excess leverage and the same delusionary asset appreciation that was bound to approach cliff’s edge. California’s property taxes, income taxes, and sales taxes were all artificially elevated by national and indeed global imbalances as the U.S. manufactured paper, and Asia manufactured things in mercantilistic exchange. Total tax revenues have actually fallen 14% over the past 12 months in California and substantially more in other states. At some point, that Fantasyland merry-go-round had to stop and whether the defining moment was marked by Bear Stearns, Lehman Brothers, or the tumultuous week that followed in September of 2008 is really not the point.
What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.
What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.
Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.
Wednesday, September 30, 2009
My heart is full.
Πάτερ ἡμῶν ὁ ἐν τοῖς οὐρανοῖς·
ἁγιασθήτω τὸ ὄνομά σου·
ἐλθέτω ἡ βασιλεία σου·
γενηθήτω τὸ θέλημά σου, ὡς ἐν οὐρανῷ καὶ ἐπὶ τῆς γῆς·
τὸν ἄρτον ἡμῶν τὸν ἐπιούσιον δὸς ἡμῖν σήμερον·
καὶ ἄφες ἡμῖν τὰ ὀφειλήματα ἡμῶν,
ὡς καὶ ἡμεῖς ἀφίεμεν τοῖς ὀφειλέταις ἡμῶν·
καὶ μὴ εἰσενέγκῃς ἡμᾶς εἰς πειρασμόν,
ἀλλὰ ῥῦσαι ἡμᾶς ἀπὸ τοῦ πονηροῦ.
[Ὅτι σοῦ ἐστιν ἡ βασιλεία καὶ ἡ δύναμις καὶ ἡ δόξα εἰς τοὺς αἰῶνας. ἀμήν.]
Pater noster, qui es in caelis:
sanctificetur Nomen Tuum;
adveniat Regnum Tuum;
fiat voluntas Tua,
sicut in caelo, et in terra.
Panem nostrum cotidianum da nobis hodie;
et dimitte nobis debita nostra,
Sicut et nos dimittimus debitoribus nostris;
et ne nos inducas in tentationem;
sed libera nos a Malo.
ἁγιασθήτω τὸ ὄνομά σου·
ἐλθέτω ἡ βασιλεία σου·
γενηθήτω τὸ θέλημά σου, ὡς ἐν οὐρανῷ καὶ ἐπὶ τῆς γῆς·
τὸν ἄρτον ἡμῶν τὸν ἐπιούσιον δὸς ἡμῖν σήμερον·
καὶ ἄφες ἡμῖν τὰ ὀφειλήματα ἡμῶν,
ὡς καὶ ἡμεῖς ἀφίεμεν τοῖς ὀφειλέταις ἡμῶν·
καὶ μὴ εἰσενέγκῃς ἡμᾶς εἰς πειρασμόν,
ἀλλὰ ῥῦσαι ἡμᾶς ἀπὸ τοῦ πονηροῦ.
[Ὅτι σοῦ ἐστιν ἡ βασιλεία καὶ ἡ δύναμις καὶ ἡ δόξα εἰς τοὺς αἰῶνας. ἀμήν.]
Pater noster, qui es in caelis:
sanctificetur Nomen Tuum;
adveniat Regnum Tuum;
fiat voluntas Tua,
sicut in caelo, et in terra.
Panem nostrum cotidianum da nobis hodie;
et dimitte nobis debita nostra,
Sicut et nos dimittimus debitoribus nostris;
et ne nos inducas in tentationem;
sed libera nos a Malo.
Tuesday, September 29, 2009
Three Tips for Becoming an Energizer - ROSABETH MOSS KANTER
Some people become leaders no matter what their chosen path because their positive energy is so uplifting. Even in tough times, they always find a way. They seem to live life on their own terms even when having to comply with someone else's requirements. When they walk into a room, they make it come alive. When they send a message, it feels good to receive it. Their energy makes them magnets attracting other people.
Just plain energy is a neglected dimension of leadership. It is a form of power available to anyone in any circumstances. While inspiration is a long-term proposition, energy is necessary on a daily basis, just to keep going.
Three things characterize the people who are energizers.
1. A relentless focus on the bright side. Energizers find the positive and run with it. A state government official in a state that doesn't like government overcomes that handicap through her strong positive presence. She dispenses compliments along with support for the community served by her agency, making it seem that she works for them rather than for the government. She greets everyone with the joy generally reserved for a close relative returning from war. I can see skeptics' eyebrows starting to rise, but judging from her success, people love meeting with her or getting her exclamation-filled emails. She is invited to everything.
The payoffs from stressing the bright side can be considerable. In my new book, SuperCorp, I tell the story about how Maurice Levy, CEO of the global marketing company Publicis Groupe, tilted the balance in his company's favor when his firm was one of several suitors for Internet pioneer Digitas. At one point in a long courtship, Digitas hit problems, and the stock collapsed. One of Publicis's major competitors sent Digitas's head an email saying, "Now you are at a price which is affordable, so we should start speaking." Levy sent an email the same day saying, "It's so unfair that you are hurt this way because the parameters remain very good." Levy's positive energy won the prized acquisition.
2. Redefining negatives as positives. Energizers are can-do people. They do not like to stay in negative territory, even when there are things that are genuinely depressing. For example, it might seem a stretch for anyone to call unemployment as "a good time for reflection and redirection while between jobs," but some energizers genuinely stress the minor positive notes in a gloomy symphony. A marketing manager laid off by a company hit hard by the recession saw potential in people he met at a career counseling center and convinced them that they could start a service business together. He became the energizing force for shifting their definition of the situation from negative to an opportunity.
"Positive thinking" and "counting blessings" can sound like naïve cliches. But energizers are not fools. They can be shrewd analysts who know their flaws and listen carefully to critics so that they can keep improving. Studies show that optimists are more likely to listen to negative information than pessimists, because they think they can do something about it. To keep moving through storms, energizers cultivate thick skins that shed negativity like a waterproof raincoat sheds drops of water. They are sometimes discouraged, but never victims.
An entrepreneur who has built numerous businesses and incubated others had a strong personal mission to raise national standards in his industry. He began that quest by meeting individually with the heads of major industry organizations, all of whom told him that he would fail. He nodded politely, asked for a small commitment to one action anyway, just as a test, he said, and went on to the next meeting. Eight or nine meetings later, he was well along on a path everyone had tried to discourage him from taking.
3. Fast response time. Energizers don't dawdle. Energizers don't tell you all the reasons something can't be done. They just get to it. They might take time to deliberate, but they keep the action moving. They are very responsive to emails or phone calls, even if the fast response is that they can't respond yet. This helps them get more done. Because they are so responsive, others go to them for information or connections. In the process, energizers get more information and a bigger personal network, which are the assets necessary for success.
The nice thing about this form of energy is that it is potentially abundant, renewable, and free. The only requirements for energizers are that they stay active, positive, responsive, and on mission. Are you an energizer? Any tips you'd like to share?
Just plain energy is a neglected dimension of leadership. It is a form of power available to anyone in any circumstances. While inspiration is a long-term proposition, energy is necessary on a daily basis, just to keep going.
Three things characterize the people who are energizers.
1. A relentless focus on the bright side. Energizers find the positive and run with it. A state government official in a state that doesn't like government overcomes that handicap through her strong positive presence. She dispenses compliments along with support for the community served by her agency, making it seem that she works for them rather than for the government. She greets everyone with the joy generally reserved for a close relative returning from war. I can see skeptics' eyebrows starting to rise, but judging from her success, people love meeting with her or getting her exclamation-filled emails. She is invited to everything.
The payoffs from stressing the bright side can be considerable. In my new book, SuperCorp, I tell the story about how Maurice Levy, CEO of the global marketing company Publicis Groupe, tilted the balance in his company's favor when his firm was one of several suitors for Internet pioneer Digitas. At one point in a long courtship, Digitas hit problems, and the stock collapsed. One of Publicis's major competitors sent Digitas's head an email saying, "Now you are at a price which is affordable, so we should start speaking." Levy sent an email the same day saying, "It's so unfair that you are hurt this way because the parameters remain very good." Levy's positive energy won the prized acquisition.
2. Redefining negatives as positives. Energizers are can-do people. They do not like to stay in negative territory, even when there are things that are genuinely depressing. For example, it might seem a stretch for anyone to call unemployment as "a good time for reflection and redirection while between jobs," but some energizers genuinely stress the minor positive notes in a gloomy symphony. A marketing manager laid off by a company hit hard by the recession saw potential in people he met at a career counseling center and convinced them that they could start a service business together. He became the energizing force for shifting their definition of the situation from negative to an opportunity.
"Positive thinking" and "counting blessings" can sound like naïve cliches. But energizers are not fools. They can be shrewd analysts who know their flaws and listen carefully to critics so that they can keep improving. Studies show that optimists are more likely to listen to negative information than pessimists, because they think they can do something about it. To keep moving through storms, energizers cultivate thick skins that shed negativity like a waterproof raincoat sheds drops of water. They are sometimes discouraged, but never victims.
An entrepreneur who has built numerous businesses and incubated others had a strong personal mission to raise national standards in his industry. He began that quest by meeting individually with the heads of major industry organizations, all of whom told him that he would fail. He nodded politely, asked for a small commitment to one action anyway, just as a test, he said, and went on to the next meeting. Eight or nine meetings later, he was well along on a path everyone had tried to discourage him from taking.
3. Fast response time. Energizers don't dawdle. Energizers don't tell you all the reasons something can't be done. They just get to it. They might take time to deliberate, but they keep the action moving. They are very responsive to emails or phone calls, even if the fast response is that they can't respond yet. This helps them get more done. Because they are so responsive, others go to them for information or connections. In the process, energizers get more information and a bigger personal network, which are the assets necessary for success.
The nice thing about this form of energy is that it is potentially abundant, renewable, and free. The only requirements for energizers are that they stay active, positive, responsive, and on mission. Are you an energizer? Any tips you'd like to share?
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