Sticking It to the Little Guy

Here's the first P&L statement of this brave new pay-cutting year. Giving up half of my salary had better turn the bottom line black. 

January

Total income: -6.8%
Total COGS: -9.3%
Payroll: -81.3%

Marketing: -26.6%
Net Income (Profit) vs LY: +1,179% (+$678)

Actual Profit/Loss: +$621

2016 (calendar year, final)

Total income: -22.7%
Total COGS: -22.8%
Payroll: -27.9%

Marketing: -28%
Net Income (Profit) vs LY: +20.1% (+$494)

Actual Profit/Loss: -$1,971

Oh, look: It's black. Until yesterday, the top line was getting creamed because last January included a statistically outlying $1,900 week -- that's equal to three healthy January weeks. Apart from that fluke, every other week this year beat LY by a comfortable margin...and then yesterday $500 worth of bird kites made up most of the rest. In fact, the next day and a half could conceivably bring in the additional $224 it would take to match LY. That's encouraging; however, a lot of those sales were Switchables, and that's discouraging. COGS and marketing both fell by more than income did, so that's encouraging again. 

This month was the fourth worst/eighth best January ever and could still move up one more notch. The bottom line looks great because I paid myself just $117 for the whole month...before taxes. As in the national economy, Curio City enriches the corporation at the expense of the workers. And if the year ends with a profit (and if there's enough cash on hand) I'll be able to pay myself a bonus to make up for the foregone salary, as if I were a bona fide member of the investing class.

You can't even pin this on Donald Trump. Corporations and their owners have been taking an ever-increasing share of wealth since the Reagan administration. 

My debt didn't budge, but I did squirrel away my CPA's fee. I can't turn my full attention to debt service until I come up with another $465 to renew my corporation and $109 for the secretary of state (just because). Next year I might be able to split those corporate expenses between Curio City and my new endeavor, Blue Hills Editorial Services. First I had to decide whether to make it a sole proprietorship, a partnership with my wife, or a new division of Kraken Enterprises. I finally decided to make it a Kraken enterprise. Then I had trouble figuring out how to create a new DBA. Today I should be able to set up a bank account and start treating Blue Hills as an entity in QuickBooks. Then I can finally set up a website next week and start seeking clients. I had to know who's covering roughly $150 in startup costs (spoiler alert: I am...it's just a question of whether I do it as myself, as Kraken Enterprises, as Curio City, or as Blue Hills. I am all of those things). 

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My biggest vendor, Jackite, just launched a new website, allaying my worries about their future. They also let slip that they expect a shipment of poles in March. That will make a big difference for spring sales. At the moment, their new wholesale site is drastically overcharging for shipping -- so badly that it wiped out the entire markup of my last dropship. I hope that will be a temporary hiccup, because I can't profitably do business with them while they're charging me triple the actual shipping costs. They just told me that they're looking into remedies.

As for 2016...at least that red bottom line will be a nice deduction on our personal tax return.

After the Trumpocalypse

On Wednesday, voters awoke to a vastly different America than we had been led to expect as the Electoral College once again overturned the will of the urban majority, routing the Washington establishment and setting up uncertain but seismic change for the next four years. Since I occasionally weigh in on politics I'm going to comment from the perspective of a (liberal) nano-businessman. I shall endeavor to avoid the histrionics that you can find aplenty elsewhere and focus on economics.

First, the stock market didn't crater as many had expected it to do; on the contrary, the Dow set a new record. The investor class stands to do pretty well from infrastructure and military spending hikes, massive tax cuts, and corporate deregulation...if those are, in fact, coming. We can only guess at what next year's federal budget will look like. Even while basking in its unexpected victory, the Republican Party is far from united, and those cracks will grow when the new president is sworn in. Donald Trump is promising massive deficit spending. The Republican Party's lodestar has long been the Paul Ryan budget plan that seeks to balance the budget by cutting Medicare and Social Security. Without knowing whether the big spender or the deficit hawk will prevail, we can't predict what's going to happen to the economy.

The biggest other wild card is Trump's threatened trade wars. If the flow of cheap imports gets choked off prices will rise while selection constricts; as our trade partners retaliate, exports get choked off. Again, we don't know if he will really tear up treaties and provoke China or if that was just campaign bluster.

"We just don't know" comes up over and over again. Trump is neither a Republican nor a traditional conservative, so the usual GOP agenda is not a blueprint. We do know that, since World War 2, the economy has performed better under Democratic administrations by all objective measures (nine of the last 10 recessions were under Republican presidents). There's nothing ambiguous about those numbers, and your own experience bears them out: Surely you can remember that George W Bush left behind a flaming ruin; Barack Obama put out the flames and tidied up the wreckage. The ensuing recovery has been long but sluggish and only recently started to benefit the middle class. That's going to change next year, one way or the other. Spending $1 trillion on legitimately needed infrastructure improvements would certainly produce a growth spurt for a year or two before inflation and the exploding debt choke it off; Ryan's austerity would quickly bring a recession. Even if Trump's plan makes it through Congress, it's unclear how much stimulus an already-growing economy can absorb, particularly since we are already near full employment. Would a burst of overheating lure enough sidelined people back into the workforce? Will we have enough immigrants to take up the slack, or are we going to have to replace them, too? Self-driving trucks will soon render 1.9 million professional drivers superfluous...but how soon? The more deeply one delves into the future, the more questions one raises.  
  
But you're wondering how all of this will affect Curio City. I'm hedging my bets. Just last week I wrote about how environmental regulations might have indirectly signed my store's death warrant, and that's squarely on the Democrats. The tired old GOP agenda embodied in the Ryan budget would be terrible news, but I think the danger of that passing is low. Trump's own policies are vague, as is his level of commitment to them. I'm not even going to go into the implications of ending Obamacare, but they're going to be major. Trump's fantasy wall and anti-immigration stance will certainly be important if they really do play out as threatened. The only sure thing right now is uncertainty. I am not jumping on the impending-disaster bandwagon; in some ways, I'm even cautiously optimistic.   

Curio City is too tiny to be affected very much by macroeconomic trends, except insofar as general conditions encourage people to spend or hoard their money. And most of Curio City's merchandise comes from China, so the potential trade wars loom large. My best year ever was 2008, when the Great Recession was wreaking havoc. One could draw a contrarian conclusion and say that hard times somehow help my business. But that, too, is a stretch. I am not rooting for recession. Right now, I'm just hoping for Christmas. 

Instead of bringing in the $1,000 worth of Christmas sales that I expected, this was quite possibly the worst November week ever. Is that the election's fault? Probably not; a $600 lighted beanie sale that I had last year wasn't repeated this year. Christmas is just getting off to a very poor start, and it's a stretch to blame our national political crisis for that.

Breaking Stained Glass

Switchables sent out this email this week:

The glass company in America that we currently purchase our raw materials from to make Switchables, has recently closed their doors. The EPA has stepped in and recently regulated the furnace emissions in the six companies in America that make stained glass. This EPA regulation not only caused the closing of the company we buy our glass from, but it also has raised the prices considerably from all other companies.

Once our manufacturer was faced with this news, they decided to double our prices. Doubling our cost, along with the closure of our Glass Manufacturer, has necessitated us into facing a major decision. As of December 15th, 2016 Switchables will no longer be able to continue in the wholesale venue.

That sounds like the blame-the-government spin that conservatives habitually put on misfortune. But this time it's true. If you Google "epa crackdown stained glass" you'll find dozens of news stories chronicling local business closures and job losses. Government regulation really is ravaging the US stained glass industry, and Curio City might be collateral damage. 

As a liberal, I want to convince myself that a marginally cleaner environment is a worthwhile tradeoff for losing a minor industry. Switchables could have remained in business had the owners not already been eying retirement. Maybe they couldn't sell the company because of the industry upheaval, or maybe because the owner was the talent behind their designs. But as I contemplate losing my second-largest vendor and most of my repeat customers, I can see what drives otherwise-decent people to become Republicans. Thanks, Obama!

Switchables have been steady and reliable sellers since I found them at the Boston Gift Show 10 years ago -- one of the few success stories to come from the Cavalcade of Crap. I've sold 1,200 fixtures and thousands of covers. Last month they comprised fully 25% of my sales; this week they're nearly 100%. Losing them is going to hurt, and hurt badly. If you're a regular reader you know that I've been struggling all year; this could be the knockout punch if I can't find a comparable replacement by next spring. Basically, I'm depending on Jackite now, and they were less than dependable this year; if they stumble again next year I'm finished. 

Last year I bet that Metal Earth would become my Next Big Thing. It didn't. I brought in over $1,000 worth of models and sold about $1,000 worth, just breaking even while expanding my selection. This year I doubled down; $2,500 of my $10,000 debt is tied up in Metal Earth. That's a bet-the-company gamble. Sales so far: $20. But I only started advertising them a couple of days ago because they draw a lot of (expensive) clicks that convert at a very low rate. If I sell $2,501 worth over the next four weeks that will be a win.

I've written before about why they're the perfect product from my perspective. Now if only my customers would fall in line. These models only sell during Christmas, and it's impossible to keep up with the line's growth. The 116 models that I have in stock represent a substantial fraction of what's available, but dozens of new ones appear each year. Deep-pocketed stores will always have a better selection than I do...and, because I can't afford to restock my inventory between Christmases, I'll always have trouble getting the best sellers. These might be too mainstream, with too many competitors, for me to become a player. 

Meanwhile, the Switchables emergency compelled me to spend $900 beyond what I had thought was this year's Christmas buy. I should have enough stock to coast for six months or a year. Selling them down without spending to replace them will be a short-term boon, at least until the most popular covers are gone; I'm raising prices to match the MSRP, so the markup is well above average. It's anybody's guess what will happen once word gets around to the customer base. Will they strip the shelves in a desperate frenzy, or will they shun a loser line?

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Just to set the record straight (because I'm compulsive that way): Last month ended as the third-worst October ever, not the worst; fully half of the month's sales came in the last week, and fully half of those came in the 36 hours after I posted the numbers. It actually finished with a $57 profit despite the meager top line. Still not good, but not as bad as it looked.

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I'm taking a pay cut, from 20% of net sales to 15%, effective with my next paycheck. Ordinarily, I earn two to three fat juicy paychecks per year. This year they'll be 25% less juicy, with the difference going to debt relief. I'm going to cut another 5% when the holidays are over. If all goes swimmingly, I'll be able to pay off my debt and restore my salary by next November. At least, that was the plan before the Switchables disaster. 

The editing opportunity that I mentioned earlier hasn't come through yet, so it's an open question whether I'll be able to replace my lost Curio City income. It wouldn't take much. If it flops I'll have to get a part-time job. The good news is that minimum wage goes up to $11 per hour next year, and that's at least 4x as much as Curio City pays me during the non-Christmas months.

Another February Down

The most depressing month of the year is finally over. A person of my age shouldn't wish the time away, but seasonal depression always makes me want to either hibernate or hit the fast-forward button from Halloween through February. This batch of numbers isn't exactly a feel-good tonic. The best thing I can say about February is that I kept my advertising costs down...but since sales fell by a larger percentage, even that's not really good news. 

February

Total income: -10.6%
Total COGS: -18.8%
Payroll: -21.2%

Marketing: -4.8%
Net Income (Profit) vs LY: -34.6% (-$30)

Actual Profit/Loss: -$117

YTD

Total income: +0.1%
Total COGS: -0.1%
Payroll: -2.9%

Marketing: -27.6%
Net Income (Profit) vs LY: +71.7% (+$544)

Actual Profit/Loss: -$215

The YTD profit number will turn deeper red after I pay my CPA -- the last big annual expense I have to meet before I can start digging out of debt. Technically, I haven't paid my excise tax yet, either -- the payment is queued up for March 15 and the money's there to cover it, but it isn't reflected in these statistics. 

The odds of gaining any ground against LY's strong March look slim.

The Metal Earth dropship arrangement that I've been writing about has brought in one $10 sale so far. Not that I'm turning my nose up at ten bucks, but it's not looking like a game-changer at this early stage.

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Super Tuesday is coming right up. If you're among the throngs who will vote on March 1 (as I am), be sure to vote for anybody but Trump if you're a Republican, or support Sanders if you're a Democrat or an independent. With the number of delegates in play, this could very well be the last chance to prevent a Trump presidency -- if he wins the Republican nod and Democrats are foolhardy enough to nominate Clinton, then Trump's victory in November is assured.