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A future culture of affordability… or not

Posted on 18 June 2017 by @patlalrique

 
 
Ameya Yokocho dollarama
 
 
Just recently, Ontario’s Prime Minister Kathleen Wynne announced the Canadian province would progressively hike the minimum wage to make it reach 15 dollars an hour by 2019, a quite hasty agenda according to experts.
 
While the debate whether minimum wage is beneficial or counter-productive to the economy is raging, we can’t overlook the fact that a minimum hour salary is having a modifying effect on the labor market and the economy.
 
The question is not whether we need a floor to hourly wage, but rather how a balance can be achieved to get the right amount to benefit the workers and to avoid damaging the economy.
 
After all, if the logic was simply to unilaterally rise wages to enrich everybody, we would have done it long ago and we would just have to rise it to 25$ an hour, problem fixed.
 
But obviously, it’s more complicated than that: whose gonna pay? The system is already leveraged to the max, there is not that much room to extract the extra sums required. From corporate to small businesses and entrepreneurs, everybody is squeezed. Of course, there is always areas that do better than other, but we are in a competition economy, aren’t we? The benefit margin are hard to extend. Hence the problem with rising minimum wage.
 
To increase wage, we need to increase productivity. Salaries must be submitted to market logic as well, meaning that a discovery process must find the right amount for remuneration for each jobs. That’s in a real free market economy. While we still have many free market regulated prices, in many areas, governments, corporations and lobbies have worked really hard for the last decades to get our economy away from a free market, to get an advantage from the ordinary citizens.
 
But the main point of the article is to point out the news that Dollarama is profiting from this economy in Canada, and that it is ready to pay the wage increase, as long as its competitors have to do it as well.
 
Talk to me about this, a company that is so confident about its future business that it is welcoming an increase in the minimum wage, instead of warning about a whole lot of closure like Couche-Tard has publicly stated. Well, not exactly welcoming, but Dollarama is saying ”Ok no problems, we’re ready to take on the market”.
 
boat freight dollarama cheap goods
 
The 20% surging profit means that more people went spending in-store and that regular customers spended more. Of course news article are focusing on the regulars that got out of a Dollarama with bigger orders, but a surge in profit of this amplitude surely means new people went shopping to the franchise.
 
So now, it is a good thing? With very low unemployement rates in Canada and the U.S., how come more people went in a discount store like Dollarama? Some would argue that since the economy is getting better, more people spend in stores and Dollarama is benefiting from that. But the problem is that’s not what the data are showing. If you look into the news you will quickly find that thousands of retail locations are closing in the U.S. and Canada, when it’s not entire chain like Payless Shoes who’ve been around for ages, that are going into bankruptcy.
 
So it is fair statement to say that people in North America are not spending more in retail, and it is my guest that Dollarama has converted many people into customers because of the low prices. Instead of shopping at places where the margin for everyday products is higher they go to the 1 dollar store.
 
cheap goods dollarama
 
There is many product of first necessity available that a one dollar store can substitute to a cheaper version. A lot of companies in the Fortune 500 produce goods of first necessity that have a steady and stable demand. A good example would be Procter and Gamble or Kraft. In economic downturns people tend to seek better deals and wants to extract value as much as possible. This isn’t good news for these large corporations.
 
Furthermore, should we worry about the economy that discount stores are predicting in coming years that business will be so good they’ll be able to afford doing it paying their employees 15$ an hour?
 
Another factor that is a canary in the coal mine is the quantity of shopping mails that are in difficulty/closing down in North America. The situation is less dire in Canada, where commercial space market is not as crazy as in the U.S., but many American mail properties have been in financial turmoils since a little while now. In Canada, the housing market is the primary source of worries, although that component could also come to contaminate the commercial space market.
 
For me there is no need to over worry-about people going less to the mail, if anything it is a good thing in many regards, but with the article I want to point out the deconnection in between official economic data and reality.
 
A downturn in consumer spending is pretty inconvenient in our ”New Economy”. A service economy is not going well if retails is not going well. But our politicians want to keep going with the recovery narrative. Their logic is that things will get better and that negativity is not going to help.
 
Conclusion is, by doing so their are clouding reality. Everybody hopes for a happy ending, but it’s generaly not that easy. Be prepared.
 
 
 
 

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