Friday, February 3, 2012

Indigent Burials: The Tip of the Spear for U.S. State Governments

Indigent is described as "needy, destitute, poor, lacking or deficient".  And indigent burials are on the rise, which is an issue for State and local governments as the cost is publicly funded.  In Portland, Oregon the rate of  indigent burials has almost doubled since 2007 for the medical examiner's office.  Colorado buried 32% more indigent people than in 2007.  Illinois spent $1.9 million on indigent burials from July 1st to September 1st in 2011.  (Nicas, 1/30/12)  What is not known is the degree to which abandoned or unclaimed bodies are included in the statistics.  It is an important distinction in order to understand how private or non-publicly funded burial costs are related to indigent burials.

The average funeral cost in the U.S. for 2009 was $6,560 not including cemetery costs.  That is an 827% increase from 1960.  Since the funeral industry is highly fragmented with the top four funeral home companies accounting for only 10% of the market, these prices could vary widely within local markets.  (NFDA)  The price is cost prohibitive for those with little to no assets or liquidity.  A secondary insight is as a wealth indicator within a person's family who was an indigent burial.  An indigent burial could be a person that has assets, but not enough to cover funeral costs or who has relatives that do not have enough assets to cover the funeral costs.  

On average, 1 out of 6 Americans will live until age 100 relying on a monthly social security payment of  $1,034 and retirement savings of $29,000.  The over, but not over U.S. recession has further deteriorated the situation facing retirees as investment values have decreased and businesses are cutting pension benefits either through bankruptcy or not delivering the promised rate of return.  It is not only domestic threats, but global threats such as an increased demand for resources - gasoline, natural gas, wheat, corn, beef, pig - among other commodities.  The index for food at home rose 6% for 2011 compared to 1.7% in 2010. (BLS, 1/19/12)

The effects are already being seen in the labor force participation rate.  For people 75 and older, the labor participation rate is the highest since 1966 at 7.5%.  Labor participation for this group in 2018 is forecasted to be 10% or 2 million workers.  (Greene, 1/21/11)  Because these are elderly workers and social security limits the amount of money beneficiaries can earn in addition to monthly social security benefits, the jobs are likely to be lower wage service jobs in the retail industry or something similar.  It could be argued that those working are the lucky ones.  The issue of living on a fixed income with rising consumer prices for food, housing, and energy affects many more than just 7.5% of people age 75 or older.

Other age groups are dealing with additional difficulties that impede finding a solution.  The over, but not over recession has left 3.9 million workers unemployed for a year or longer.  Research has shown that those unemployed for 6 months or more, earned 60% less than those unemployed for 3 months. (Murray, 1/18/12)  That is a significant loss of income and sets some people at a greater disadvantage than the age 75 and older group.  Indigent burials will continue to increase to keep pace with a higher death rate, however it can also be expected that the percentage of indigent burials will increase as Americans fall further and further behind economically.  The burden, then falls to the State and local governments and taxpayers so in one way or another the indigent as a taxpayer via sales tax, payroll tax, or property tax is on the indigent burial installment plan.

Sources:
Kelly Greene and Anne Tergesen, More Elderly Find They Can't Afford Not to Work, Wall Street Journal, January 21-22, 2012.

Sara Murray and Cameron McWhirter, Long Term Unemployment Ripples Through One Town, Wall Street Journal, January, 18, 2012.

National Funeral Director's Association, Media Center, Statistics, www.nfda.org

U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index 2011, January 19, 2012.


Wednesday, February 1, 2012

Private Label Goods - A High Wire Dance for Retailers

"Trading down" is when consumers change their purchasing behavior from brand names to private labels also known as generic labels.  Private labels are goods manufactured either by the retailer or by another company for the retailer.  Private labels can carry the name of the retailer or not. Usually, the change in purchasing behavior is due to price sensitivity so trading down is less proactive and more reactive.  In the past, this has meant that trading down is generally a temporary move until brand name goods are more affordable because price has an inherent duality, one of which is as an indicator of quality.  Private label goods were perceived to be of lesser value whereas brand name goods were aspirational.

That was then, this is now.  The value line between private label and brand name goods is blurring.  Economists using economic indicators declared the recession over, however consumers disagree.  The over, but not over recession is exposing consumers to private labels for a longer amount of time.  Time that is allowing consumers to build brand loyalty to private labels.  These are not the private labels of yesteryear, these are private labels that are evocative of brand names - in packaging and messaging.  In general, private labels realize a 10 - 40% price advantage compared to brand name goods. (Agnese, 7/21/11)  So private labels can compete on price if retailers so choose or it can tuck that margin away as profits.

Private labels are now a competitive threat to brand name goods and for retailers that is a high wire dance because brand name goods are necessary for revenue generation.  Retailers do not have enough private labels goods to fill a store or enough brand awareness.  Moreover, private labels like Target's Archer Farms are only sold in Target stores unlike brand name goods such as Dawn dish soap, which is sold in most, if not all retailers.  The advantage of exclusivity is its resistance to price comparisons as the price is controlled throughout the distribution channel.  A more serious issue for retailers is managing cannibalization when floor or shelf space serves two masters.

The question is - to what degree will retailers become protectionistic towards brand name goods when private labels are clearly a lucrative venture and in the best interests of the retailer.  Retailers need brand name goods and brand name goods need retailers so until that is discretionary instead of necessary, retailers must be comfortable with heights.

Sources:
Joseph Agnese, Standard & Poor's Industry Surveys: Supermarkets & Drugstores, July 21, 2011.

Tuesday, January 31, 2012

A Nagging Issue for the Euro-zone

"Nagging - the interaction in which one person repeatedly makes a request, the other person repeatedly ignores it and both become increasingly annoyed ..." Personality differences create fertile ground for nagging such as organized personalities conflicting with relaxed personalities.  One assessment tool, Kolbe Assessment, identifies problem solving strategies related to personality traits.  Aside from an assessment tool, the first step in addressing a nagging issue is to "admit you are stuck in a bad pattern".  (Bernstein, WSJ 1/25/12)

Even though this article was focused on nagging as a marriage killer, it is not a leap to see its implications for the Euro-zone crisis and recent fiscal pact negotiations.  France and Germany has repeatedly demanded that Italy, Ireland, Spain and Greece pass austerity measures and bring their respective governments in line with the EU Treaty.  France and Germany have, arguably, the greatest to lose if these governments fail to correct because French and German banks have invested a lot of money during the bubble in these countries.  It is widely believed in Greece that Germany is indirectly bailing out its own banks using Greece as the smoke screen.

It is not that Italy, Ireland, Spain, and Greece are purposefully ignoring France and Germany, but that these countries - being the ones that have to endure the fiscal pain - are taking their time moving the measures through their governments.  France and Germany are acting with urgency and Italy, Ireland, Spain and Greece are acting cautious.  The cautiousness is a reaction to the urgency by Germany and France.  The harder the push and the harsher the rhetoric, the greater the likelihood that the austerity measures will be window dressing and short lived.  These are fundamental cultural differences that cannot be overcome with a treaty.

Germany is the steam engine for the European Union and treasure chest for the Euro-zone.  France is strong with its financial sector, but weak as it is overly regulated with laws protecting workers.  Spain has very high unemployment as does Italy, Ireland and Greece alongside over regulation like France.  Those infrastructure projects funded with cheap European Union capital investments propped up rotten labor markets and stopped when the bubble burst.

The progressive nature of entitled workers is deeply woven in the culture of Italy, Ireland, Spain, and Greece.  France is less so as it has better governance over its citizens and can strongarm them.  It does not take a Kolbe Assessment to understand problem solving strategies differ greatly between Euro-zone countries.  There is evidence that Spain believes residential building will save its economy - buyers for the residential properties seem to be a detail left for later.  Although, Spain's strategy is ludicrous based on recent lessons learned from the U.S. housing market bubble, it is in line with a culture for whom ignorance is habitual.

The first step for the Euro-zone's recovery is admitting it is stuck in a bad pattern.  The second step is identifying, building, and supporting commonalities.  The third step is "rinse and repeat" as it takes, on average, 21 times doing an action to create a habit.

Sources:
Elizabeth Bernstein, Meet the Marriage Killer: It's More Common than Adultery and Potentially as Toxic, So Why is it so Hard to Stop Nagging? Wall Street Journal, Personal Journal D1-D2, January 25, 2012.