When Will the Lumbersexual Bubble Go Boom?

Wednesday, March 9, 2016
Posted in category Detroit, Economics

The Detroit resurrection of recent years is being tainted by the inanities of a creeping bubble, and accordingly, a multitude of poorly-allocated business investments. Once again, existing businesses have been growing at unprecedented rates and new businesses are springing up overnight, and that is in spite of many recent contractions and/or failures in the retail sector. Some people just don’t get The Memo in time.

Almost a year ago, I reported on Detroit’s hipster barbershop that closed after five months because no market existed for $40-$50 barber cuts and shaves. When this space became empty in mid-2015, it was filled by a retailer called Willys Detroit, which is a sister store of the successful Detroit watchmaker Shinola. Willys Detroit is a poster child for an unsustainable bubble business with a ludicrous business model:

Willys Detroit opened in June 2014 with generally upscale, classic Americana merchandise at price points around $90 for shirts, $200 or so for jeans and several hundred dollars for jackets.

This store concept is asinine considering the neighborhood where it sits. Unsurprisingly, Willys Detroit has announced that it is closing its doors, already, just as I said would happen. One of the main brands of the failed retailer has been Filson, an outdoors clothier. As Willys Detroit shuts down, the store will fully convert to a Filson retail location. Filson, a company out of Seattle, is currently expanding its retail locations from six to ten, including this Detroit location. So the Filson brand couldn’t attract willing buyers at its ridiculously high price point and keep the Willys Detroit store afloat, so the answer is to convert the entire store to that one brand and rinse and repeat.

The boom-bubble period is making people go bonkers. Again. Entrepreneurs, business owners, individuals, and consumers have become unhinged, going well beyond sustainable business models and reasonable spending patterns. The excess of credit along with the low cost of obtaining it has allowed business ventures to be funded that otherwise would not have been able to raise capital. Business capital is therefore wasted on projects that are doomed to failure in the long run, if not the short term.

And this story gets better. I did some research on Filson. The company sells $500 duffel bags and backpacks; $700 garment bags; and $100 nylon totes, among other overpriced stuff. And it is all really ugly. The business model for the company is to rely on an old name from a century ago, and make the following pitch:

Now the Seattle company is expanding as it aspires to dress an entire generation of creative urban types who hanker for U.S.-made authenticity and “lumbersexual” chic.

…The idea is to imagine “a book of Jack London stories and materialize that spirit,” Alex Carleton, Filson’s creative director, said in an interview. Its design will inform future retail locations and help better outline the brand in the eyes of shoppers, he said.

…More recently the brand has drawn in hipsters who like its rugged fabrics and early 20th-century looks. The website Gear Junkie defined the ‘lumbersexual’ look as the guy who “is barhopping, but he looks like he could fell a Norway pine.”

Since Detroit’s resurgence has made it a new haven for Hipsters – also known as lumbersexuals – I guess the executives at Filson have concluded that these barely-employed bearded kids in skinny jeans and flannel shirts have the financial temerity for the aforementioned $500 duffel bags and totes and backpacks. I’ve already rolled the dice on this Filson store closing, and it hasn’t even opened yet. The lumbersexuals, along with their IPAs and Carhartt jackets, don’t have the financial wherewithal to keep this monstrosity afloat.

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One Response to When Will the Lumbersexual Bubble Go Boom?

  1. clark says:

    March 10th, 2016 at 8:38 am

    That reminds me of what some are calling, ‘The dry cleaner effect’:

    “‘If I borrow a million but have a million in the bank’ [...]

    My parents were dry-cleaners. My Dad would tell me while driving, “see that dry-cleaner re-opening? Some guy with $200,000 bought it after the previous owner closed. Now he’ll start off with low prices, cutting into the business for everyone. Then he’ll run out of money, close down and another guy with $200,000 will buy it and do the same thing,” he complained. We’ve all seen this with restaurants, etc.

    I understand this is how the market establishes equilibrium; how many dry-cleaners will exist for a given market. What is the result? Lower returns for all dry-cleaners, lower profits, lower prices. Now consider QE. QE basically hands various business funds to put the DCE into motion. We see it in oil right now; weaker producers are keeping the doors open with junk bond money. I’m not saying this accounts for all deflation, but it causes some part of it, IMO.

    It’s made more complicated by fractional reserve banking. If 1 dollar of QE finds it’s way into deposits, then the bank loans out 10 dollars, how much of the 10 bucks is funding the DCE? You could easily see a trillion Yellen bucks causing many trillions to go poof.

    Back to my conversation; if the PBOC loans a local government money to build a redundant dry-cleaner, the money does go to someone. But the loan is an asset on someone’s balance sheet and it will go away eventually. So there’s no net gain or loss of money supply in theory. However, the DCE will continue to drive down prices, ROI and profits for all market participants into the future.”

    http://thehousingbubbleblog.com/?p=9231#comment-2477583

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