The Giffen Goods Gotcha
Welcome to Friday.
This week we’re continuing a series on economics (stifle that yawn, bwah!) made possible by the current hellscape—er—climate that we’re all living in. Inflation is a sumbich but retail sales are rising, apparently we’re going to run out of avocados as early as next week, Shopify stock is in the toilet, and Nestlé clocked $13.5B in eCom revenue in 2021.
All of the above help us to prove out the existence of a Giffen Good.
What’s a Giffen Good?
When originally proposed in Principles of Economics (Marshall, 1890), it was a theoretical paradox: is there a type of inferior good (a staple like bread or cheese, etc.) that, as it became more expensive, it would increase in demand? Author Alfred Marshall credited Scottish statistician Sir Robert Giffen with the theory and the rest is history that economics students everywhere have to remember just long enough to forget after the quiz.
Let’s put this in millennial terms. Your bread for avocado toast is likely to get much more expensive in the next few weeks. As the mushygreen oilfruit disappears from store shelves due to the Mexican avo embargo, millennials will do without and double down on meat and cheese for “charcoochie” boards, paradoxically the demand for bread will increase as we compensate for the lack of avocado. As Giffen predicted, this rise in demand will cause a rise in price as there is higher demand for a constrained supply.
Congrats you now understand Giffen Goods.
Why does it matter?
The U.S. Commerce Department retail sales numbers for 2021 were enlightening. Firstly, retail sales rose markedly from 2020 to 2021. Notably, though, eCom fell for the first time as a percentage of the total retail volume. This signals that “reopenings” really did have an impact on the growth of eCom. As the Nestle results show, more and more of CPG is shifting to digital, where limits around price elasticity testing, and a higher fee for the added convenience, are often tested. As a channel, eCom is subject to higher volatility around inventory and pricing.
Finally, if reopenings and fears around inflation are causing a deceleration in eCom’s growth, that could signal problems for us here in the retail industry. As higher-order goods go through periods of relative unavailability, it could push the price of inferior goods up. If Big Tech and high-growth eCom stoke fears around the earnings potential of the tech workers employed at those companies (think Shopify, for instance) we could see a brain drain in our industry as high-paid technologists move to other areas with vast amounts of liquidity and higher earnings potential (read: crypto). Many of those workers are paid with RSUs, something that Amazon may be ahead of the rest of the industry on as it slowly increases base salary and winds down stock-heavy compensation.
Between Veblen Goods and Giffen Goods sits the middle class — wildly underserved and overlooked. May they not be forgotten.
Have a great weekend, and enjoy your avocado toast.
P.S. at publication time it’s now come to light that the avocado ban has now lifted. So… as you were, I guess? ¯\_(ツ)_/¯
Imagineer this. Disney has a new executive in charge of its metaverse future. Mike White will be senior VP over Disney’s Next Generation Storytelling and Consumer Experiences. The company also plans to develop resort-like “Storyliving” communities where residents can experience the magic of Disney right where they live. It will be interesting to see how these two moves play out together.
Editor’s note: In Issue #022: “Have we stopped dreaming of the future” we asked if Culdesac Tempe - a car-free community built by venture capitalists - would replace the vision that Walt had of an “Experimental Prototype Community of Tomorrow”. Rather than dreaming of a global community, Disney has pivoted their Epcot park to focus on the power of Storytelling. Today, they announced a new investment in a physical community, a successor to their less-than-successful Celebration, Florida.
With these new hires and renewed community building focus, The House of Mouse must reconcile two divergent paths. On the one hand, they’re making investments to secure the future of their IP in an uncertain new set of technologies, namely web3 and NFTs. But on the other hand they continue to build physical communities that are underscored by central narratives and a “simpler” way of living. All of the above are underscored by their focus on the technology and future possibilities that they may hold.
Non Fungible… Trump? You remember when Melania Trump jumped on the NFT Train… well it appears that her first auction was won by her. Or at least funds that originated from her wallet. Blockchain ledgers are public, so anyone can see how cryptocurrency has been moved. And while wash trading isn’t allowed in conventional markets, the NFT trade market is unregulated.
More Sights & Sounds. Peloton has launched Lanebreak, which seems like a Beatsaber in bike lanes. Follow up for everyone who was worried: Dillon The Pickle has been found and returned to his rightful home with the Portland Pickles.
A platform for Black designers. Starting in September, DSW is going to release its first line of shoes designed by up-and-coming Black artists. These shoes will also be coming from a Black owned factory. DSW says it wants to “empower African American designers and give them the opportunity to have their designs reach the marketplace.”
More Touch News. Allbirds has launched a resale marketplace, ReRun. And against all odds, Crocs reported a record revenue in 2021, rounding out the year at $2.3 billion.
What Do Stars Taste Like? Coke is launching Coca-Cola Creations, a creative initiative aimed at using physical and digital avenues to try to capture younger audiences. This new strategy has brought forth Coca-Cola Starlight, “a new, limited-edition flavor that evokes the mystery and wonder of space exploration.” Starlight packaging features an AR concert by Ava Max.
Chickens Take Flight. Inflation continues to accelerate, and WingStop has reported that the price of wings increased 40% in 2021. The company is actively looking into solutions to keep costs down for customers, including using other cuts of meat for boneless wings.
Outdoor Boycott. Multiple outdoor retailers, including Patagonia, REI, and The North Face have threatened to boycott The Outdoor Retailer trade show if it is held in Utah this year, citing a lack of protection of public lands and national monuments by the state’s officials.