Small Business Labs

The Rise of Experiential Luxury

According to a study released by the strategy consulting firm BCG, the global rich (and well off) spent $1.8 trillion in 2012 on luxury goods and services.

What's interesting about the study is the finding that market for luxury services and experiences exceeds the market for luxury goods and is growing faster. 

As the study chart below shows, what BCG calls the "experiential luxury" market is now over half of the total luxury spending market.  

The Guardian's Super rich shift their thrills from luxury goods to costly experiences nicely summarizes the study.  Key quote:

... the rich are increasingly hunting for unique objects and experiences ... luxury is shifting rapidly from 'having' to 'being' – that is, consumers are moving from owning a luxury product to experiencing a luxury ...

We agree but would add it's not just the rich shifting their spending to experiences. Consumers in all income brackets are looking for unique and unusual experiences.

One example is the growth of food trucks.  Their patrons come from all income groups. Key quote from our Food Trucks Motor Into the Mainstream report:

For many, it’s the experience that attracts them to food trucks. More than 80 percent of those interviewed used words like fun, exciting, new, different, unusual and unique when asked why they dined at food trucks.

This is all part of the broader shift to an experience economy that we believe will continue to gain strength over the next decade.

Freelancers, Time and Values

Two related articles on how freelancers and micropreneurs look at the world and their businesses caught my eye this week.

Fast Company's How Freelancers are Redefining Success to be About Value, Not Wealth covers a topic that constantly comes up in our research - the vast majority of solo and micropreneurs do not define business success purely - or even mainly - in financial terms.  

Yes, they want to make money. And yes, they often would like to make more money than they are currently making. 

But when we ask these folks how they define success, we don't hear much about money. Instead, we hear about job satisfaction, work/life flexibility, control and autonomy.

Much of this comes down to being able to control when, where and how they work.  This schedule control and flexibility is echoed in the article.  Key quote:

Time is a new currency, and successful freelancers manage, save, and spend it wisely.

We certainly agree. We even included this in our 2013 Top 10 Small Business Trends List as a trend we call Time is More than Money.  

The Forbes article Why is Entrepreneurship an Alternative Lifestyle? covers a variety of ways being a solo or micropreneur changes your values.  It also points out the importance of schedule control.  Key quote:

... I was in control of my own time and that no employer could force me to go on a business trip or attend a meeting at a time that I thought it was more important for me to be with my kids.

In many ways you can sum up all of our research on this segment with the words flexibility, autonomy an control.  This is what people are looking for when they go independent. And, of course, enough money to live on.

Trends and Budweiser's Puppy Love Commercial

It's pretty likely you've seen Puppy Love, Budweiser's Superbowl commercial.  

I'm writing this article on the Friday before the Superbowl and it's already been viewed online 25 million times.  For those who haven't seen it, it shows a labrador puppy making friends with a Clydsdale on a ranch. 

While I like the ad, I'm more intrigued by the trends the ad represents.

The first is the growing role pets are playing in society and the broader trend of pet humanization.  This is the trend towards pet owners seeing their pets as full fledged family members and themselves as "pet parents" instead of pet owners.  

While puppies have long been an advertising staple, this ad truly humanizes both the puppy and the Clydsdale in the way they make friends and interact. This, of course, will appeal to the large and growing group of people who humanize their pets.  

The ad also taps into the trend towards a return to simplicity, authenticity and quality.

In the ad the farmer/dog breeder - who's obviously a rugged and independent yet sensitive kind of guy - is shown working with hands. This harkens us back to the authentic, quality oriented days of yore.  

This is, of course, our stylized view of the days of yore and not how the days of yore really worked. But hey, it's advertising.  

This vision of the solo farmer working his ranch ties into several related trends we track: 

New Localism is shift towards Americans relearning the value of community and reestablishing stronger ties with family, friends and their communities.  Part of the new localism trend is a growing interest in local, unique, products that look and feel authentic.  

The New Artisans are people focused on exploring the combination of new and old ideas, approachs and methods to create high-quality, niche products.  

It's interesting to see Budweiser tie into so many trends in one ad - and do so with great effectiveness.  

Ecommerce Driving Steep Declines in Retail Foot Traffic

The startling chart below shows shows retail foot traffic is rapidly and dramatically declining.  

It's from the Wall Street Journal article Stores Confront New World of Reduced Shopper Traffic.  Key quote:

"Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013."

The reason, of course, is growing online sales.

But people aren't just buying online. They're also increasingly browsing online and then going to stores to make purchases. As the article points out, this also reduces the amount of time they spend shopping in the physical world:

"While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak's data shows."

What make this data even more significant is ecommerce is still only about 6% of overall retail sales. Despite this small share, its already substantially reshaping consumer behavior.  

Imagine what this chart will look like when ecommerce gets to 25%.

Alt-Labor: Unions in a Freelance Economy

Unions haven't fared well over the past few decades.

At their peak in the 1950's, about 1 in 3 U.S. workers were in a union.

Today, about 1 in 10 are union members - and only about 6.6% of private sector workers are in unions.  

The reasons for the decline are well chronicled - globalization, technological change, the growth of the hard to unionize service sector, increasing right to work laws, union mismanagement, etc.  

As unions have declined, non-union organizations have formed that are focused on organizing, mobilizing and advocating for workers.  These groups go by many names including "work centers" and "worker alliances", but are are broadly called Alt-Labor organizations.

Key quote from an American Prospect article on the growth of Alt-Labor groups:

Twenty years ago, when Rutgers labor professor Janice Fine first set out to count the nonunion groups that were organizing and mobilizing workers, she found just five in the entire country. Today, her tally stands at 214.

Alt-Labor groups are often foundation backed and are based on voluntary membership.  While they do not have the collective bargaining powers of traditional unions, they see worker advocacy as their key mandate.

These groups are the organizers behind many of the current labor battles going on in the food service and retail industries. They're also drivers of the push for higher minimum wages.  

One of the best known, and most controversial, Alt-Labor groups is the Restaurant Opportunities Center. According to their website they pursue workplace justice by:

Using tactics that include organizing workers, litigation, and public pressure, we work to demonstrate public consequences for employers that take the ‘low-road’ to profitability. 

As the New York Times article Advocates for Workers Raise the Ire of Business reports, business groups aren't real happy with many Alt-Labor organizations. They claim they "often demonize companies unfairly and inaccurately".  

Another Alt-Labor group is The Freelancers Union.  They support freelancers, independent workers and the self-employed. Like other Alt-Labor organizations they don't offer collective bargaining, but they do provide other services traditionally associated with unions.

The New York Time's article Tackling Concerns of Independent workers describes them as:

one of the nation’s fastest-growing labor organizations ... a large, influential, self-supporting organization of workers that pushes to advance their interests, although its members work for numerous employers in many industries. 

I'm a card carrying member of the Freelancers Union (OK, they don't actually have cards).  But they provide a lot of interesting benefits and it costs nothing to join.

Traditional unions have noticed the growing clout of the Alt-Labor movement and are trying to figure out how to work with these groups.  The Economist article New Labor, Alt-Labor covers how traditional labor unions are planning to build stronger relationships with Alt-Labor organizations.

We believe the Alt-Labor movement will continue to gain strength over the next 3-5 years.

Radius Small Business Trends Presentation

Radius is one of the more interesting big data startups.  Using web-crawling technology similar to Google's, they've amassed data on over 27 million U.S. small businesses.  They sell this data to companies looking for help with prospecting, lead generation and target marketing.

They just released a presentation on The Most Important Small Business Trends in 2014.  76 slides long, it covers a wide range of small business trends from a variety of sources, including us.  

All of the trend sections - technology, marketing, finance and business management, going local - are interesting.  But I really liked the Going Local section.  A trend quote from Two Minute Mobile in particular caught my eye:

"Consumers have grown fatigued by the shopping experience at big box retailers. Impersonal service, long lines and big data breaches are all working to drive business to smaller, main street retailers ..."

I agree and so do a growing number of consumers.

They have an article summarizing the trends on their blog.   For anyone interested in small businesses and/or small business trends the article and trend presentation are well worth looking at.  

Rural Populations Continue to Shrink

Is Rural America Struggling? provides an excellent summary of the economic and population issues facing rural America.  Key quote:

... rural America’s job growth is stagnant and the population is in decline. In fact, it’s the first time such a population decline has been recorded in the nation’s rural counties.

The article chart below shows the long term relative decline in non-metor (rural) U.S. population versus metro areas. 

Interestingly enough, even rural resort areas are seeing slower population growth.  Key quote:

People are trading the comfort of the suburbs for the hustle and bustle of the city. “Population growth in high-amenity areas like beaches, mountains, and skiing areas has slowed,” ... Historically, migration to scenic areas of the country has bolstered rural America’s population, but that influence is weakening.

This is clearly part of the much broader shift towards urbanization.  But the decline in rural population is also driven in part by one of our favorite trends - the paradox of place.

This paradox is the Internet and connective technologies have resulted in place and location being both more and less important. Place is less important because high fidelity connective technologies allow people to communicate with anyone, anywhere.

But place has become more important as people and companies realize locating in cities leads to more interaction and innovation. This is why more jobs are moving to cities.  

We don't expect the shift to cities to change anytime soon. Because of this, we don't expect rural populations to rebound over the next decade.  

Economic Insecurity and the Decline of Babies

After declining for the last 4 years, the U.S. birth rate flattened out in 2012 relative to 2011 with just under 4 million babies being born in both years.  This maintains the number of U.S. births per 1000 women aged 15-44 at 63, its lowest level since records have been kept.

But they may go even lower in 2013. As the chart below shows, preliminary numbers from the U.S. Centers for Disease Control indicate 2013's fertility may decline slightly compared to  2012.  

Historically birth rates have declined during periods of economic stress such as the great depression and the major 1970s recession. But once the economy picked-up, so did birth rates.  Because of this, demographers have been predicting birth rates would increase as the economy recovers from the Great Recession.  

But they haven't, even though the recession officially ended 4 years ago.

We think a key reason birth rates aren't bouncing back is economic insecurity due to increased economic turbulence. 

Globalization, automation, rapid technological change and other social and economic shifts have made the world more volatile, uncertain, complex and insecure.  Companies have responded to this turbulence by becoming more agile and flexible and reducing their long term commitments and fixed costs.

We think people are responding in a similar way. 

Children are definitely a long term commitment.  They also reduce your agility and flexibility. And they are expensive to raise.

Given how insecure employment is today, it's no surprise Americans are choosing to have fewer kids.

In addition to the falling birth rates, young adults are also saying they aren't as likely to have children as prior generations. Research from the Wharton School at Penn shows less than half of millennials (born 1980-2000) think they will have kids. This is down from a similar 1992 study which found 75% were planning on having kids.

Millennials started adulthood during the recession. Clearly economic turbulence and insecurity is having a big impact on their thinking. They may change their minds as they get older, but their survey responses coupled with birth rate data is a pretty clear signal birth rates may stay low.  

This is an important trend to watch. If U.S. birth rates stay low it will have a major impact on a wide range of industries, government programs and overall economic growth. 

Boomers and The Life Reinvention Myth

The Dangerous Myth of Reinvention is a fascinating essay by Marc Freedman, CEO and Founder of Encore.org.  

For those not familiar with Encore, here's how they describe themselves:

Encore.org is building a movement to make it easier for millions of people to pursue second acts for the greater good. We call them "encore careers" – jobs that combine personal meaning, continued income and social impact – in the second half of life.

The key message from the article is we've built up a myth that people should totally reinvent themselves as they move into their pre-retirement/retirement years.  Key quote on this "reinvention mythology":

Self-help columns are packed with reinvention tips. Financial services ads depict beaming boomers opening B&Bs and vineyards. More magazine, that bastion of midlife uplift for women over 40, even sponsored a series of reinvention conventions ... Retirement itself, we’re advised, is being reinvented.

As you can tell from the essay's title, Freedman doesn't think the reinvention myth is a good thing.  He says:

Yet for all its can-do spirit, I’ve come to believe the reinvention fantasy — the whole romance with radical transformation unmoored from the past — is both unrealistic and misleading. I’ll even go further: I think it is pernicious, the enemy of actual midlife renewal.

Instead, Freedman believes 2nd stage of life career shifters should leverage and take advantage of the skills they built up over their lives.  He calls this reintegration.  Key quote:

After years studying social innovators in the second half of life — individuals who have done their greatest work after 50 —I’m convinced the most powerful pattern that emerges from their stories can be described as reintegration, not reinvention. These successful late-blooming entrepreneurs weave together accumulated knowledge with creativity, while balancing continuity with change, in crafting a new idea that’s almost always deeply rooted in earlier chapters and activities.

We completely agree with Freedman. Our research on baby boomers who've left traditional employment and become independent workers clearly shows reintegration is the path most often taken by successful encore independents.

Adding a personal note, this is also the path I've taken in pursuing my post corporate America career as a researcher/industry analyst. 

Do read the article, especially if you're considering an encore career.  Also, make sure you read the comments, which are both plentiful (over 200 as I write this) and insightful. 

Almost 1 in 10 Cubans Self-Employed

Cuba, one of the last bastions of communism, is experiencing a self-employment boom.  

In 2010 Cuba liberalized a number of laws and made starting a business easier and more appealing. This led to a three fold increase in the number of self-employed Cubans over the last 3 years. 

According to Cuba's  first deputy minister of Labor and Social Security:

At present, 444,109 Cubans are self-employed in one of more of the 201 existing modalities, compared to 157,300 three years ago ...

Cuba's total employment in 2012 was about 4.8 million.  The vast majority of these folks work for state owned enterprises.  But almost 1 in 10 work for themselves.  

One of the most important shifts of the last few decades is the ascendancy of market capitalism as the world's major economic system. The rise of self-employment in Cuba shows that even the staunchest supporters of communism realize it simply doesn't work.