Archive for August, 2008
Barber Shops and Money Making
Posted by robin in Financial Articles Wednesday August 6, 2008 4:40 pm
Jimmy has bought Jimmy’s off the Chiswick High Road.
It’s one of those traditional style barber shop where men sit in silence on a red velour bench flicking though scraggy issues of The Sun as they await the usual. I’ve yet to hear the question “Would sir like something for the week-end?” but you feel you should.
Young Jimmy had to wait and work for his chance. He paid not only in cash but in service too as a faithful barber to Old Jimmy. The sale price, no doubt, included a significant chunk of goodwill. The crystallised financial value of the clientele built up over many years snipping as Old Jimmy espoused the virtues and vices of his beloved Arsenal.
The fact the old dueno and new shared the same Christian name is a fortunate coincidence. It means the business name displayed over the shop can continue intact. Old Jimmy had long promised his youthful namesake the barber’s shop and he kept his word. Young Jimmy now has the reins and is making some ambitious changes.
Three classic barber chairs has now expanded to four with the partition at the rear of the premises demolished to make way for it. The front window’s been replaced too and new hair wash basins are promised. Prices have gone up to pay for it. A quick and simple cut used to be £8. Now it’s £9 - an inflation busting 12.5% increase. But in London this counts as good value, certainly in comparison to the unisex hair salon trading across the street…
In the time BC…before kids…yours truly would shell out £25 or so at aforementioned salon. For nearly three times the price I got a hair wash, a head massage, instant coffee in a cup and saucer and, if I was lucky, a perky female hairdresser trilling assorted new age voodoo. Now post kids and increasingly post hair, Jimmy’s does just fine. But it makes you ponder the market economy. Two businesses yards apart across a high street can each trade seemingly successfully with very different prices for much the same job. I guess that comes under “marketing”…I should know really, given I did a degree in the subject many moons ago.
Back to Jimmy. What are the economics here? I didn’t ask but have been thinking about it some.
Let’s see… Assuming a basic £9 hair cut is the default choice and Jimmy and his cohorts average, say 15 punters a day…that would be £135 each. Times four barbers is £540. Open for 6 days a week that’s £3,240 a week…about £160,000 a year. Only young Jimmy knows the score exactly but the accuracy of the figure is not the point. It’s the limitation of it. Running a barbers shop has its attractions. It is a solid largely recession-proof and unlikely to be made obsolete by progress. But the upside is limited. A barber can only get through so many scalps in an hour…a day…a week.
So it may be reliable but it’s more a living than a fortune maker. Author and trader Nassim Nicholas Taleb – he of “Black Swan” fame - recounts his advice from US business school. To really make money, find something that is scalable where capacity constraints are few…though risks are greater. i.e. think more Google than Jimmy’s.
Sector Shift: Banks rise…not so Mining
Posted by robin in Market Commentary Wednesday August 6, 2008 8:42 am
Stock market sector fortunes are turning…
Since bottoming on the 15th July, the basket case FTSE Banking sector is on the rise. Shares in HSBC and Lloyds TSB are up 19% from mid-July. HBOS is up 32%, RBS 39% and Barclays 41%. Bradford and Bingley has bounced off a 34p low in early July and is up 63% since.
At this point, it looks like another prescient call from Anthony Bolton…
Meantime, the Mining sector peaked for the year on May 19 and has been sliding since… Commodity indices are now at around one years lows and the leading companies of the sector are well down from their highs. BHP Billiton has dropped 32% from a May high of almost £22 to a little over £15 today. Likewise Rio Tinto peaked at £70 and is now down 35% since to around £45. And Xstrata is down 27% from £44 to £32.
Is this the end of the commodity super-cycle or is it just in remission? Commodity bulls Deutsche Bank recently called time on it. Take your profits they council as the global economy slackens. Oil will fall back to $60-80 a barrel, gold to $650. Copper, tin and lead will eventually halve in price.
The link below shows a comparative Banks v Miners chart for the year to date.
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