13 ms·

A billionaire retailer whose shops had no stock

105 points by antongribok 7y ago

Waterluvian 7y ago
How do you do any business when inflation is wildly high? Do you just work in US dollars? I'd love some resource explaining in practical day to day detail how it got done.
- adventured 7y ago
  Venezuela today is an on-going example of how you try to deal with it. Their inflation rate is far beyond 3,000% for example. [1][2] Shops often try to set prices daily in their local currency, for the limited items they stock, and typically also have separate dollar prices. Many items can't be kept in supply with hyperinflation, so stores tend to dramatically narrow what they carry. They also have adjusted to selling far smaller portions of goods (less risk and consumers can't afford as much). All of that is usually still not enough once inflation gets bad enough, it becomes an impossible juggling act, most get wiped out. The demand collapse that has gone along with the hyperinflation has killed a large number of businesses, shops, manufacturers. From the Wall Street Journal [3]: > Giuseppe Cordivani’s factory on the outskirts of the capital used to make nearly 300 pairs of women’s shoes a day, from pumps to high-heeled dancing shoes that sold nationwide. With hyperinflation biting, he’s making just 20 today. > “No one beats hyperinflation—no one,” said Mr. Cordivani, whose father founded the company 55 years ago. “We work just to try to cover our expenses.” > A 2 million percent inflation rate is ravaging savings and salaries, devastating a once-vibrant manufacturing sector by suppressing demand. > A handful of food plants are still producing but at minimal capacity. Food prices nearly quadrupled in January alone, according to Caracas-based Ecoanalitica. With shoppers buying only the most basic products, demand for canned tuna, milk, cereals for children and other products has fallen more than 80% since 2012, according to household polling by the Caracas pollster, Datanalisis. Consumption of meat fell nearly 60%, the polling shows, while demand for chicken dropped 74%. > a family of four that bought food and covered other basic on the equivalent of $105 in December 2017 would now need more than $700, said Asdrubal Oliveros, an economist and director of Ecoanalitica. [1] https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-million-percent-its-time-for-shock-therapy.html https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-mi... [2] https://www.cnn.com/2019/05/29/economy/venezuela-inflation-intl/index.html https://www.cnn.com/2019/05/29/economy/venezuela-inflation-i... [3] https://www.wsj.com/articles/hyperinflation-shatters-venezuelan-manufacturing-11551798001 https://www.wsj.com/articles/hyperinflation-shatters-venezue...
  - Waterluvian 7y ago
    Thanks. I don't understand why one would try to set a daily price at all. Won't the revenue be devalued so fast? Or do they rush to convert it to something stable every day?
    - ash 7y ago
      I think it has to do with changing legal status of dollar in Venezuela. > Until recently, using foreign money was a crime the government enthusiastically threatened to prosecute. After the ruling socialists established currency controls back in 2003, they began patrolling for transactions that ran afoul of their Kafkaesque rules about money. Plain-clothed inspectors ran stings and raided businesses. > ... > According to the calculations of one top bank executive, about 30% of all transactions are made in dollars these days. I’d be shocked if that percentage didn’t keep growing. Which seems to be making moot one of the big theoretical debates in opposition circles: whether to adopt the dollar as Venezuela’s currency if they finally manage to take power from the socialists. The people already have. https://www.bloomberg.com/news/articles/2019-06-18/once-forbidden-u-s-dollar-is-suddenly-everywhere-in-venezuela https://www.bloomberg.com/news/articles/2019-06-18/once-forb... This legal change happened very recently. August 2018, according to Bloomberg: https://www.bloomberg.com/news/articles/2018-08-02/venezuela-eases-foreign-exchange-controls-amid-economic-meltdown https://www.bloomberg.com/news/articles/2018-08-02/venezuela...
      - Waterluvian 7y ago
        So strongly persuaded to use their hyperinflated disaster currency. I imagine there's some pretty interesting "on the ground practical tips" on how to handle that well. Maybe people learn how to introduce bartering whenever possible. Or find money sinks to spend their revenue before the next day.
        turkthrower123 7y ago
        This is why cryptocurrencies are so popular in Venezuela.
- ash 7y ago
  I was living through 90s Russia. The inflation rate was 2500% in 1992. Yes, businesses dealt in US dollars. Prices for major things like cars and apartments were in so called "conventional units" (у.е., условная единица), widely known euphemism for US dollars. [1] Cash dollars were very common for these purchases. For groceries, rubles were used. For things like washing machines stores had prices in "conventional units", with a daily changing definition of them. If you could save, you would do it in USD cash. Exchanging between rubles and dollars was very common and cheap. Everybody knew where cash currency traders ("валютчики") were, usually on the main city square. (I think trading currencies outside of banks was illegal, but police looked away, due to corruption and light/no punishment at the time.) Salaries for domestic jobs were mostly in rubles, with disastrous consequences. Middle class had almost ceased to exist. [1]: https://ru.wikipedia.org/wiki/Условная_единица https://ru.wikipedia.org/wiki/Условная_единица
  - telesilla 7y ago
    Even into the early 2000s, when I used to visit Moscow more regularly, dollars were preferred for many transactions. Is this still the case? It's been a long time since my last trip there.
    - Symbiote 7y ago
      I was only there for a week, but no restaurants, hotels or museums wanted dollars. Most places accepted credit cards, and many assumed that was how I would be paying.
    - ash 7y ago
      It's not the case anymore. There was a major devaluation in 1998. This is the reason why people were still suspicious about rubles in the early 2000s.
    - fr1tkot 7y ago
      Dollars aren't used for any transactions you or I would make, people do still like making cash savings in Dollars or Euros if they can get their hands on them.
  - 7y ago
- rubyn00bie 7y ago
  I'd assume it's essentially through the supply of "eurodollars" https://en.wikipedia.org/wiki/Eurodollar https://en.wikipedia.org/wiki/Eurodollar
- rubinelli 7y ago
  I was a child at the time, but I remember salaries, prices, taxes, everything followed an index, the URV (real value unit). The index then became the Real we have today, and indexation was abolished. So businesses had something reasonably stable to base their finances. Still, the queues at markets on payday were enormous, since most workers would go buy groceries for the whole month as soon as they got their salary.
  - forinti 7y ago
    Brazilian inflation is quite interesting. It is usually seen as failure, but it can be argued that the country was actually very efficient in handling it (and for so long). It was really an administered inflation. The country had all sorts of indexes and triggers that guaranteed the force necessary to keep it going. At the same time, the infrastructure was built for the constant devaluation and frequent currency changes. Already in the 1980s you could easily transfer money to any place and to any bank. There was no need for something like Western Union. People used dollars as a reserve, but not as much as in other South American countries. You certainly didn't see prices advertised in dollars.
  - finnh 7y ago
    Great Planet Money episode about the RVU: https://www.npr.org/sections/money/2015/12/02/458222801/episode-216-how-four-drinking-buddies-saved-brazil https://www.npr.org/sections/money/2015/12/02/458222801/epis...
- epx 7y ago
  It was essentially a tax on paper money. Most transactions were conducted over an indexed value, there were many at the time: ORTN, OTN, URV was the last one for the transition to the current coin. And yes, lots of US$ 100 bill stacks, when you didn't want to report the transaction :) The biggest problem was, contracts had to be written using the national currency, so they got obsolete very fast. For example, the government did some purchase and then paid 4 months late; it was effectively paying half. So the prices you had to put on paper had to guess the probable delay and compensate for.
- soneca 7y ago
  No, no one (edit: no one I knew. I see other comments talking about the use of dollars, I would assume they are talking essentially about rich families. I would guess that 90% wouldn't have ever saw a US dollar bill) used dollars in hyper-inflation times in Brazil. Saving accounts would follow inflation, so if you were rich enough to keep your money on the bank, you were relatively safe. People would rush to quickly spend their salary in the supermarkets the day they got paid. This created the habit of having "purchase of the month". You would buy food and home stuff for the whole month and stock at home. The supermarkets had employees whose full job was to remark the pricing tags of all products. Some products could have their price adjusted more than once per day. From time to time the government would freeze the prices, which would give some time of a more sane world. But invariably that policy wouldn't work, and at some point the government had to unfreeze the prices and the inflation would come back harder. The bank system evolved a lot during this time, as cash was useless, everything had to be bank transactions.
  - jfengel 7y ago
    Price freezes are pretty common features of hyperinflation scenarios. They aren't necessarily bad in the short term -- as you observed, they can buy breathing room for a while. But if you don't fix the root of the problem in that time, the mismatch of supply and demand works itself out in other ways. The root of the problem varies from scenario to scenario. In the case of Brazil, it was the same oil shock that hit the US so bad in the 1970s. Both countries tried to spend their way out of it, but Brazil couldn't keep up, and its military dictatorship got more and more paranoid. The resulting civil war made it impossible to put the economy on a stable footing until a real government came back in the 80s.
    - eru 7y ago
      How are price freezes enforced? Does the government go around and check prices for all items everywhere?
      - soneca 7y ago
        Maybe a late response, but essentially, yes. One government made campaigns to get help from the people, that would keep an eye for markets breaking the rule. Here is a wikipedia (in BR-PT) about it: https://pt.wikipedia.org/wiki/Fiscal_do_Sarney https://pt.wikipedia.org/wiki/Fiscal_do_Sarney
slugiscool99 7y ago
Moves like these seem obvious in retrospect, but when you consider the conditions at the time (no internet, horrible business climate), this woman’s vision and execution is mind blowing. Really shows how truly valuable ideas can succeed no matter what state the world around them is in.
- rwmj 7y ago
  There's also a survivorship bias. We don't hear about any Brazilian catalog shops that opened in the 1980s or that didn't have an aunt and uncle who were already in the retail business backing them. (This is not to say she didn't work extremely hard, but there's also luck, good timing and family involved)
  - appleshore 7y ago
    Ordering from an online catalog wasn’t a revolutionary idea in 1996-1999 but in 1992 it was very forward thinking. And obviously placing an ordering terminal in a store at the time was revolutionary.
    - JackRabbitSlim 7y ago
      https://en.wikipedia.org/wiki/Service_Merchandise https://en.wikipedia.org/wiki/Service_Merchandise Not exactly. Again, not saying she wasn't clever or didn't bust her ass but it wasn't an entirely unique concept and luck/connections count for a lot.
    - perl4ever 7y ago
      There were online services before "the internet" meaning the WWW, was a thing, where you could do many of the things that were later reinvented in the late 90s. I just looked up one, Prodigy, and it appears that it started around 1980 at which point online shopping was one of the motivators. https://en.wikipedia.org/wiki/Prodigy_(online_service) https://en.wikipedia.org/wiki/Prodigy_(online_service) I'm not saying that I, or most people, were shopping online by 1992, but I think that's way too late to call the idea "forward thinking". Whoever was considering the idea in the 60s or 70s was "forward thinking".
smabie 7y ago
Theoretically, inflation, even hyper-inflation, should not affect the economy or businesses in anyway. The real problem is the uncertainty of inflation. Practically speaking, even certain hyperinflation has costs: the prices rise faster than people can react to them (reprice goods, update software, etc). But I think certain inflation up to maybe 50%/year isn't that big of a deal.
- pjc50 7y ago
  The economics literature actually calls this "menu repricing cost". But more serious a problem than goods prices are wage values - in order to keep up you need an increasing frequency of raises, which have to be argued over or even fought for with strikes. This was a key element in the UK's industrial strife of the 1970s, when inflation was over 10% and sometimes up to 20% a year - a long way from Venezuela, but still significant. https://upload.wikimedia.org/wikipedia/commons/c/c4/United_Kingdom_unemployment_1881-2017.png https://upload.wikimedia.org/wikipedia/commons/c/c4/United_K...
- viraptor 7y ago
  > should not affect the economy or businesses in anyway What do you mean by this? Hyper-inflation completely changes the economy and businesses. You can't save up money, which means no real investment. Whatever you don't spend within days becomes close to worthless, so large transactions become much harder. This is assuming you're also restricted from trading currency though.
  - smabie 7y ago
    You can just buy inflation hedged assets: real-estate, food, gold, stocks, etc.
- deleted 7y ago
  [deleted]
- forinti 7y ago
  I am not an economist, but I have read many times that one of the consequences of prolonged inflation in Brazil was that businesses got hooked on (and very good at) investing their money as opposed to actually making things and selling them.
1-6 7y ago
Sounds like Fry's Electronics.
cvaidya1986 7y ago
I fking love entrepreneurs! Always find a way out of a situation. Relentlessly resourceful like PG says!

105 points by antongribok 7y ago

How do you do any business when inflation is wildly high? Do you just work in US dollars? I'd love some resource explaining in practical day to day detail how it got done.

adventured 7y ago
Venezuela today is an on-going example of how you try to deal with it. Their inflation rate is far beyond 3,000% for example. [1][2] Shops often try to set prices daily in their local currency, for the limited items they stock, and typically also have separate dollar prices. Many items can't be kept in supply with hyperinflation, so stores tend to dramatically narrow what they carry. They also have adjusted to selling far smaller portions of goods (less risk and consumers can't afford as much). All of that is usually still not enough once inflation gets bad enough, it becomes an impossible juggling act, most get wiped out. The demand collapse that has gone along with the hyperinflation has killed a large number of businesses, shops, manufacturers. From the Wall Street Journal [3]: > Giuseppe Cordivani’s factory on the outskirts of the capital used to make nearly 300 pairs of women’s shoes a day, from pumps to high-heeled dancing shoes that sold nationwide. With hyperinflation biting, he’s making just 20 today. > “No one beats hyperinflation—no one,” said Mr. Cordivani, whose father founded the company 55 years ago. “We work just to try to cover our expenses.” > A 2 million percent inflation rate is ravaging savings and salaries, devastating a once-vibrant manufacturing sector by suppressing demand. > A handful of food plants are still producing but at minimal capacity. Food prices nearly quadrupled in January alone, according to Caracas-based Ecoanalitica. With shoppers buying only the most basic products, demand for canned tuna, milk, cereals for children and other products has fallen more than 80% since 2012, according to household polling by the Caracas pollster, Datanalisis. Consumption of meat fell nearly 60%, the polling shows, while demand for chicken dropped 74%. > a family of four that bought food and covered other basic on the equivalent of $105 in December 2017 would now need more than $700, said Asdrubal Oliveros, an economist and director of Ecoanalitica. [1] https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-million-percent-its-time-for-shock-therapy.html https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-mi... [2] https://www.cnn.com/2019/05/29/economy/venezuela-inflation-intl/index.html https://www.cnn.com/2019/05/29/economy/venezuela-inflation-i... [3] https://www.wsj.com/articles/hyperinflation-shatters-venezuelan-manufacturing-11551798001 https://www.wsj.com/articles/hyperinflation-shatters-venezue...
- Waterluvian 7y ago
  Thanks. I don't understand why one would try to set a daily price at all. Won't the revenue be devalued so fast? Or do they rush to convert it to something stable every day?
  - ash 7y ago
    I think it has to do with changing legal status of dollar in Venezuela. > Until recently, using foreign money was a crime the government enthusiastically threatened to prosecute. After the ruling socialists established currency controls back in 2003, they began patrolling for transactions that ran afoul of their Kafkaesque rules about money. Plain-clothed inspectors ran stings and raided businesses. > ... > According to the calculations of one top bank executive, about 30% of all transactions are made in dollars these days. I’d be shocked if that percentage didn’t keep growing. Which seems to be making moot one of the big theoretical debates in opposition circles: whether to adopt the dollar as Venezuela’s currency if they finally manage to take power from the socialists. The people already have. https://www.bloomberg.com/news/articles/2019-06-18/once-forbidden-u-s-dollar-is-suddenly-everywhere-in-venezuela https://www.bloomberg.com/news/articles/2019-06-18/once-forb... This legal change happened very recently. August 2018, according to Bloomberg: https://www.bloomberg.com/news/articles/2018-08-02/venezuela-eases-foreign-exchange-controls-amid-economic-meltdown https://www.bloomberg.com/news/articles/2018-08-02/venezuela...
    - Waterluvian 7y ago
      So strongly persuaded to use their hyperinflated disaster currency. I imagine there's some pretty interesting "on the ground practical tips" on how to handle that well. Maybe people learn how to introduce bartering whenever possible. Or find money sinks to spend their revenue before the next day.
      - turkthrower123 7y ago
        This is why cryptocurrencies are so popular in Venezuela.
ash 7y ago
I was living through 90s Russia. The inflation rate was 2500% in 1992. Yes, businesses dealt in US dollars. Prices for major things like cars and apartments were in so called "conventional units" (у.е., условная единица), widely known euphemism for US dollars. [1] Cash dollars were very common for these purchases. For groceries, rubles were used. For things like washing machines stores had prices in "conventional units", with a daily changing definition of them. If you could save, you would do it in USD cash. Exchanging between rubles and dollars was very common and cheap. Everybody knew where cash currency traders ("валютчики") were, usually on the main city square. (I think trading currencies outside of banks was illegal, but police looked away, due to corruption and light/no punishment at the time.) Salaries for domestic jobs were mostly in rubles, with disastrous consequences. Middle class had almost ceased to exist. [1]: https://ru.wikipedia.org/wiki/Условная_единица https://ru.wikipedia.org/wiki/Условная_единица
- telesilla 7y ago
  Even into the early 2000s, when I used to visit Moscow more regularly, dollars were preferred for many transactions. Is this still the case? It's been a long time since my last trip there.
  - Symbiote 7y ago
    I was only there for a week, but no restaurants, hotels or museums wanted dollars. Most places accepted credit cards, and many assumed that was how I would be paying.
  - ash 7y ago
    It's not the case anymore. There was a major devaluation in 1998. This is the reason why people were still suspicious about rubles in the early 2000s.
  - fr1tkot 7y ago
    Dollars aren't used for any transactions you or I would make, people do still like making cash savings in Dollars or Euros if they can get their hands on them.
- 7y ago
rubyn00bie 7y ago
I'd assume it's essentially through the supply of "eurodollars" https://en.wikipedia.org/wiki/Eurodollar https://en.wikipedia.org/wiki/Eurodollar
rubinelli 7y ago
I was a child at the time, but I remember salaries, prices, taxes, everything followed an index, the URV (real value unit). The index then became the Real we have today, and indexation was abolished. So businesses had something reasonably stable to base their finances. Still, the queues at markets on payday were enormous, since most workers would go buy groceries for the whole month as soon as they got their salary.
- forinti 7y ago
  Brazilian inflation is quite interesting. It is usually seen as failure, but it can be argued that the country was actually very efficient in handling it (and for so long). It was really an administered inflation. The country had all sorts of indexes and triggers that guaranteed the force necessary to keep it going. At the same time, the infrastructure was built for the constant devaluation and frequent currency changes. Already in the 1980s you could easily transfer money to any place and to any bank. There was no need for something like Western Union. People used dollars as a reserve, but not as much as in other South American countries. You certainly didn't see prices advertised in dollars.
- finnh 7y ago
  Great Planet Money episode about the RVU: https://www.npr.org/sections/money/2015/12/02/458222801/episode-216-how-four-drinking-buddies-saved-brazil https://www.npr.org/sections/money/2015/12/02/458222801/epis...
epx 7y ago
It was essentially a tax on paper money. Most transactions were conducted over an indexed value, there were many at the time: ORTN, OTN, URV was the last one for the transition to the current coin. And yes, lots of US$ 100 bill stacks, when you didn't want to report the transaction :) The biggest problem was, contracts had to be written using the national currency, so they got obsolete very fast. For example, the government did some purchase and then paid 4 months late; it was effectively paying half. So the prices you had to put on paper had to guess the probable delay and compensate for.
soneca 7y ago
No, no one (edit: no one I knew. I see other comments talking about the use of dollars, I would assume they are talking essentially about rich families. I would guess that 90% wouldn't have ever saw a US dollar bill) used dollars in hyper-inflation times in Brazil. Saving accounts would follow inflation, so if you were rich enough to keep your money on the bank, you were relatively safe. People would rush to quickly spend their salary in the supermarkets the day they got paid. This created the habit of having "purchase of the month". You would buy food and home stuff for the whole month and stock at home. The supermarkets had employees whose full job was to remark the pricing tags of all products. Some products could have their price adjusted more than once per day. From time to time the government would freeze the prices, which would give some time of a more sane world. But invariably that policy wouldn't work, and at some point the government had to unfreeze the prices and the inflation would come back harder. The bank system evolved a lot during this time, as cash was useless, everything had to be bank transactions.
- jfengel 7y ago
  Price freezes are pretty common features of hyperinflation scenarios. They aren't necessarily bad in the short term -- as you observed, they can buy breathing room for a while. But if you don't fix the root of the problem in that time, the mismatch of supply and demand works itself out in other ways. The root of the problem varies from scenario to scenario. In the case of Brazil, it was the same oil shock that hit the US so bad in the 1970s. Both countries tried to spend their way out of it, but Brazil couldn't keep up, and its military dictatorship got more and more paranoid. The resulting civil war made it impossible to put the economy on a stable footing until a real government came back in the 80s.
  - eru 7y ago
    How are price freezes enforced? Does the government go around and check prices for all items everywhere?
    - soneca 7y ago
      Maybe a late response, but essentially, yes. One government made campaigns to get help from the people, that would keep an eye for markets breaking the rule. Here is a wikipedia (in BR-PT) about it: https://pt.wikipedia.org/wiki/Fiscal_do_Sarney https://pt.wikipedia.org/wiki/Fiscal_do_Sarney

slugiscool99 7y ago

Moves like these seem obvious in retrospect, but when you consider the conditions at the time (no internet, horrible business climate), this woman’s vision and execution is mind blowing. Really shows how truly valuable ideas can succeed no matter what state the world around them is in.

rwmj 7y ago
There's also a survivorship bias. We don't hear about any Brazilian catalog shops that opened in the 1980s or that didn't have an aunt and uncle who were already in the retail business backing them. (This is not to say she didn't work extremely hard, but there's also luck, good timing and family involved)
- appleshore 7y ago
  Ordering from an online catalog wasn’t a revolutionary idea in 1996-1999 but in 1992 it was very forward thinking. And obviously placing an ordering terminal in a store at the time was revolutionary.
  - JackRabbitSlim 7y ago
    https://en.wikipedia.org/wiki/Service_Merchandise https://en.wikipedia.org/wiki/Service_Merchandise Not exactly. Again, not saying she wasn't clever or didn't bust her ass but it wasn't an entirely unique concept and luck/connections count for a lot.
  - perl4ever 7y ago
    There were online services before "the internet" meaning the WWW, was a thing, where you could do many of the things that were later reinvented in the late 90s. I just looked up one, Prodigy, and it appears that it started around 1980 at which point online shopping was one of the motivators. https://en.wikipedia.org/wiki/Prodigy_(online_service) https://en.wikipedia.org/wiki/Prodigy_(online_service) I'm not saying that I, or most people, were shopping online by 1992, but I think that's way too late to call the idea "forward thinking". Whoever was considering the idea in the 60s or 70s was "forward thinking".

smabie 7y ago

Theoretically, inflation, even hyper-inflation, should not affect the economy or businesses in anyway. The real problem is the uncertainty of inflation. Practically speaking, even certain hyperinflation has costs: the prices rise faster than people can react to them (reprice goods, update software, etc). But I think certain inflation up to maybe 50%/year isn't that big of a deal.

pjc50 7y ago
The economics literature actually calls this "menu repricing cost". But more serious a problem than goods prices are wage values - in order to keep up you need an increasing frequency of raises, which have to be argued over or even fought for with strikes. This was a key element in the UK's industrial strife of the 1970s, when inflation was over 10% and sometimes up to 20% a year - a long way from Venezuela, but still significant. https://upload.wikimedia.org/wikipedia/commons/c/c4/United_Kingdom_unemployment_1881-2017.png https://upload.wikimedia.org/wikipedia/commons/c/c4/United_K...
viraptor 7y ago
> should not affect the economy or businesses in anyway What do you mean by this? Hyper-inflation completely changes the economy and businesses. You can't save up money, which means no real investment. Whatever you don't spend within days becomes close to worthless, so large transactions become much harder. This is assuming you're also restricted from trading currency though.
- smabie 7y ago
  You can just buy inflation hedged assets: real-estate, food, gold, stocks, etc.
deleted 7y ago
[deleted]
forinti 7y ago
I am not an economist, but I have read many times that one of the consequences of prolonged inflation in Brazil was that businesses got hooked on (and very good at) investing their money as opposed to actually making things and selling them.

1-6 7y ago

Sounds like Fry's Electronics.

cvaidya1986 7y ago

I fking love entrepreneurs! Always find a way out of a situation. Relentlessly resourceful like PG says!