Friday, March 25, 2011

SHOP 'till you DROP!

Note: this is a revised re-posting of a December 2008 article.

Shopping is a self-destructive form of behavior, as it reverses the ordinary process of buying.  Rather than determining the need for an item and then researching price and quality, the shopping process presents items as " bargains"  and then persuades you to have a need for them.

One area of self-destructive financial behavior is in shopping. For some folks, shopping is a "hobby" and many vacation destination brochures, in addition to lauding their beach and golf facilities also list "shopping" as an "activity."

To me, this is an anathema, as the processing of buying things should not be viewed as a hobby or sport. Purchasing items and services is one fundamental aspect of the use of money. When purchasing a good or service, you are exchanging money, which represents your own stored (and liquidated) labor and goods, for someone Else's labor and goods. Making an informed and fair exchange of goods and services for money and vice-versa is essential to sound financial planning.

Note that in a perfect market, the best any participant can hope for is a fair exchange of goods and services for money and vice-versa. The idea that one can always buy some good or service for a low price and then always sell it for a higher price is not workable for anyone but the most astute businessman. And this model illustrates why the exchange of commodity items often results in the squandering of money.

For example, MLM marketing schemes argue that as a participant, you can purchase (from the company) commodity items that are readily available anywhere at market prices, and resell them at a profit. These schemes would rely upon a number of consumers being willing to repeatedly pay over market value for what are essentially commodity items. Soaps, fragrances, oils, vitamin drinks, or whatever, can be bought quite cheaply at any big box store. There is no compelling reason to buy them from a neighbor selling them door-to-door.

Similar, buying a used car from a used car dealer means usually that you are paying too much for a car - and book values reflect this. Trade-in, Wholesale, and Private Party sales prices in various car books (KBB, NADA, Edmunds) are usually 15-30% lower than "Dealer Retail" prices. It is true that many people purchase used cars from dealers (which is how they stay in business) but it is also true that these folks are paying more than they should for cars.

The concept of "shopping" as a hobby or sport adds another dimension to this game, in that the purchases are not necessarily for needs or even wants, and pricing is often difficult, if not impossible to determine. Shoppers love to talk about the "bargains" they got (just as gamblers talk about their "jackpots") but oftentimes, they cannot calculate the actual bargain, as price comparisons are not readily available. And in buying something that they did not need or want in the first place, is the transaction really a bargain?

As one gets older in life, objects accumulate exponentially, it seems. In addition to the purchases one makes every year, there are items owned from previous purchases over the years, minus those items sold, given away, thrown away or discarded. What this usually means is that the things one USES the most, which get daily wear and wear out, or things that have a resale value and are sold, tend to go away - while objects that are not used and cannot be readily discarded, accumulate in the attic. So one ends up keeping a lot of "dogs" in terms of purchases, which tend to accumulate over time. These can be a sobering reminder as to the futility of shopping, which is one reason why most humans tend to cut back on shopping as they age.

Note also that such unused possessions tend to be the things that end up in antique stores or museums. Items used daily wear out and are seldom saved. However, special china, clothing, and furniture, used only for special occasions, tends to accumulate. As a result, we get a distorted view of the past, as most antique shops and museums are filled with "junk" from our ancestor's attics, while the stuff they really used and cherished are at the bottom of some rubbish heap.

The hobby of Shopping can be quite addictive, and it is little wonder that persons with addictive personalities become shoppers and even refer to themselves as "shopaholics". Spending money literally becomes an uncontrollable urge. And unfortunately, the shopping industry, like the gambling industry, caters to this addiction.

Every resort community and vacation destination (and cruise ship) usually has a shopping district. Every museum or attraction inevitably has a gift shop. More and more attractions, whether they be a Disney ride or George Washington's Mt. Vernon home, force guests to pass through the gift shop before exiting the premises. It is a powerful inducement to spend. After having viewed a museum of valuable artifacts, one is compelled to purchase a knock-off to take home as a souvenir. Unfortunately, one's home can become clogged with such souvenirs, which tend to end up unused, in drawers, boxes, or attics. Since such souvenirs have no resale value, they cannot be disposed of, either.

But "shopping" as a hobby goes far beyond such gift shops or shopping districts. Many shoppers will spend countless hours in malls and other stores, looking for "bargains". As noted previously, they will regale you with their shopping conquests - "Look! I got this for 75% off!" they crow. Unfortunately, a tag which proclaims a huge mark-down on an overpriced product is not indicative of a savings. It is little more than the oldest form of hype known. Car dealers do this all the time, hawking huge "savings" over sticker prices that no one every pays. It is nearly impossible to do a proper price comparison with market value when the only data you have is the price tag.

Moreover, if a shopper buys things they have no intention of ever using, or never use, are they really "saving money?" As odd as this last statement may seem, it occurs more often than you think. Consider the case of Jim (not his real name). Jim worked for the government and had a steady job that paid well. He had few expenses, as he shared an apartment with his brother and did not own a car. Most of his income was disposable. Jim liked to shop. Like male breast cancer, the existence of male shoppers is not as well known as their female counterparts. But male shoppers exist, and oftentimes they spend more than their female counterparts.

Most of Jim's purchases were of clothes and small gadgets. He would go to the mall and look around at new clothes, usually with a friend or friends. Eventually, he would find something he liked, and whip out his credit card and buy a new outfit. When he got home, he would stuff the department store bags into his closet - already packed with similar bags. The act of looking at and acquiring objects was the sole source of pleasure for him. The actual wearing or using of these purchases was secondary. Most of the clothing he bought he never wore.

Even though he had no major debt or expenses, Jim ended up declaring bankruptcy based on credit card debt alone. In addition to shopping for things he did not need, want, or use, he also ran up a lot of credit card debt on restaurant meals and bars (more about that in another article). Jim ended up throwing away much of the things he bought this way - or donating them to charity, rather than returning them for at least a store credit.

Another example is Jillian. Jillian liked to shop and get bargains as well. Oftentimes, she would see things that she thought that others could use. "You know, Bill could use these cocktail glasses," she'd say, "and at this price, I can afford to buy them for him!" So Jillian ended up buying a lot of stuff - and then giving it away to friends and family, who often felt uncomfortable with such gifts and tried to pay Jillian back for them. Jillian's strategy avoided the problem many "shoppers" have - what to do with all the "stuff" they accumulate. Jillian's garage, nevertheless, is starting to fill up with boxes and cartons of purchases that have yet to be used. Jillian has a lot of money, or so she believes, so her shopping habits have not caused here undue financial hardship - yet.

Jeff is a home improvement buff. He likes to go to the big lumberterias - Lowes or Home Depot. Usually, one would think of a hardware or lumber store as a place where pragmatic purchasing decisions are made. However, the big box lumberterias (Lowes, Home Depot) showcase items in a "you gotta have that!" manner. Unfortunately, many of the items offered for sale require extensive installation, additional parts, or remodeling to install. Jeff would go the lumberteria looking for a can of spray paint, and end up coming home with hundreds (if not thousands) of dollars worth of items. Lumber, sheet-rock, bags of cement, tools, and electronics - all part of well-intentioned plans for home improvement. After stacking up all this stuff in the garage, Jeff would go watch a home improvement show on TeeVee and then fall asleep. The projects would never get started, much less finished. The bog-box lumberteria induces many folks to impulse purchase thousands of dollars worth of home improvement goods, which never end up being used - again clogging the garage.

The garage full of "stuff" is characteristic of the average American. Things are sold so cheaply in the USA, that many, if not most, Americans "shop" for things they do not want or need, and end up with garages full of "junk" while their automobiles, worth tens of thousands of dollars languish outside. Warehouse stores and shoppers clubs sell Chinese-made goods at startlingly low prices. Consumer goods that were once out of the reach of all but the most wealthy, are now available to average consumers. For many consumers, the chance to purchase a desirable consumer good at a low price is too good to pass up - even if they really don't need that particular good or never end up actually using it.

Again, the whole concept of "shopping" reverses the order of a rational purchasing process. In making a rational purchase, one should decide that there is a need for a particular good. Next, one should research the good in question and determine what makes and models of goods are available and at what prices and quality. Finally, one should make a rational choice as to what good has the desired features at the best possible price and then make the purchase.

Granted, this is an idealized model of the process, and such a process is much easier to implement when buying a stove than when buying a pair of socks. Some purchases are trivial enough that the amount of research or study is de minimis.

However, "shopping" as we know it, is not even an abbreviated version of this rational buying process, but an irrational process entirely. The shopper goes to the store, not with some specific goods in mind, but to "look" and see what is available. Based on what products are offered, the shopper decides to purchase a good, not based on real need, but based on the availability of the goods and the perceived bargain. Thus, the shopper ends up going home with things they never intended to purchase. In addition, since there is no way of performing a price comparison in the store (other than comparing the "sales price" to the inflated "regular price") informed pricing decisions cannot be made, except from memory.

Clothing is probably one of the biggest offenders in this regard, and women are particularly vulnerable to shopping. Women are more likely than men to own pairs of shoes that are never worn (or worn only once) and outfits that they cannot fit into or are inappropriate for most social occasions. Clothing can be very cheaply made overseas, and thus the "bargain" prices, even at 75% off, are still wildly profitable for retailers. Woman's shoes are usually very poorly made and uncomfortable as well. Since they are rarely worn, they need not be durable or comfortable - they need only have perceived style.

Men, however, are also vulnerable to the clothes shopping trap, as illustrated by my example of Jim above. Clothing retailers have expanded men's clothing choices considerably in the last 20 years to accommodate the male shopper.  Men's causal fashion stores, such as Abercrombe and Finch have expanded dramatically. In one local mall, for example, they operate two stores, across the hall from one another! Much of this type of clothing is so pretentious as to be unwearable for most social situations, so it languishes in the closet.

Note that even men who are not "clothes horses" fall victim to the shopping mentality. In most vacation resorts, there are a number of stores (usually near bars) selling t-shirts with funny and often risqué slogans on them. Drunk patrons end up buying the funny t-shirts after a few drinks, only to wake up the next morning realizing they have a t-shirt that that cannot even wear outdoors, due to its obscene slogan. For $15.95, they have purchased a very expensive wax rag for their car.

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And shopping, like most compulsive activities, can take up an enormous amount of time. For many shoppers, this is the goal of shopping - to use up an afternoon and fill the void in their lives with a perceived purpose. However, hours spend in overheated and stuffy stores are hours that can never be recovered. And in the home-improvement scenario, the time wasted "shopping" for home-improvement products often ends up making such projects difficult if not impossible to accomplish.

So how does one avoid the perils of "shopping?" To some extent, it is impossible to avoid completely. We all have the urge, probably based on some primeval foraging instinct, to bring home a bargain. But there are some steps you can take to reduce the staggering amount of waste involved in shopping. Here are some hints:

1. Avoid shopping malls at all costs: Shopping malls have the highest cost per square foot for retail space and usually are highly overstaffed. As a result, their cost basis is very high and there are few, if any bargains to be had. In addition, the whole point of the mall is to entice you to purchase things (via "window shopping") that you had no intention of buying in the first place.

2. Shopping List: If you decide you need certain goods, make a list of what you need before you go, so you can focus on the purchases you need and not get distracted with what is available. Many a shopper has gone out to buy new socks, only to come back home with $400 worth of clothing - and discover they forgot to buy socks! They end up going shopping again, and the process repeats. Those are some expensive socks! The shopping list should be used for all types of shopping - clothes, home improvement, food, etc. Not only does it focus your efforts, it eliminates extra trips to the store.

3. Don't buy for Projects you Cannot Start or Finish Today: While shopping at the big box lumberterias, it is all too easy to get caught up in the displays. You may have gone there to buy a new mailbox, but suddenly, a string of lawn lights or a solar powered fountain seems like a "must have" item! What ends up happening, is that after hours of such shopping, you return home with a carload of goods, which you unload into your already crowded garage, and after making dinner, you flop down in front of the TeeVee. The original project (new mailbox) doesn't get done, nor do all the new projects you have already purchased part for get started either. Concentrate on one project at a time. The new mailbox is not going to get installed if you spend two hours at the store. Focus!

4. Take it Back! Buying something you didn't need is a mistake. Hanging onto it out of foolish pride only compounds the error. Most stores have generous return policies. Get in the habit of saving receipts with your purchases. If you realize on the way home that buying a new lawn swing was not such a hot idea, don't be afraid to take it back. Your bank account will thank you.

5. Use the Internet: You can compare prices and make more cold-hearted decisions by shopping on the Internet. On the Internet, price is king, and unless you get distracted by browsing for other "stuff" you tend to be more focused on finding product X at the lowest possible price. It is much easier to use the internet to compare products and research goods before buying as well. In addition, it saves a huge amount of time and energy (not to mention gasoline and car usage). Shipping costs are often less than what it would cost to drive to the mall.

6. Shop in Your Attic: After a decade of living and shopping, we found that our attics and basement and garage were filled with things we had bought and decided we no longer needed but were "too good to throw out". Going back and revisiting these items turned up a treasure trove of things we could now use or didn't realize we had. Shopping in your attic can be a good substitute for "bargain hunting" in that you may find an item that you can actually use, without having to pay anything for it at all.

7. Hold a Garage Sale: Selling off stuff is a cleansing experience and can raise hundreds, if not thousands of dollars. One positive aspect of a garage sale is that you tend to realize, in selling off this junk, that you made a mistake, in most cases, in buying it in the first place. Note that having a garage sale is always a good idea, but GOING to garage sales can just be a cheaper way of falling victim to the shopping habit. Buying someone Else's junk at a discount is no better than buying it brand new. In most cases, garage sale "fiends" end up just buying MORE junk at the reduced prices of a garage sale than they would at a mall store. The garage sale is not methadone for a shopaholic.

8. Never Shop When Hungry: This works for food buying as well as buying any goods. If you grocery shop while hungry, chances are, you'll tend to impulse purchase more foods that look "yummy" and also more prepared or packaged foods (with higher mark-ups). But shopping with a low blood sugar level for ANY goods is never a good idea. Once your blood sugar goes low, your judgment is impaired, and you'll end up buying things you don't need or want. Car dealers know this trick well, which is one reason they attempt to hold customers hostage for hours at a time, until your resolve wears down and you'll sign nearly anything.

9. Get Out of the Habit of "Shopping" as a Sport: For many folks, their idea of a relaxing Saturday is to go to the mall with no specific purpose in mind other than to spend money - and not on some specific goods. They will "go to the mall" to hang out, have a $10 cup of coffee and then see what it is they might want to purchase. Such "browsing" can be a useful way of finding new products on the market. But in more cases than not, it merely creates demand in the consumer for a product they don't need or want.

10. Avoid Gadgets: Nothing gathers dust faster than the "new and improved" gadget that is designed to change your life. It slices, it dices, it rotates your tires! In most cases, these are poorly made products that serve needs you rarely have. Traditionally gadgets were hawked by high-pressure salesmen, then the "informercial". But increasingly, many box stores are switching over to gadgets as a profitable main line. Go to your average linen and bath store and you'll find the center aisles clogged with gadgets and gimmicks. The basic supplies that you actually need however, are in short supply.

11. Set a Time Limit: When going shopping, set a time limit for each store you are visiting. Find the items on your list and move on. Avoid the temptation to wander the aisles listlessly, looking at goods you have no use for at the moment. Shopping can be so destructive as to cause time problems in shopper's lives - making them chronically late for appointments and work, and also leaving them little or no time to attend to their personal finances. Shopping can be the ultimate "time bandit".

12. Be Realistic about "Projects": For a home improvement project, be realistic about how much can be accomplished in a given amount of time. If the only time you have off is weekends, then major home repairs might be out of the question. Buying thousands of dollars of building supplies for a project that will never realistically get off the ground makes no sense whatsoever.

* * * *

There is no way to avoid the shopping mistake, as being human, we are all prone to frailty.  However, if you can nip the shopping habit in the bud, you can hang on to a lot more of your hard-earned cash. Owning "things" gets to be really, really old after a while, so getting shopping out of your life can really cut down on the clutter. But shopping is not about actually acquiring things, is it? It is more of a form of compulsive spending.

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