Foot Locker’s Woes – In A Market Economy Those Who Live By Fashion’s Vagaries Will Die By Them – Forbes

It might seem a little odd to be using the stock price decline at Foot Locker to reveal a basic truth about why we have a market economy but this is indeed, writ small, exactly why we do indeed organise ourselves by using the market and the price system. We could get all portentious about this, as in the headline, pretentious even, but that apparently people don’t want expensive sneakers any more, or fewer people do, is indeed why we don’t have a planned economy. For there is no actual manner by which we could discover that people like expensive sneakers in the first place, nor that the desire has fallen off a bit, by sitting in our ivory towers–or more accurately, slumping in our bureaucratic bunkers–and pondering what it is that people want, what will maximise their utility? Thus, as Hayek pointed out, the only method we’ve got is to use this market thing to try to work it out:

Shares of sporting goods retailers were pummeled in early trading on Friday as dismal quarterly results from Hibbett and Foot Locker heightened investor concerns about a supply glut intensifying price wars in the industry.

The results closely follow those of bigger rival Dick’s Sporting, which warned on Tuesday that its gross margins could possibly be pressured in perpetuity.

So, the people who sell expensive sneakers are having a bad time of it:

The big footwear companies and stores that sell their sneakers have historically relied on star athletes, particularly NBA legends like Jordan and James, to get customers to spend hundreds of dollars on a pair of shoes.

But those customers apparently are no longer as interested in being like Mike. During a conference call with analysts, Foot Locker’s Johnson said sales of some Jordan footwear and clothing “slowed considerably” in the quarter.

People just aren’t so interested in name brands any more.

Athletic gear retailer Foot Locker plunged to its biggest loss in almost nine years. The company said some high-priced sneakers didn’t sell as well as it hoped, and there aren’t a lot of exciting new shoes on the market. It doesn’t expect that problem to clear up soon and it now plans to close at least 135 stores, up from 100. The stock dropped $13.32, or 27.9 percent, to $34.38 in heavy trading.

Hibbett Sports cut its annual forecasts and its stock fell 60 cents, or 5.2 percent, to $10.90. It’s down 71 percent this year, and Foot Locker has fallen 52 percent. Companies that make athletic goods also lost ground, and Nike sank $2.51, or 4.4 percent, to $54.95.

Note that the Foot Locker loss is in the stock price, not the accounting profit there. It seems that people used to like expensive name brand sneakers, now either they like them less or fewer people do. Well, that’s humans for you. Which was very much Hayek’s point. And is well explained by Cosma Shalizi here in slightly more modern and technical terms. If we want to plan society and production then we’ve got to know what it is that people want. That is, we need to know the societal utility function and that means being able to aggregate the individual such functions. Our problem here being we just don’t have any way of doing that. Some people do indeed like expensive sneakers, for whatever reason, others don’t. Who and how many? No one’s got a scoobie. We can’t go and ask people because the New Coke people did that and it turns out that what people say and what people do are different things. All we can do is stick stuff out there and see who buys it.

And, of course, those utility functions can change–some, obviously, are as they were but enough have changed to swing that aggregate one, we can see that in the falling sales.

So, OK, expensive branded sneakers used to sate the utility, or slake a part of it, of some number of people. We’re thus absolutely delighted that expensive branded sneakers were available, that’s the very thinhg we’re trying to do with an economy, slake, even if not sate, human desires. As it happens those who were first on the block made fortunes–capitalists being both lazy and greedy, as Adam Smith intimated but didn’t quite say–others followed. More human desires got slaked, Huzzah!

Now the worm has turned, for whatever reason and again, no one has that scoobie, not even the CEOs in the business, and sales are falling. At which point stock prices fall–excellent, we’ve now a signal to investors and entrepreneurs that this isn’t a good game any more. Go find something else to do with your time and money, not expensive branded sneakers.

Hayek’s point, again, being that we can only observe what people actually do through the price system and thereby work out what it is that people actually do want. We have no method at all of being able to do this any other way.

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