Sunday, February 19, 2012

Photo of the Day--February 20, 2012

So had an interesting trip to work this morning. I got off the metro at the stop my office is located at, Civic Center (brilliant photo on the wiki article, really!), and walked out exit B onto Fuzhong 3rd Road as I do every day. Only today, there was something different about the walk. Instead of having a street food vendor be at the first corner I encounter, as there is every day, there were 3 police officers chasing a 55ish year old woman who was carrying with her a big styrofoam box. Really confusing. About 15 seconds after I first saw what was going on, one of the police officers full out tackled this 55 year old woman into a bush, only to have the styrofoam box go flying into the air to reveal what looked suspiciously like....

....steamed buns? Now I was pretty far away (like probably 60 feet) from this shocking event as it was going down. And my eyesight is not great. But I'm prettttty sure that I saw a pile of steamed buns fly out of this styrofoam box as the woman got taken out. Moments later, the situation got even more bizarre when a large sort of UHaul looking truck pulled up. And 6 more police officers ran (literally, ran) out of the truck to assist in apprehending this extremely dangerous menace to society that was the 55 year-old steamed bun woman. The last thing I saw before deciding I have no business standing here and watching this was the woman being put into the back of this truck and hauled off (and by this, of course, I mean the last thing I saw before deciding that there was nothing more worth seeing, as the woman was already apprehended). The jury is still out on whether I have just witnessed the Chinese equivalent of Rodney King.

So needless to say, not the most standard way to start one's work week. But welcome to China, all the same!

Today's photo of the day entitles Scutt to a fair bit of credit, as he's the one who spotted the opportunity last night in Dongmen (really frantic shopping area of Shenzhen). Anyway, without further ado--

Now upon first seeing this picture, one will probably react with a "what the hell is this?" Fair enough. This photo was taken at a knockoff DVD store in Dongmen, and if you will take the time to notice, even the fake Chinese DVD retailers are capitalizing on the Whitney Houston dying thing--top row 2nd from left, prominently displayed, is "The Bodyguard", her most famous artistic work. Now let's talk a bit about these DVD shops....

OK, so the going rate for DVDs here is about 9 Chinese Yuan. That equates to just less than $1.50US. This sort of forces me to wonder how these people make any money at all on this type of business model. I've had a look for some sample SZ real-estate prices for commercial real-estate, and in 2008 (most recent year for which I could find any even remotely reliable data...damned China), the cost per square foot for commercial real-estate in Luohu District (district in which Dongmen is) was, on average, about $1.75US per month per square foot. Now since 2008 Shenzhen has increased its population dramatically. Additionally, Dongmen is more likely one of the more expensive-ish areas of Luohu just based on the sheer insane amount of foot traffic the place receives (photos here and here of what it looks like literally every weekend, and many weekdays). That said, the Chinese RMB has appreciated compared to the US$ fairly considerably since 2008, which means that in US$ terms, the rent would be slightly less expensive. Anyway, all these things considered, let's just make the completely unscientific approximation of $3 per square foot per month today in 2012 for these DVD shops. The DVD shop we were in was probably about 5,000 square feet, so $15,000US per month in rent. OK, so we have a round number to work with now.

In addition to the cost of rent, the DVD sellers also need to pay bribes to Chinese police, because everything that they are doing is illegal. Let's say that 25% of their profits go to the police (again, complete guess, but I think it sounds reasonable...maybe?) Assuming that they pay about 2 Chinese Yuan ($0.33) per DVD, and again, sell them for an average of 9 Yuan, this of course gives us 7 Yuan profit per DVD, or $1.15 or so. Which means that in order to just pay off rent, they would need to sell approximately 13,000 DVDs per month in order to just cover rent. Or a bit less than 500 DVDs per day. Considering the investment of about $20,000 per month in buying inventory and paying rent, and based on the assumption that a 10% profit margin is acceptable, they would need to sell an additional 2,500 or so DVDs in order to reach an "acceptable" level of profitability, when considering that 25% of their profits will theoretically go to bribing the police. Obviously, this grossly oversimplified example doesn't account for labor costs, electricity, etc., but I really think these costs in this context are pretty incidental. Furthermore, I think that given the cost of real estate, no matter how approximate, is still staggeringly high relative to the cost of everything else, which is a pretty questionable piece of information given that, for example, if the economy were to hit a bump, they are stuck paying an insanely high rent relative to the actual value of the items that they are selling. That is, they need to sell like 13,000 DVDs to break even, and from that point each additional one sold is a relatively huge marginal increase in profitability, but if their sales dive by even like 10-15%, they will be getting dangerously close to not being able to cover overhead.

Again, this example is probably grossly inaccurate, oversimplified, and flawed, but I think it at least has some level of validity. And now at least the 3 people reading this post can say they have a better understanding of the Chinese counterfeit DVD market!

Should be a fairly interesting and uneventful work week, Richard (the company owner) is in the US, and we got most everything done for trade show season last week, so hopefully it's a fairly laid-back week in the office. Will be leaving a week from today for the old US of A, so should be good. And by good, I mean I'm quite pleased to be getting out of China for just a little while....

More to come tomorrow

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