I also wonder how anyone in Italy makes a buck. Rome is filled with small shops that apparently provide one small good or service–in my neighborhood alone, there are at least 3 competing herbalists (besides 3 or 4 farmacie), 2 guys who sell stuff for remodeling your bathroom, 4 tire stores or auto repair shops (each in a space no bigger than my living room at home), at least 4 small dry cleaners, 3 barbers, 3 hair dressers for women, a furniture restorer, a guy who sells wood and tile for floors, a different guy who sells only paint, a guy who does hand-painting on china (at least I think that’s what he does), and a dozen other small businesses. In fact, from my limited experience here, Rome seems to have far more small shopkeepers (i.e., small entrepreneurs) than Chicago. And I don’t see how any of the proprietors can make enough to keep his doors open.
And I wonder how so many used book stores survive in the expensive districts of central Paris. I also wonder why Italy has so many stores for fancy underwear, and why so many Italians conduct their arguments out in the street.
I, too, have often wondered that, but the simple answer is:
Prices are much, much higher. And really, there’s very little
“true” competition.
Go to any pharmacy for any product and the prices are the same.
Baby food, condoms, aspirin … all the same.
Of course, it’s illegal for supermarkets to sell aspirin (or
gasoline/petrol, for that matter), so no competition from them.
Additionally, Italian businesses are famously late in paying
their bills. So, if a business can collect money in 30 days, but
don’t pay their suppliers for 90 days or even 120 days, a
business can survive.
How do all those used bookstores thrive in Paris? Easy. The government has price controls on books: 5% reduction is the MAXIMUM allowed by law on new books. Booksellers are likewise forbidden from adding to the suggested retail price. See HERE for details (in French). The only way the average person can afford to indulge a book habit is to buy used (or abroad).
Where I live in Cobble Hill, Brooklyn, there is a street war in progress in the retail trade: franchize vs local.
Starbucks vs local coffee shops; domino’s piza vs local pizza stores; local bookstores vs Barnes&Nobles; Franchise multiplex vs local movie theater; Franchise liquor stores vs local liquor stores. Safeway vs local green grocers; CVS vs locally owned drug stores. Chase vs any leftover local bank.
Notice the pattern here: top down franchize vs bottom up owner-entrepreneurs. Cute neighborhoods like this one become high-priced franchise theme parks like Venice or Soho NYC. Un-cute neighborhoods become dead strip malls.
You may want to enjoy the local entrepreneur options before the big box franchises show up at the party. Consider a different view point of the problem: no price controls but controls on franchise capitalists who drive out owner-entrepreneurs and pillage local economies.
Filter, the question is *how* they come up with the money to pay their bills, given that they offer goods
of such little value and profit margin, and are using such expensive real estate; NOT whether it’s right
that people make a living that way, or what the advantages of being a small business owner are.
I’ll hazard a guess: “Inability to comprehend opportunity cost” + “past luck”. That is, they have some
critical ownership right in the land or building that is worth a LOT of money, and no present expense
(rent or loan payments) currently reflects that, because of some grandfather clause or because of a
government subsidy/exemption/privilege. So their business looks to be “profitable” when in reality, each
of them would be much better off financially if they just sold the place and lived off the interest.
Accounting profit vs. economic profit, in other words.
stevehar,
If the local shops are so much better than than evil-corporate-franchise-behemoths you so loathe, then they would soon go out of business as the locals CHOOSE the superior-local shops?
It’s called revealed preference.
In my little snooty neighborhood, there was a huge city council fight to block the opening of a Starbuck’s in the city’s “Historic” downtown. As amazingly the council allowed it. Now there are four coffee houses in a five block strip. That doesn’t sound like much but this is suburban CA. Now, every weekend, there is a line out-the-door at the Starbuck’s. The others are doing quite well, each with its own ambiance and specialty…
We should all be free to choose.
-Ed
Too many shops,( each one beside the other) sell the same good = Mall
I saw a shop in the Byculla neighborhood of Mumbai which was so small the shopkeeper had to sit outside so you could see everything he sells.
Filter, I didn’t mean little “societal” value, I just mean low market price. It’s true, that doesn’t
apply to all of them, but regardless, they mostly require a steady stream of business to function and
the post makes it sound like the all severely underutilize prime real estate.
Because old buildings are cheap buildings?
Class signals? In dry cleaners? Please.
The point is simply that Italian shops charging 6 euros for cleaning pants do a better job than the one charging 3,5 euros. Product differentiation. Better cleaning, better ironing, quicker delivery, etc.
If you think that 2,5 euros is a too much of a difference, well, maybe Italians are very clean and their demand curve for cloths in good shape is a bit more rigid than the demand in other countries. So, if you’re from abroad go for the lousy 3,5 euro cleaners.
The question can be rephrased to “why is the sole proprietor model still efficient in Italy and not in the US?”. I think the reason is a mix of restrictive planning laws, restrictive labour laws, lack of cheap finance and opportunity for tax evasion. There is obviously demand for, say, 3 full time herbalists (using the example) in the area. In the US the same 3 persons would be provided as part of a single franchised large store to get economies of scale. 2 of the 3 would be employees (cheaper than having partners) since hiring/firing is easy in the US and the banks would be willing to lend to the proprietor based on the franchise model. In Italy (and other countries) getting permission to build a big store in an established neighbourhood will take forever and cost lots in fees and bribes, no-one wants to have the hassle of employees given the tax issues and the difficulty of firing them and banks will not lend as easily as there is no established business model. Finally the sole proprietor model allows significantly greater opportunities for tax evasion (you have to provide much more transparency in your accounts if you have employees and bank finance). The sole proprietor model explains why there is not more competition in prices, each sole proprietor can only handle a given amount of business, attracting more business would mean they would have to hire employees which for the reasons discussed above would be a bad idea.
You should be happy that you’re able to choose between the high-quality service and the low-quality service there, instead of having to accept the low-quality product as the only, inevitable option.
Here, you’re choosing between Walmart, Tarjait (me), or Neiman-Marcus. Lots of choice, and generally more options because it’s big-box. I AM snooty about my local big-box bookstore, though.
Actually, plenty of high-quality smaller places stay in business in the US. They really have to be have something good going for them, though. Or be an inherently local business like nails or laundry.
In the US, interestingly, alot of small stores stay in business because immigrants like running them (low start-up capital), and for them it’s a relatively big cash-stream. We recently saw a neaby laundromat change hands from 1st-generation immigrant to 2nd-generation. The new owner is alot less enthusiastic about it, of course.
They also likely do not pay their fair share of taxes.
They don’t have to be true capitalists if they can
under-report income.
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