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A billionaire retailer whose shops had no stock (bbc.com)
105 points by antongribok 6 days ago | hide | past | web | favorite | 49 comments





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.


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)

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.

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.


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)

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".


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.

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


It's still a similar story in a few countries in Africa I recently drove through like Zimbabwe, Angola, Nigeria, etc.

You are quite right. I was about to reply to the grandparent that you have just described present day Zimbabwe. History repeats itself.

This is more economics than history. It’s a pretty simple set of reactions that can happen at any time. You could “repeat it” in parallel anywhere at the same time, if you wanted to.

Mostly, yes. Though whether people resort to commodity barter or an outside currency like the USD varies.

Sometimes both happen. Eg in Germany after the war cigarettes were a common currency, even among non-smokers.

But that's probably more a function of comparatively effective restrictions on using foreign currency directly, than anything else? Not sure.


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.

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.

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.

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.


Was this legal? Did the government crack down on USD handlers?

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.


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.


How are price freezes enforced? Does the government go around and check prices for all items everywhere?

To expand, the wealthy would hold money in commodity hedge funds. Presumably the banking system tried to diversify to the max in financial assets directly linked to the real economy.

Look at it this way: an inflation index is a low-dimensional approximation of inflation in the economy as a whole. But the coefficients of this approximation are effectively random, even if well substantiated by consumer budget surveys etc. (which they were). As inflation grows you have to consider the risk that the index (or the USD, for that matter) diverges from your current and probable future cost structure. Maybe it underweighs diapers and you're about to have children. Maybe a lot of people are about to have children and renege on their debts, if you're a bank.

So the USD is basically the price of all imported goods, but Brazil is a big economy that's not a simple "exports X, imports everything else". During hyperinflation my parents used it for long-term savings -- they had immigrated to Brazil, who knows if they might have to move countries again. But they mostly did big supermarket rounds to last 1 month+ of goods and otherwise trusted banks for medium-term (say, to buy a car) savings.


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.

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.



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.


I'd assume it's essentially through the supply of "eurodollars" https://en.wikipedia.org/wiki/Eurodollar

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-mi...

[2] https://www.cnn.com/2019/05/29/economy/venezuela-inflation-i...

[3] https://www.wsj.com/articles/hyperinflation-shatters-venezue...


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?

You have to set it in something. People (and I imagine businesses) usually rush to convert it to some other more stable store of value. Today they'd probably rush for US dollars if they had access(1).

I remember reading up on how in the immediate period of postwar Germany the Reichsmark was obviously inflated to nothing. People horded physical goods, any goods they could get their hands on. The result was shortages of everything. If you needed to buy anything, you'd exchange your goods for American cigarettes or bottles of booze that you'd then exchange for what you're actually looking for.

You see similar "economies" in prisons.

In the case of countries with active hyperinflation, if you use the currency at all it would be for a daily transaction. You'd hope to not hold any of it by the end. I do recall a story of how in Zimbabwe (before the hyperinflation got absolutely ridiculous), people still used they inflating currency, but the de-fact spread on the buy/sell was so large that traders could make a profit even if they ended up with worthless currency at the end. So markets find a way, but it's hugely inefficient.

(1)Holding too much foreign currency can present it's own issues. Storing it is difficult/risky and putting it in a dollar-account in a bank can be just as problematic. During the Argentinian default of the early 2000s, if you had money in a US-dollar account, the governnment confiscated it, converted your account Argentine pesos which was then promptly devalued.


> usually rush to convert it to some other more stable store of value.

Any essential consumable without expiration date can be stable store of values. Buy all the beans that you can and store that instead!


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-forb...

This legal change happened very recently. August 2018, according to Bloomberg:

https://www.bloomberg.com/news/articles/2018-08-02/venezuela...


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.

This is why cryptocurrencies are so popular in Venezuela.

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

Sounds like Fry's Electronics.

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.

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_K...

> 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.


You can just buy inflation hedged assets: real-estate, food, gold, stocks, etc.

This is an absurd statement. It has no basis in reality and inflation even in the 20% range is problematic. 50% inflation causes a lot of problems.

Even if your salary increases in lockstep with inflation, at 50% you'll never be able to afford anything that costs 3x salary.

You simply convert all of your money into inflation hedged products: food, stocks, real-estate, etc.

You've said this a couple times, like it's an instant cure. However, basic economics of supply and demand mean you're not getting usual prices on inflation hedged goods. The guy that has inflation hedged goods is not going to want to trade them for non-inflation hedged goods, for the same reason you're trying to buy. Unless... you make it worth his while. You're going to be paying a huge risk premium that devalues your currency even more.

Coupled with the innate scarcity and large capital commitments of real-estate and gold, you're not going to have a good time.


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.

> businesses got hooked on (and very good at) investing their money

but what do they invest in? Surely for an investment to pan out, something is produced which is then sold!?


Mostly government bonds.

Are you assuming that your employer would increase your wage at the same rate? I'm a bit confused how the inflation appears in the economy and somehow ends up in the pockets of workers instead of somewhere else. Considering that doesn't always happen now with normal inflation, I can't see it happening then.

It has an administrative cost that would be better spend elsewhere.

Sure. But that's an overhead, rather than the complete economic collapse that the term "triple digit inflation" conjures in the minds of those who fear single-digit inflation. Hyperinflation like that is different in kind, not just in quantity.

Hyperinflation always starts with some kind of economic shock, which the government responds to by borrowing, as is entirely reasonable. ("Printing money" is just a kind of borrowing, from the captive audience of its citizens who have to accept the local currency as payment and have to pay for government services in that currency.) But if they can't fix the original shock, everything just adjusts to that new price point. And if they keep applying the same solution, they get the same results.

The hyperinflation thus isn't great, but it's not really the problem, and you wouldn't make the problem better by doing away with the hyperinflation. You'd have the same bad economy with different numbers on the money. It's better not to have to do that to the money, but better still to get to the root of the matter -- which is challenging under the best of circumstances, and the circumstances that produce hyperinflation are usually not the best.


It is a BIG overhead. I have lived in such a situation, so as far as first-hand experience is worth...

I am allergic to any defense or downplay of inflation because there is a lot of people here that see "advantages" in it. Mostly politicians that magically solved all cash flow problems of their governments by delaying payment for a couple months. They like to call this "economic development".




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