Sunspots: The racetrack edition 37signals 19 Sep 2006

22 comments Latest by Marcin

Warren Buffett doesn't like the idea of borrowing money
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing. I've never borrowed a significant amount of money in my life. Never. Never will. I've got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X."
What's the proper width for a layout optimized for 1024?
"I've been using 960 for some time now, as it's slightly smaller than full width, and it's divisible by 3, 4, 5, 6, 8, 10, 12, 15, and 16 (imagine the grid possibilities)."
MacNN: Apple could cut iPod prices but goes after higher margins instead
"The new iPod shuffle is estimated to cost around $30 to build, as one example, but sells for $79. Apple could have priced its new 8GB iPod nano lower than $249, based on estimated material costs of $130. The company's 4GB iPod nano -- which is priced at $199 -- holds an estimated cost of just $90, while its 2GB version for $149 likely costs around $70 to build."
Paco Underhill advises Office Max on effective store layouts
"The aisle grid has been replaced by a 'racetrack,' with the main wide aisle looping around the store. Outside the main aisle, the store is divided into zones, each centered on a specific 'destination product.' The center area, inside the racetrack, is a spotlight area for expensive electronic gadgetry like computers, copiers and digital cameras. The layout has accomplished much of what OfficeMax had been hoping for. In the original study, two-thirds of the shoppers never made it to the rear of the store. The less cluttered design provides a clear view of the far wall. In the February study, more than half the shoppers reached the back area." Related: Underhill's "Why We Buy: The Science of Shopping" is a fascinating read.
Banksy's LA art show
Let's talk about the elephant in the room. No, really. Art show w/ painted live elephant, Paris Hilton roaches, altered thrift store paintings, and more. [via Zach]. Related: Banksy's site says, "The time of getting fame for your name on its own is over. Artwork that is only about wanting to be famous will never make you famous. Any fame is a by-product of making something that means something. You don't go to a restaurant and order a meal because you want to have a shit."
Promoting peace, Colombian crafts guns into guitars
"One of Colombia's top musical instrument makers, Paredes has branched out from traditional methods to fashion electric guitars from shotguns and AK47 rifles once used by fighters caught up in the country's lingering guerilla conflict."
Russian astronaut will drive a golf ball in space as part of a marketing deal with a golf club manufacturer
"After being hit from a special platform alongside the station, the ball is expected to orbit Earth for about four years."
Video: Bloodsport Mentos
Jean-Claude Van Damme chase scene remixed as Mentos spot.
Video: Angry prof "confiscates" cellphone
Buddy, you picked the wrong place to take a call.

22 comments so far (Jump to latest)

nate 19 Sep 06

The story about the iPod prices is just dumb. Not only are they not taking into account the true cost to produce them and bring them to market, but they never even stop to consider that the price was part of the marketing strategy? I.e. higher cost = higher percieved value.

Freaking analysts.

Chris H 19 Sep 06

not to mention that the iPod is more than just what it costs to build it. You’re also paying for top-notch industrial design, engineering, the “cool” factor, demand, brand name, exclusivity, overhead, etc.

plus iTunes is free so I’m sure some of the iPod profits go to improving the iTunes software.

the iPod is genius and it deserves the money it makes for Apple.

Paul 19 Sep 06

The OfficeMax article was a great one - thanks for posting it.

Linsey Dawn McKenzie 19 Sep 06

I doubt that Buffet has ever needed to borrow money so I’m not sure I like the comments he’s making. Sure, I’m ok now, but I had to borrow money to kick start my career years ago and I’m sure its the same for many people.

paul haine 19 Sep 06

And Ryan Schroeder is now on my list.

brad 19 Sep 06

One of the reasons I’m 47 years old and haven’t yet bought a house is because I can’t face borrowing that much money (it’s not really the borrowing that bothers me, it’s all that interest I’d have to pay). I’d rather wait til I’ve saved up enough cash to have at least an 80% downpayment and then pay off the mortage as quickly as possible. The money you “throw away” paying rent for 20 years while you save up to buy a house with cash is nothing compared with the money you throw away by paying interest to the bank over the life of a 30-year mortgage. I bought my last car with cash and it felt great to not have a loan hanging over my head, and I saved a lot of money in interest.

Drew Pickard 19 Sep 06

I’m not sure how I feel about Banksy’s stuff

It’s either offensive to me that he’s selling to the very people that he mocks … or it’s brilliant that his art has reached the level where he can suversively take those celebrities money by selling them on their own mockery …

The elephant is just weird.

Jon Maddox 19 Sep 06

@brad:

Buying a home is an investment. Its not a car that loses value 5 mins after you sign a paper. Its not an iPod that gets refreshed every 6 months. If you buy right, you’ll make enough off it in 5 years that the interest you accrued won’t even be noticed. Most buyers buy a first home, sell in 5 years and put down the tens of thousands they made on the sale towards their new home.

Rental rates are usually 20-30% higher than what you would pay on a mortage for the same property, thats quadruple your interest right there. I think your math is off.

robb.monn 19 Sep 06

Saying that an ipod costs $30 and is sold for $80 is a misnomer.

That’s like saying that 37signals apps costs the pennies that they pay per user for hosting, but they charge $5-100/ month for them.

That kind of logic does no one any favors — design and engineering are real costs… more real than the materials in my mind because we all know how crappy an object made of $30 of materials can be, but we have no idea how great an object can be made from the same bits with greet design and engineering.

meh 19 Sep 06

I have no idea how art should be priced, the market seems just as good at mechanism as any . . but I do find it cynical and hypocritical when people sell anti-corporate messages using corporate channels. Take shepard farley and his Obey brand sold through mass retailers like urban outfitters (and yes even disounters when they’ve got to move excess inventory at the end of a season) … and I’s add banksy to that list selling art via agents/galleries etc. to “collectors”. I recognize the message in the art, but I don’t think anyone needs to own it.

Re: Linsey. Buffett has never had to borrow money because he’s never put himself in a position where’s he’s needed to borrow money. He recognizes and operates within his constraints. It just so happens his constraints are a lot wider now, but they weren’t always that way.

MH 19 Sep 06

Loooove the angry professor video. Some people just have their heads waaay too far up their ass to have any consideration for others, and this one got his comeuppance.

brad 19 Sep 06

@Jon Maddox — The NY Times had an interesting article a few months ago that concluded that in many markets today, renting actually makes more economic sense than buying. I agree that if the market’s good and houses are appreciating in value then buying with a mortgage makes sense. You don’t build up much equity in five years (a greater portion of your payments goes toward interest in the first few years of a mortgage), but you might make some money in that time if the market’s right. But in fact the case is not always so clear. When you factor in all the costs of maintenance, repair, etc. that owners have to pay and renters don’t, if you live in an area with reasonable rents (here in Montreal I pay $550 Canadian per month for a three-bedroom apartment), and if you have good alternative investments available that you can use for the money you’re saving by not owning a house, you can actually end up better off renting.

nate 19 Sep 06

@Jon Maddox:

Jon, that’s a good point, but you also have to consider that a house, as with any investment, is worth exactly $0 until you’re actually ready to sell it. True, traditional accounting would consider a home an “asset,” but the question is, who’s asset?

Yours or the bank’s?

Erik 19 Sep 06

The new Office Max layout is very similar to what they have at Brandsmart USA. They only have them in Florida and Georgia, but they’re kind of like Circuit City, only with really annoying ads. They have a “racetrack” with certain sections on the edges- TVs, appliances, etc. The center is small appliances. You enter on one side of the racetrack and check out on the exact opposite side, making sure that you have to pass by at least half of the merchandise. Usually, you end up making 2 or 3 complete revolutions. Very annoying, but understandably effective.

robb.monn 19 Sep 06

A house could easily be worth less than $0, actually. A lot less.

A friend bought a 1 bedroom in the village in 1987 for $190k. She lost her job in 1992 and had to move out of the city for a new one. She sold her place for $120 (all the market would pay at the time) and had to BORROW (against her parents house’s equity) about $80k to ‘sell’ the apartment. If a similar drop in value happened in my hood it would be a $500k apartment that was suddenly worth $300k. I’d have to come up with several years’ salary (pretax!) to get out of that hole, even though I can theoretically afford a $500k mortgage.

It’s nice to have equity in a piece of real estate, but if the market goes down any considerable amount we’re going to see the downside of ‘owning.’

meh 19 Sep 06

@ Jon

Any asset you buy can be an investment if that is how you are looking at it. A car is usually a bad shorterm investment in terms of capial appreciation, but can be a great long term invesment (think classic collectable cars). A house can go either way depending on the market, but does tend to be a good longterm investment. Neither provide any returns (except if you rent them) until you sell them, and that is all market driven. If you are financing your asset purchase, the main variables to look at are cost of money (interest rate) and maintenace costs, basing financing decisions on expected future market demand/price for your asset is a fools sport. I think your expectations are off.

meh 19 Sep 06

What I was getting at was the Buffett has never been in the situation where he has NEEDED to borrow money to get a deal done or finance operations of a company. Some BRK subsidiaries have taken on debt at attractive levels, but they have never NEEDED to. I think Buffett’s reluctance to take on debt crosses over from business into personal sphere’s .. his comment ” The other reason is I never thought I would be way happier when I had 2X instead of X” sums up his thought on leverage . . If you know about Buffett’s philosophy, its about operating within ones means comfortably and with the lowest amount of risk, not stretching yourself financial because the market at a specific time is willing to lend you easy money. Although I will agree and say I don’t think Buffett is specifcally saying not to borrow money to buy a house, he’s just saying how he has operated.

Marcin 20 Sep 06

@Jon,

Here in Sydney, Australia, the apartment I’m renting for $410/wk would cost about $750/wk in mortgage repayments (assuming a value/loan of $400,000, which is pretty much right).

Also, buying property as an investment is different to buying to live in - in Australia at least interest payments on investment loans are tax deductible from your income.

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