Avery Wealth Blog

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In the Headlines- April 18th, 2014

In The Headlines

Dollar Stores – Feeling the Sting of the Recovery


Recently, Family Dollar announced that its profits had declined 35% in the second quarter as comparable store sales fell 3.8%. Its profit of $90.9 million, or $0.80 per share, missed analyst estimates of $0.90. In connection with the disappointing earnings, the company announced the closing of 370 of its underperforming stores and an effort to lower its prices. The most recent earnings for rivals Dollar General and Dollar Tree were healthier than Family Dollar’s, but they also missed Wall Street’s estimates.

According to Nick Mitchell, a senior vice president at Northcoast Research, growth in the discount store sector really started to slow in the last six to nine months. That is an about face from the huge success the sector saw during and shortly after the recession. As the downturn squeezed the pocketbooks of the middle class, sales growth in the variety store sector surged. Sales grew 6.4% in 2008, 7.9%, in 2009, and 9.6% in 2010, according to Euromonitor. Growth in 2011 and 2012 cooled to 7.6%, and Euromonitor projects that sector sales will increase by only 3% in 2013, and 3.7% this year.

There are a multitude of factors causing sales to slow. Some of it is due to the fact that financially strapped customers who downgraded to discount stores during the recession are now reverting back to their preferred retailers.
“The middle-to-upper class consumer, making $75,000 to $80,000 a year, traded down in 2009, 2010, and 2011 because maybe one family member lost their job. Those households are trading back up; they are giving more money to grocery stores and a little to the Targets and Costcos of the world,” says Mitchell.

Fortunately for dollar stores, the recovery has not hit all shoppers equally. Those making $40,000 or less still shop at discount stores, Mitchell says. That would be good news for dollar stores if it were not for the $8.6 billion cut to food stamps that Congress passed in February, and the long-term unemployment benefits that the House of Representatives failed to extend. Those benefit reductions are hitting the dollar stores especially hard, since an estimated 40% of their customers receive some sort of government assistance.

Increased competition is also dragging down dollar store sales. Grocery and drug stores lost market share to the dollar stores during the recession, and they have fought to gain it back. In particular, Walgreens and CVS have aggressively reduced prices and increased deals on non-pharmacy items, hoping to lure value conscious shoppers.
And then there is the simple fact that it is difficult to keep increasing sales every year. This is especially true when your customers are under pressure from the challenging employment landscape and are only buying the basics. At Dollar General, for instance, sales of consumables jumped 8.5% in its most recent quarter, and home products sales increased 6.6%. Sales of apparel, meanwhile, fell 0.6%.


Forgotten Painters Get a Second Chance in a Hot Art Market

Surging prices for postwar and contemporary art are inspiring dealers, collectors, and galleries to rediscover long-overlooked artists whose work is affordable and critically acclaimed. Worldwide art sales rose 8% in 2013, to $65.5 billion, approaching levels not seen since the onset of the global financial crisis, according to the European Fine Art Foundation. The Artnet C50 Index, which combines sales data from 50 top contemporary and postwar artists, advanced 434% from the beginning of 2003 through last year, outperforming gold, fine wine, and stocks.

Last November, Francis Bacon’s Three Studies of Lucian Freud became the most expensive artwork ever sold at auction, fetching $142.4 million at Christie’s in New York. The next day, Andy Warhol’s Disaster) sold for $105.4 million at Sotheby’s. “People feel priced out,” says John Good, Christie’s international director for postwar and contemporary art. “They know that at one point works by these artists cost a lot less and are looking for parallels in the market of things that are undervalued.”

As prices for pieces by emerging artists reach hundreds of thousands of dollars, some collectors view the work of obscure but once-recognized artists as a safer investment. “New buyers who have doubts about young artists feel more comfortable with an artist who has a place, even a small one, in art history,” says Belgian collector Alain Servais. For galleries, a forgotten talent can become a reliable source of revenue if his studio or estate has a large inventory.

For example, American modernist Charles Biederman (1906-2004), whose work was inspired by Piet Mondrian and the Russian Constructivists, is getting noticed after years of near-obscurity. He worked in New York in the 1930s, did a brief stint in Paris, and then in the early 1940s moved to Red Wing, Minnesota, where he spent the remaining 40 years of his life, unrepresented by a New York gallery. Now New York’s Menconi & Schoelkopf Fine Art Gallery has sold his paintings to four major museums in the past two years.

Younger collectors are discovering his colorful biomorphic paintings and three-dimensional reliefs, says Meredith Ward, a Manhattan dealer who has been selling Biederman since 1998. Prices have more than doubled since then, she says, now ranging from $15,000 for a work on paper to more than $200,000 for a relief.

Dealers and collectors, looking outside of the U.S. for works from the second half of the 20th century, have reinvigorated demand for the work of many artists. More than two years passed between dealer Marianne Boesky’s first visit to Pier Paolo Calzolari’s home in Fossombrone, Italy, and his 2012 exhibition at her gallery in New York’s Chelsea district. She gained the reclusive artist’s trust, collaborated with Pace Gallery, and placed pieces with her clients on the boards of the Guggenheim and Whitney museums. “They got excited and spread the word,” Boesky says. When Calzolari, 70, returned to New York after more than 20 years, the show was a hit. Most of the available works, priced from $160,000 to $1.3 million, sold.

Artists disappear for various reasons, including shifting tastes. Some die young without international dealers ever promoting them. Others opt to live in isolation. And there are those who simply run out of good ideas and fail to fulfill their early promise, something that becomes clear when their work is reexamined, says critic and curator Bonami. “It’s like music,” he says. “There’s a minor opera by Mozart that hasn’t been performed in 50 years. You listen to it and you realize it’s a minor opera. That’s why it hasn’t been performed for so long.”

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The Good News Is . . .


• The preliminary April reading of the Thomson Reuters/University of Michigan Index of Consumer Sentiment rose to 82.6 compared with its final March reading of 80.0. This was its highest value in nine months. The report showed that the outlook among consumers had improved with regard to both current conditions and future expectations. The survey’s barometer of current economic conditions rose to 97.1 from 95.7 and its gauge of consumer expectations rose to 73.3 from 70.0.

• Constellation Brands, a leading wine, beer, and spirits company, reported earnings of $0.81 per share, a 72.3% increase over year-ago earnings of $0.47. The firm’s earnings topped the consensus estimate of analysts by $0.05. The company reported that revenues were $1.3 billion, an increase of 85.5%. Management attributed the company’s performance to the development and launch of new brands, as well as the successful integration of recent acquisitions.

• The Laclede Group has agreed to buy Energen’s natural gas utility in Alabama in a deal valued at about $1.6 billion, reaching the biggest takeover in its history and branching out from its home in eastern Missouri. Laclede is paying $1.28 billion in cash and assuming about $320 million in debt. With its purchase of the Alabama Gas Corporation, Laclede will own the biggest natural gas utility in the state. Its overall customer base will grow to 1.55 million customers from 1.13 million. Energen said it will use its after-tax proceeds, estimated at $1.1 billion, to reduce short-term debt and help it focus on developing its holdings in the Permian shale formation.

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Planning Tips

Tips for Determining the Right Amount of Homeowners Insurance


The best way to protect the investment in your home and its contents from damage or destruction is by purchasing homeowner’s insurance. But there is no one-size-fits-all approach to shopping for a home insurance policy. How much you spend depends on how much property you have and how far you want the coverage to extend.

Know what is covered - Your home insurance premium typically buys a package of six types of coverage:

  • Dwelling - Pays for damage to the home itself and attached structures, such as an attached garage.
  • Other structures – Pays for damage to fences, a freestanding garage, and other structures not built onto the house.
  • Personal possessions – Compensates for your lost or stolen possessions, even when the loss takes place away from home.
  • Loss of use – Picks up some of your living costs when your home is uninhabitable and is being repaired.
  • Personal liability – Provides financial protection if you are sued and held responsible for injuries or damage to someone else.
  • Medical payments – Takes care of the medical bills of anyone injured on your property.


Prepare for the worst-case scenario – The amount of dwelling coverage you decide to buy should equal the full replacement cost of your home. For example, if you choose to insure your home for $200,000, that should be enough to cover rebuilding your home in its current location with comparable construction materials. Also, maintain your homeowner’s insurance coverage at current levels even if your home declines in value. Insurers are not looking at the market value of your home, but rather what it is going to cost to rebuild your home. Often that has nothing to do with its current market value. In fact, homeowners may instead need to increase their level of coverage over time, to account for inflation in the costs of construction materials and labor.

Do not scrimp on insuring your possessions – The cost of having to replace all or most of your possessions following a fire or other disaster can quickly add up. When thinking about the amount of coverage you want for your personal possessions, a good guideline is to insure them at 50-75% of your dwelling coverage amount. So if you insure your dwelling for up to $200,000, then you would want to insure your personal possessions for at least $100,000.

Your liability coverage should align with your overall net worth – If someone breaks a leg falling down your staircase, without the right liability coverage, you could be on the hook to cover the expenses for those injuries. The amount of liability coverage typically included in a homeowner insurance policy ranges from $100,000 to $300,000, according to the Insurance Information Institute. If you are a homeowner with a high net worth, you may consider purchasing an umbrella liability policy to provide additional protection for your assets.

Do not forget about flood insurance – Flood damage is not covered by a standard homeowner’s policy. You have to purchase flood coverage separately. So, when deciding how much home insurance coverage you want to buy, be sure to consider that you may need room in your budget for flood insurance, too, depending on the flood threat where you live.

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Please don’t hesitate to give us a call if you need help with any component of your financial planning.

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