A Once-in-a-Generation Opportunity

For many big corporations, inflation is less of a problem and more of an opportunity to raise prices and increase profits.

 Good morning!

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Here are today’s highlights:

  • A consultant says CEOs often make the same mistakes managing employees.

  • The shortage of school bus drivers has had an impact on the economy.

  • Are you sure you want to finance your business with your retirement savings?

  • And on this week’s Dashboard: Robots are no longer just for big businesses.

REAL ESTATE

The rules of buying residential real estate have shifted: “Freddie Mac estimated at the end of 2020 that the United States was 3.8 million housing units short of meeting the nation’s needs. Combine that with the surge of millennials into the housing market — they represented more than half of all mortgage originations last year — as well as the insatiable appetite of investors, who now snatch up nearly one in six homes sold in America, and the contours of a new, lightning-fast, permanently desperate housing market come clearly into view.”

  • “By bidding on two properties she had never visited, in a city nearly 2,000 miles away, Amena joined the 63 percent of North American home buyers in 2020 who made at least one offer on a home that they had never stepped into.”

  • Many agents track the market change in Austin to the sale of one house: “It was listed on Dec. 30, 2020, for $370,000, and it seemed like mere minutes until buyers and agents began lining up in the bitter rain to tour the house one by one, a process that took hours.”

  • “Agents texted Google Maps screenshots to one another, noting the red traffic jams around the property. By the 11 a.m. deadline on New Year’s Day, the house had received 96 offers, with the winning bid clocking in at $541,000 — a mind-boggling 46 percent above asking.” READ MORE

THE ECONOMY

Big companies are seeing inflation as an opportunity rather than as a problem: “Executives are seizing a once-in-a-generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices. Industries from retail and manufacturing to biotech have seen their profits rise. Other industries, largely those still climbing out of pandemic lockdowns, such as travel, or those too weighted with inflationary costs, have raised prices but not experienced a profit boost. Mattress maker Sleep Number has pushed through three major price increases this year. So has Carrier Global, a manufacturer of heating and cooling equipment, which typically changes its prices once a year.”

  • “Nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the Covid-19 outbreak, data from FactSet show.”

  • “Nearly 100 of these giants have booked 2021 profit margins—the share of each dollar of sales a company can pocket—that are at least 50 percent above 2019 levels.”

  • “The risk to companies is that they overreach, raising prices faster than their competitors, or farther than customers will tolerate, losing sales and market share that may take years to recover.” READ MORE

Robert Reich says an overlooked cause of inflation is economic concentration in the hands of corporate giants: “The underlying problem isn’t inflation per se. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits. In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing ‘rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.’ But P&G is making huge profits. In the quarter ending 30 September, after some of its price increases went into effect, it reported a whopping 24.7 percent profit margin. It even spent $3 billion during the quarter buying its own stock.”

  • “It could raise prices and rake in more money because P&G faces almost no competition. The lion’s share of the market for diapers, to take one example, is controlled by just two companies – P&G and Kimberly-Clark – which roughly coordinate their prices and production.”

  • “It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&G’s at the same time P&G announced its own price increases.” READ MORE

The cost to ship a container across the Pacific fell by 25 percent last week: “The decline signals that the huge demand for Asian exports is easing, though shipping executives say it will be months before the logjam of ships outside of U.S. ports clears up. The decline in ocean-freight rates coincides with the winding down of the traditional peak shipping season, which starts in August when Western importers start to load up on cargo ahead of the year-end holidays. With most products at least on their way, space is gradually opening up on the front end of the trip, leading to lower prices.”

  • “That easing hasn’t made its way to U.S. ports, where dozens of ships packed with everything from Christmas trees to electronics and heavy machinery are still waiting for weeks to unload at big gateways like Los Angeles and Long Beach, Calif.”

  • “Shipping executives say they don’t expect the traffic to ease until February at the earliest.” READ MORE

HUMAN RESOURCES

A consultant says CEOs often make the same mistakes managing employees: “CEOs and other executives often ask me to survey their top talent, perhaps to learn of their attitudes regarding the company’s direction or perhaps their desires for new work arrangements. There is a place for these broad surveys -- they can uncover surface issues and widely held concerns that allow for benchmarking over time. However, one needs to dig deeper to find out what’s really going on, and, not surprisingly, often my interviews turn into conversations on the state of work, perceptions of management, and how the employee fits in the bigger picture.”

  • “The feedback generally comes back to three main themes, all of which are very personal: No one asks me what I want to do when I grow out of this position.”

  • “No one asks me about ideas I have for the business, be it a new product or a better way of working.”

  • “No one thanks me for the work I do.” READ MORE

The shortage of school-bus drivers has made it harder for parents to return to the labor market: “As the bus driver shortage continues, parents and drivers, often women on both sides, have been stretched to the breaking point as they try to do more with less — less time, less money, less help, less of a sense of safety and respect. ‘This problem existed before COVID, but nobody wanted to hear about it, especially the school districts,’ said Zina Ronca, a driver supervisor for DuVall Bus Service in West Grove, Pennsylvania, who has been in the industry for nearly two decades. There haven’t been enough school bus drivers nationwide for years. But it took a pandemic to make that shortage visible and painful to more than just the drivers themselves.”

  • “Kaidi had to get [in the pick-up line] an hour before school ended just to make sure she was near the front. She says she turned down a job so she could do this.”

  • “Likewise, other parents had to change their hours, lose pay and go without sleep — all to sit in their cars, waiting for their children.” READ MORE

The number of workers quitting their jobs in September was even higher than in August: “More than 4.4 million workers quit their jobs voluntarily in September, the Labor Department said Friday. That was up from 4.3 million in August and was the most in the two decades the government has been keeping track. Nearly a million quit their jobs in the leisure and hospitality industry alone, reflecting the steep competition for workers there as businesses recover from last year’s pandemic-induced shutdowns.”

  • “Kaylie Sweeting worked as a bartender in Millburn, N.J., through most of the pandemic, despite concerns about interacting with unmasked customers and frustration about low wages. But when the restaurant pressured a colleague to come to work sick this summer, Ms. Sweeting quit.”

  • Ms. Sweeting, 23, and her partner, a cook, decided to take the money they had saved to buy a house and open their own vegan restaurant instead. They recently signed a lease and are beginning renovations, with plans to open early next year. They are trying to apply the lessons they have learned as employees, promising good wages, paid time off and other basic benefits that restaurant jobs have often failed to provide.

  • “‘I genuinely love the industry,’ Ms. Sweeting said. ‘I just don’t love the way it’s managed. I feel like the only way to change it is to implement the change yourself.’” READ MORE

THE 21 HATS PODCAST

Dashboard: Robots Aren’t Just for Big Boys Any More: This week, Loren Feldman and Gene Marks talk about why robot sales are setting records and how even small businesses are taking advantage of the opportunity. They also talk about the inflation spike and why electric vehicles will help – at least over the long term. Plus: the government takes action on ransomware, and a fresh approach to paid time off.

  • You can find Dashboard in your 21 Hats Podcast feed.

Listen to the Podcast

FINANCE

Are you sure you want to use your 401k to finance a business: “From the second half of 2020 through May 2021, the Census Bureau tracked the highest number of applications to form businesses since the records started being kept in 2004, a recent report from the National Bureau of Economic Research found. Bank loans and venture capital probably did not provide liftoff for most of those businesses. According to 2019 data from the Kauffman Foundation, a nonprofit that works to bolster education and entrepreneurship, nearly 65 percent of entrepreneurs use personal and family savings to fund their start-ups.”

  • “This is a path that many experts recommend against. ‘The first thing we tell people is absolutely not to tap into their retirement account,’ said Elizabeth Isele, the founder and chief executive of the Global Institute for Experienced Entrepreneurship.”

  • “Instead of tapping retirement funds, the institute advises crowdfunding to get a business off the ground. ‘If you put your idea out there on Kickstarter and no one is willing to invest even a dollar, you know before you put in a huge amount of time that it might not work,’ Ms. Isele said.” READ MORE

LOGISTICS

The supply-chain crisis is taking a toll on American farms: “Ships now take weeks, rather than days, to unload at the ports, and backed-up shippers are so desperate to return to Asia to pick up more goods that they often leave the United States with empty containers rather than wait for American farmers to fill them up. The National Milk Producers Federation estimates that shipping disruptions have cost the U.S. dairy industry nearly $1 billion in the first half of the year in terms of higher shipping and inventory costs, lost export volume and price deterioration.”

  • “‘Exports are a huge issue for the U.S. right now,’ said Jason Parker, the head of global trucking and intermodal at Flexport, a logistics company. ‘Getting exports out of the country is actually harder than getting imports into the country.’”

  • “‘This is not just a problem, it’s not just an inconvenience, it’s catastrophic,’ said Brad Anderson, the chief executive of California Dairies.” READ MORE

OBITUARY

Helene Fortunoff, who built a multimillion-dollar jewelry empire: “Mrs. Fortunoff started her career in 1953 working for her husband Alan Fortunoff’s family business, which at the time was a mom-and-pop enterprise selling housewares in Brooklyn. In 1957, she proposed adding a jewelry line and spearheaded the family’s entry into that uncharted sector. ‘My husband’s interest was limited solely to silver gifts and flatware,’ she told The New York Times in 2001, ‘and it was becoming apparent that that wasn’t going to be an important enough business for us. We wanted to offer more luxury products with higher value.’”

  • “As the jewelry business grew, Mrs. Fortunoff, one of the few female executives in the industry, developed a cadre of mostly women buyers.”

  • “They traveled the world to distant locales, including diamond mines in Africa, to find new products, which Fortunoff then marketed as ‘high-end jewelry at affordable prices.”

  • “Mrs. Fortunoff retired in 2005 after the family sold its majority stake in the company to private investors.” READ MORE

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading! — Loren