Are You Hitting Your Numbers?

In our latest podcast episode, the owners talk about whether their businesses are performing up to expectations. Also: how to move from contractors to employees.

Good morning! 

Please note: The Morning Report will not publish on Wednesday in observance of Yom Kippur. We will return on Thursday.

Here are today’s highlights:

• Is TikTok the right place to explain what it costs to manufacture clothing?

• Those signing bonuses may no longer be necessary.

• Last year, for the first time in the U.S. since 1995, more brick-and-mortar stores opened than closed.

• What a tech reporter learned from a week of binge-listening to tech podcasts.

THE 21 HATS PODCAST

Are You Hitting Your Numbers? This week, Karen Clark Cole, Jay Goltz, and Sarah Segal discuss whether their businesses are meeting expectations and how that’s affecting their plans for next year. They also talk about how to handle an employee who doesn’t deliver, whether now is a good time to hire, and—in an answer to a listener question—how to make the transition from using contractors to hiring employees. And Karen explains why employee utilization—that is, the percentage of her people actually billing clients—is the most important metric she tracks and one she tracks on an hourly basis. Plus: Notebooks or Notion? All three owners tell us how they try to stay (or get) organized.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

SOCIAL MEDIA

This founder of an apparel maker developed a TikTok following (and a sales surge) by discussing the cost of manufacturing: “Youer is a multi-million-dollar brand of athletic clothing for women. In one video [Mallory] Ottariano published August 9, titled ‘How Much It Costs to Make Ethical Fashion,’ the 32-year-old founder reveals the costs-down to the penny-that go into making her brand's Do It Dress, which she wears on camera. ‘Spoiler alert,’ she says in the intro to the video. ‘It's a lot of money’ to make clothes in the United States. All told, it costs more than $65 to make the dress and that includes things like $19.25 for the fabric, $2 for the zipper, $32 for a Los Angeles-based team to cut and sew the pattern.”

• “While a fast fashion brand might sell a similar garment for $25, Youer's Do It Dress retails for $154 on its website, and retailers purchase the dress from Youer at half that price, she explains.”

• “The upshot of Ottariano's accounting for viewers: the price tag on the dress might seem high but it represents a tiny profit margin without which the brand couldn't sustainably manufacture domestically.”

• “The price video paid off in more ways than one for the founder. It has received more than 300,000 views and generated more than 23,000 visits to Youer's website in the two weeks after it was published, representing a 250 percent increase over the site's average.”

• “Even more important, Youer saw a 65 percent increase in orders.” READ MORE

HUMAN RESOURCES

The frenzied job market may be fading: “By many measures, the labor market is still extraordinarily strong even as fears of a recession loom. The unemployment rate, which stood at 3.7 percent in August, remains near a five-decade low. There are twice as many job openings as unemployed workers available to fill them. Layoffs, despite some high-profile announcements in recent weeks, are close to a record low. But there are signs that the red-hot labor market may be coming off its boiling point.”

• “Last year, Klaussner Home Furnishings was so desperate for workers that it began renting billboards near its headquarters in Asheboro, N.C., to advertise job openings.”

• “The steep competition for labor drove wages for employees on the furniture maker’s production floor up 12 to 20 percent. The company began offering $1,000 signing bonuses to sweeten the deal.”

• “But in recent months, Mr. Cybulski has noticed that frenzy die down. Hiring for open positions has gotten easier, he said, and fewer Klaussner workers are leaving for other jobs.”

• “The company, which has about 1,100 employees, is testing performance rewards to keep workers happy rather than racing to increase wages. The $1,000 signing bonus ended in the spring.” READ MORE

Gene Marks asks if you’ve reviewed your workplace drug policies lately: “The federal government still defines cannabis — along with LSD, ecstasy, and heroin — as a Schedule 1 substance that has ‘no currently accepted medical use and a high potential for abuse.’ The rules are confusing. And yet, it’s probable that a growing number of your current and prospective employees are using cannabis products. As an employer, where do you draw the line? Do you care if an employee uses cannabis while not on the job? Should you disqualify a candidate because of current cannabis usage? In these times of tight labor, many of my clients are revisiting their drug policies both for candidates and existing employees, and changing these policies to accommodate cannabis users.”

• “If a candidate acknowledges using cannabis for medical reasons, ‘it’s not an unreasonable question to ask’ if the use could impair them on the job, said Jim Devine, a senior vice president and human resources practice leader at Univest Insurance in Lansdale.”

• “Devine says that consuming marijuana is no different from drinking alcohol. ‘You can’t come to work if you’re impaired, and an employer doesn’t have an obligation to accommodate you if that’s the case.’”

• “‘A lot of my clients have just said it isn’t worth it,’ said Louis Lessig, a partner at the Brown & Connery law firm in Westmont [N.J.]. ‘There’s a lot of good reasons for not screening for cannabis, not the least of which is that so many employers are searching for workers, and it’s hard enough to keep folks.”

• “‘Regular random testing is fine,’ Devine said. ‘Just make sure that everybody in the company is subjected to the test, from the CEO on down.’” READ MORE

THE ECONOMY

More new cars are finally hitting dealer lots just in time for rising rates and falling demand: “The auto industry has grappled for nearly two years with choppy factory schedules and thin dealership stocks, stemming from semiconductor shortages and other supply problems. Those troubles are easing and vehicle availability is slowly improving, the car companies say. Auto executives continue to express confidence they will be able to fill a big backlog in consumer demand as production normalizes. But a worsening economic picture and higher interest rates are raising questions about whether consumers will still keep snapping up cars and trucks at the same pace once stock levels improve.”

• “Gone are the days of zero-percent financing on new vehicles, which car companies and dealers have long used as a staple promotion to sell cars. The average interest rate on a new-car loan in the U.S. hit 5.7 percent in the third quarter, the highest in three years, according to research site Edmunds.com.”

• “[Cox Automotive] last week lowered its 2022 U.S. sales forecast to 13.7 million new vehicles, which would be down 9 percent from last year. In the five years leading up to the pandemic-plagued year of 2020, the industry sold more than 17 million vehicles annually.” READ MORE

Global shipping has flipped from backlogs to empty containers: “Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally their peak season, the latest sign of the economic whiplash hitting companies as inflation weighs on global trade and consumer spending. The October cancellations are a sharp reversal from just a few months ago, when scarce shipping space pushed freight rates higher and carriers’ profits to record levels. Last October, companies like Walmart and Home Depot were chartering their own ships to get around bottlenecks at ports to meet a surge in demand for imports.”

• “Trans-Pacific shipping rates have plummeted roughly 75 percent from year-ago levels. The transportation industry is grappling with weaker demand as big retailers cancel orders with vendors and step up efforts to cut inventories.”

• “A flotilla of new container ships under order will add capacity over the next two years, meaning that freight rates could come under more pressure as more ship space becomes available.” READ MORE

MARKETING

The strong dollar is wreaking havoc on businesses in Asia: “Tigun Wibisana and Sandra Kok, who own the SiTigun cafe on Penang Island in Malaysia, are facing an excruciating decision that could make or break their business of 14 years: Can they increase prices to cover rising expenses without driving customers into the arms of their bigger rivals? The cost of the coffee beans that the couple, who are married, buy is spiraling because they are traded globally in U.S. dollars, and the Malaysian ringgit has fallen to a 24-year low. Compound that with an inflationary spike in prices for butter and flour, essential ingredients for its pastries, and the shop’s profits have plunged more than 25 percent this year. ‘Eventually we may have to raise prices to survive, but I don’t have the guts to do it now,’ said Mr. Wibisana, 65, who roasts the beans and makes the baked goods.”

• “Throughout Asia, from the Vietnamese dong to the Philippine peso, currencies are tumbling to record lows, the type of widespread currency weakness not seen since the 1997 financial crisis.”

• “That has unnerved businesses and policymakers who recall how a string of Asian currencies folded under the pressure of a strong dollar.” READ MORE

COMMERCIAL REAL ESTATE

Believe it or not, brick-and-mortar retail is enjoying a revival: “Brick-and-mortar store owners are emerging from the pandemic with surprising strength, posting some of their best numbers in years and plotting expansions as more Americans venture out to buy things again. U.S. retail vacancy fell to 6.1 percent in the second quarter, the lowest level in at least 15 years, while asking rents for U.S. shopping centers in the quarter were 16 percent higher than five years ago, according to real-estate services firm Cushman & Wakefield. More stores opened than closed in the U.S. last year for the first time since 1995, according to an analysis by Morgan Stanley, and some analysts say they expect that trend to continue this year even with recession fears rising.”

• “The retail real-estate industry’s turnaround reflects a wrenching, decadeslong adjustment that included hundreds of retailer bankruptcies, widespread vacant storefronts and plummeting demand for enclosed malls.”

• “As a result, construction of new retail has slowed significantly over the past decade and companies are expanding more strategically while better integrating online and physical shopping.”

• “The U.S. now has nearly 22 square feet of retail real estate per person, according to data provider MSCI Real Assets. Morgan Stanley calculates an even higher number of 23, more than any other country and more than double the per-capita square footage of France and the U.K.—and nearly eight times China’s rate.”

• “‘Retail sales growth in physical brick-and-mortar stores is actually growing faster than ecommerce this year,’ Brookfield’s Mr. Kingston said.” READ MORE

SILICON VALLEY

A tech reporter binge-listened to tech podcasts for a week. What he learned about venture capital was a little scary: “I wanted to hear what these shows have to say about the VC mindset. They're designed to let tech investors and founders control their own narratives, free of annoying questions from journalists like me, but they also promise a kind of education — in investing, in entrepreneurship and innovation, in business. So with the help of some expert colleagues, I put together a list of about a half dozen of the most popular and influential podcasts by tech investors — from ‘How I Built This’ and ‘The Pomp Podcast’ to ‘Acquired,’ ‘All-In,’ ‘The Twenty Minute VC,’ ‘This Week in Startups,’ and — and put my ears toward figuring them out.”

• “On ‘This Week in Startups,’ Jason Calacanis explained to his cohost Molly Wood that some venture-investment contracts feature a provision known as a liquidation preference, which enables the VC investors to profit even when a startup they've backed goes bust.”

• “The problem is, VC podcasts don't stick to the core issues of venture capital. When they attempt to address the wider world beyond their area of expertise, things get weird.”

• “On one episode of ‘This Week in Startups,’ explaining his philosophy of direct-to-consumer investing, Calacanis extolled the virtues of a company that makes gummy-candy vitamins, describing it as a ‘game changer’ for getting kids to take them. Which may be true, except that healthy children rarely need supplemental vitamins.”

• “For all of Silicon Valley's self-mythologizing around doing good in the world, the only thing that founders and investors seem to care about on these shows is doing good for themselves.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

‘I Like Recessions’: This week, Tracy Bech, who is CEO of Starboard Collectives and who specializes in helping business owners who don’t have a financial background—she was once one herself—talks about the two most important ratios for business owners to watch if they think we’re heading into a recession. She also talks about why she actually likes recessions, or at least sees opportunities in them. 

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren