'Businesses Can’t Afford to Say No' 

Today’s Highlights: There are still travel agents, and business is good. The chip shortage isn’t just affecting auto companies. Subway franchises are ‘dirt cheap.’

OPPORTUNITIES

With travel rules and restrictions constantly changing, travel agents are seeing a surge in business: “‘We have clients who are calling us from the 15-minute waiting period after their second vaccine shot,’ said Wendy Burk, founder and chief executive of Cadence, a La Jolla, Calif., travel agency. ‘They’re making sure they don’t have an allergic reaction, and they’re on the phone with their travel adviser saying, Book me now! Book me anything!’”

  • “‘Lots of people got burned last spring. They didn’t have an advocate to call the airline and get their airline tickets or their cruise credited,’ Ms. Burk said. ‘Now, the level of complexity needed to go on a basic trip has drastically increased. A client who, typically, would have planned on their own previously are looking to a professional to say, Please show me the ins and outs.’”

  • “‘We had two days in March where we broke records for the number of transactions booked in a single day,’ said James Ferrara, the president of InteleTravel, a 60,000-member global travel adviser network. ‘Our overall business is up 35 percent, not from 2020, which was an aberration, but from 2019, which was the highest year we’d ever had.’” READ MORE

ECOMMERCE

Amazon reportedly uses its dominance in one market to impose terms on businesses in other markets:  “Amazon.com last year told smart-thermostat maker Ecobee it had to give the tech giant data from its voice-enabled devices even when customers weren’t using them. The Canadian company said no. The smaller company feared that complying with the demand would violate customer privacy, said a person familiar with the episode. Ecobee’s devices work with Alexa, Amazon’s voice-powered assistant, and it already shared some data with Amazon, the person said. Moreover, the company worried Amazon would glean insights from Ecobee’s users that it could use in competing products. Amazon responded that if Ecobee didn’t serve up its data, the refusal could affect Ecobee’s ability to sell on Amazon’s retail platform, the person said.”

  • “Amazon’s tactics, they said, go beyond typical product bundling and tough negotiating in part because the company threatens punitive action on vital services it offers, such as its retail platform.”

  • PopSockets took a break from selling on Amazon, estimating it lost $10 million in 2019 revenue from not selling on the site, then resumed sales there—without paying the extra marketing tab, Mr. Barnett said.”

  • “‘We are fortunate to have grown so fast and have a healthy business that we were able to say no and take a big hit and survive,’ he said. ‘Most businesses can’t afford to say no.’” READ MORE

The pandemic has helped Walmart in its competition for sellers with Amazon: “Walmart Marketplace grew to an estimated 70,000 sellers in 2020, fueled by a surge in online shopping due to the Covid-19 pandemic and a series of investments in technology and vendor relationships reported here for the first time. That is expected to rise 146 percent by the end of 2022, according to projections by data firm Marketplace Pulse that have not yet been published. The rapid growth is starting to stress the system, some merchants said, a growing number of whom worry that if the pace picks up, Walmart risks damaging its reputation as a haven for quality sellers. Reuters spoke with vendors from Walmart.com and Amazon, analytics companies that help merchants sell on both marketplaces, industry experts, consultants and executives.”

  • “‘A year or two ago, every brand on Walmart.com would be trustworthy but now it’s getting very similar to Amazon and that’s a huge risk,’ said Cal Chan, who sells supplements and skincare products on both Walmart and Amazon.”

  • “‘Amazon let everyone under the sun in—that helped them grow, but now they’re trying to clean up the riff-raff and it’s very hard to close Pandora’s Box.’” READ MORE

RETAIL

Do you have a post-pandemic channel strategy? “E-commerce is not new. Books.com was selling online when Jeff Bezos still worked on Wall Street. And even after decades largely free from sales taxes, e-commerce was just 11.4 percent of U.S. retail sales in 2019, a steady but very slow increase from 5 percent a decade earlier. In Q2 of 2020 (maximum lockdown conditions in the U.S. so far), online retail sales were 16.1 percent, a gain of less than 5 percent, and decreased to 14 percent by Q4. In fact, a pre-pandemic retail trend was the opening of brick-and-mortar stores by once pure-play e-commerce firms like Birchbox, Bonobos, Warby Parker, Wayfair, Amazon, and Alibaba (in China), among others.”

  • “Observers who view the online and physical worlds as ‘either/or’ have usually been wrong. In 2019, more than 1.2 billion movie tickets were sold in the U.S. — about the same as five years earlier.”

  • “Between 2009 and 2018, independent bookstores in the U.S. increased by 49 percent (from 1,651 to 2,470), despite Amazon.”

  • “Even within digital channels, sellers use multiple platforms. In 2019, almost 60 percent of U.S. Amazon marketplace merchants also sold on eBay; 47 percent also sold on their own sites; and about two-thirds (66 percent) also sold through brick-and-mortar stores.” READ MORE

THE 21 HATS CONVERSATION

It's not always about the marketing: A lot of business conversations start with the urgent question, How can I attract more customers? But sometimes, the real issues go deeper. Sometimes, before you can figure out how to sell, you have to figure out who you are. Join us for a conversation with two people who learned this lesson the hard way:  Shawn Busse, CEO of Kinesis, and David Nichols, CEO of Loupe. Bring your own questions!

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THE COVID ECONOMY

The global chip shortage is going to affect far more than just auto production: “Dan Rozycki, the president of a small engineering firm, worries about what a global semiconductor shortage could mean for curing concrete. Mr. Rozycki’s company, Transtec Group in Austin, Texas, sells small sensors that are placed where concrete is poured at building, highway and bridge construction sites. The gadgets take temperature readings and wirelessly send data so workers with computers can ensure the material is hardening properly. Like many other things in the modern world, from computers and cars to cash registers and kitchen appliances, the sensors require a couple of common, inexpensive semiconductors that have suddenly become a very scarce commodity. ‘Every month our product is getting more popular,’ Mr. Rozycki said. ‘But we may not be able to make it in several months.’”

  • “The capacitor shortage hurt production of a popular cellular modem. That modem, which normally sells for $10 to $20, spiraled to $200 on the spot market, Mr. Supalla said. Customers like car companies may be willing to pay such sums to keep producing $40,000 cars, Mr. Supalla said. But not all can.”

  • “‘It’s hell on earth right now,’ said Frank McKay, chief procurement officer at Jabil, which buys billions of dollars’ worth of chips each year to assemble products for customers that include Apple, Amazon, Cisco Systems and Tesla.” READ MORE

They sold all of the rental cars: “The sudden surge in post-vaccination travel is colliding with a relative shortage of rental cars. Rental-car companies sold a huge chunk of their fleets—hundreds of thousands of vehicles—to survive the pandemic. Now they can’t get cars onto their lots fast enough to meet the new demand, especially with car factories stalled by semiconductor shortages. Travelers report sky-high prices and sold-out dates even in non-beach destinations like Kansas City, Houston and Memphis. Even travelers with reservations complain that they now sometimes show up and, with no cars on the lot, must wait for a car to be returned and cleaned before they can drive off.”

  • Hertz, heavily dependent on business travelers at airports, suffered losses of $1.7 billion in 2020 and a 46 percent drop in revenue.”

  • “In financial reports, the company said the pandemic prompted it to reduce commitments to purchase vehicles by $4 billion, and to dispose of leased and owned cars.”

  • “Mr. Abrams, president of Abrams Consulting Group, thinks it will be the second half of next year before major auto-rental firms have supply back in balance with demand.”

  • “He also thinks travelers need to get used to paying more for car rentals, even when the imbalance eases.” READ MORE

Retail sales surged in March: “U.S. shoppers boosted retail spending by nearly 10 percent in March as federal-stimulus funds made their way to households, warmer weather set in and the economy reopened more fully from pandemic-related restrictions. Retail sales—a measure of purchases at stores, at restaurants and online—jumped 9.8 percent last month, the Commerce Department reported Thursday. The increase was the largest monthly gain since last May, during the initial bounce back from lockdowns early in the pandemic.”

  • “Scott Allen Frost, president of Las Vegas-based Titan Brands Hospitality Group, said the rollout of stimulus funds to households last month coincided with a relaxing of state mandates that allowed restaurants, including the three he oversees, to operate at increased capacity.”

  • “‘You couldn’t have timed March better,’ Mr. Frost said. ‘All this pent-up demand came roaring back.’” READ MORE

HUMAN RESOURCES

Dollar General plans to hire 20,000 workers: “The company said Wednesday it's looking to hire full- and part-time workers in stores and distribution centers, as well as drivers for its private-trucking fleet. Dollar General does not disclose its minimum wage for workers, but says it provides ‘competitive wages and benefits.’ Dollar General has more than 17,000 US stores and employed 158,000 as of February 26. The chain has thrived in the past decade and is opening 1,050 stores this year, similar to the number of stores it has opened in each of the past several years. This latest hiring spree will expand Dollar General's workforce by 13 percent.”

  • “Although many retailers struggled during the pandemic, Dollar General boomed as economically strapped shoppers turned to discount stores for food and household essentials.” READ MORE

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FRANCHISING

Subway operators are unloading stores dirt cheap to get out of leases and ownership: “Many Subway operators have amassed dozens of stores, made possible by historically cheap franchise investment costs. Initial investment costs are $139,550 to $342,400, according to Subway's 2020 disclosure document. For comparison, Jimmy John's requires $313,600 to $556,100 in initial investment costs, and McDonald's costs are $1.3 million to $2.3 million. But as the distressed sandwich chain lays off hundreds of corporate staff to cut costs amid rumors of a company sale, franchisees and experts say investing in a Subway outfit comes with big risks these days.”

  • “‘Franchisees, in general, are extremely disgruntled,’ one current California franchisee said.”

  • “A Subway franchisee from the Midwest told Insider: ‘Anybody that wants to buy into any kind of restaurant franchise probably needs to have their head examined. I can't think of a worse category to really look at.’”

  • “‘With that said, I think there's actually some real bargains out there in the Subway world right now.’” READ MORE

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THE 21 HATS PODCAST

Episode 57: Dana White Decides to Franchise Paralee Boyd: This week, Dana White informs Jay Goltz and Stephanie Stuckey that she has begun the process of franchising her hair salons across the country, and perhaps the world. Why did she choose to franchise? As she explains, she does have concerns about controlling the culture in franchised locations, but she believes this is her best opportunity to grow. Interestingly, when Stephanie took over Stuckey’s in 2019, she bought a franchise business that she says had lost control of its franchisees, which is why she’s now moving in the opposite direction.