Can You Make a Wrench in America?

The Craftsman factory’s system was supposed to produce tools so efficiently that costs would match those in China.

Good Morning!

Here are today’s highlights:            

• Dashboard: Gene Marks says blue states are unleashing a tsunami of regulation.

• As the UPS strike deadline nears, retailers are growing concerned.

• The uncertainty of hybrid work is driving demand for coworking space.

• Harry Elston reminds that heat stress is real and offers a free online tool to manage the risk.

MANUFACTURING

America’s largest tool company couldn’t figure out how to make a wrench in America: “Stanley Black & Decker built a $90 million factory on the edge of Fort Worth, Texas, intending to burnish the Made-in-the-U.S.A. luster of the Craftsman brand by forging mechanics’ tools with unprecedented efficiency. But the automated system was a bust, and the tools that were supposed to be pumped out by the million are so hard to find that some consider them collector’s items. In March, 3½ years after breaking ground, Stanley announced it was closing the factory. The property is now being advertised for sale. The Craftsman plant was a high-profile example of a drive among U.S. manufacturers to bring offshored plants back home. Government incentives and a desire to shorten supply chains have sparked a factory-building boom.”

• “The high cost of American labor makes automation critical for plants to turn a profit. Turning manual tasks over to machines, which are supposed to churn out goods with minimal human involvement and maximum productivity, poses its own challenges.”

• “The Craftsman factory’s first-of-its-kind system was supposed to make tools so efficiently that costs would be on par with China, but ex-employees said it had problems that couldn’t be fixed before the company decided to pull the plug.”

• “‘It was supposed to be different,’ said Tom Felty, who worked in the factory as an electroplating engineer. ‘It was supposed to be bringing the Craftsman brand back. It was all these new technologies. It’s why I moved from North Carolina to Texas to be a part of it, and it was an absolute disaster.’” READ MORE

THE 21 HATS PODCAST: DASHBOARD

A Tsunami of Regulation: This week, Gene Marks tells Loren Feldman that it’s hard enough trying to run a small business in 2023, but just try running one in a blue state, where he says businesses have been subjected to a tsunami of regulation mandating things like paid time off and safe working conditions. Gene also talks about what’s going to happen to all of that unused commercial office space and whether there’s any reason for businesses to try out the new Twitter clone, Threads.

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

RETAIL

Retailers are getting worried about the looming UPS strike: “UPS and the Teamsters union are getting closer to the July 31 deadline to agree to a new contract before 340,000 workers go on strike, and retailers are getting worried about a new round of supply chain chaos just as the scars of pandemic-driven disruptions have largely healed. Union drivers represent half of UPS’s workforce. The Retail Industry Leaders Association (RILA), whose members include Target, Home Depot, and CVS, released a statement on Wednesday noting they are ‘growing increasingly concerned’ over the looming strike, and that ‘uncertainty is like kryptonite for supply chains.’”

• “There’s only so much prep retailers can do if UPS workers strike on August 1, according to RILA’s statement, especially ahead of the back-to-school and holiday shopping seasons. After years of supply chain upheaval, retailers are reluctant to ‘stress-test contingency plans again,’ they said.”

• “A 10-day strike would cost the economy more than $7 billion, making it the costliest strike in 100 years, per a report by Anderson Economic Group.” READ MORE

Even dying malls have something to sell: “For those of a certain generation, the mall was where you went on your first date, bought your prom dress and worked your first job. Lakeforest Mall in Gaithersburg, Md., recently offered people a chance to take home some of that nostalgia. In March, the mall closed after more than four decades and auctioned off its contents, including a giant stuffed bear, a 9-foot-tall Statue of Liberty replica and a canoe. Kathy Lynn spent her 20s shopping at the Lakeforest Mall. She even volunteered one year to be the Easter Bunny, when she posed for photos dressed in a bunny suit with parents and children. During the online auction, Lynn, 62 years old, bid $510 for 19 wire leaf sculptures that had hung in the food court. She plans to use them to decorate a flower shop she owns in nearby Laytonsville, Md. ‘It’s very cool that we have something from Lakeforest where we spent so much time before we started shopping online or at Target,’ she said.”

• “Mall owners have tried to retain shoppers by adding gyms, grocery stores, theme parks and even, in some cases, making them pet friendly. While some malls—generally with upscale tenants in wealthier locations—are thriving, many others continue to disappear.”

• “Over the years, the ice skating rink was replaced with a movie theater, and the movie theater with a food court. The gurgling fountain at the center was boarded up and stores started disappearing one by one. Hecht’s became Macy’s and then Macy’s closed along with other anchors such as J.C. Penney and Sears.”

• “The mall’s current owner plans to redevelop the property into apartments and office towers with retail stores and restaurants.” READ MORE

HUMAN RESOURCES

More businesses are relying on tipping to avoid paying higher wages: “Tip requests have spread far beyond the restaurants and bars that have long relied on them to supplement employee wages. Juice shops, appliance-repair firms, and even plant stores are among the service businesses now asking customers to hand over some extra money to their workers. ‘The U.S. economy is more tip-reliant than it’s ever been,’ said Scheherezade Rehman, an economist and professor of international finance at George Washington University. ‘But there’s a growing sense that these requests are getting out of control and that corporate America is dumping the responsibility for employee pay onto the customer.’”

• “Dan Moreno, founder of Miami-based Flamingo Appliance Service, decided in 2020 to add an option for customers to tip his employees, reasoning that his home-repair technicians were taking health risks by entering customers’ homes during the pandemic.”

• “About one-third of customers now leave a tip of between 10 percent and 20 percent, Moreno said. The requests add an average of $650 a year to his 182 technicians’ salaries, about 1 percent of their total yearly income.”

• “‘You wouldn’t believe the margins we operate with,’ he said. Competition for workers is fierce. Were he to eliminate the gratuity prompt, he said, he would have to raise prices beyond the 18 percent he already has, on average, since 2019—likely costing him clients.” READ MORE

OFFICE SPACE

Demand for coworking spaces is growing: “When Industrious opened its first coworking office in Miami, the outlook seemed bleak. The problem wasn’t the location, a 45,000-square-foot space at 1111 Brickell Ave. The issue was timing. The New York-based company entered the South Florida market in March 2020, right at the onset of the Covid-19 pandemic. ‘I think there was a point in time for everyone in almost every business that, unless they were selling face masks, was thinking, What is going on? What is happening?’ said Peri Demestihas, senior director of real estate for Industrious. But, some months later, the Brickell location’s occupancy not only improved, it prospered. ‘It was like a rocket ship,’ Demestihas said. ‘It gave me a lot of hope … a light at the end of the tunnel.’”

• “Aside from cutting commute times, more companies are flocking to coworking spaces because they’re more flexible than traditional office leases in the ‘tug of war’ between remote and in-person office work, said Philippe Houdard, CEO of Miami-based Pipeline Workspaces.”

• “‘A lot of business owners are coming to the realization that they just can’t force their employees to be at the office at all times, like in the olden days,’ he said. Rather than pay for unused space for years on end, companies can grow or shrink their spaces as managers try to figure out how often their employees will come in, he added.”

• “The amenities and services coworking companies provide, including furnishings and high-speed internet, is another big plus.” READ MORE

ARTIFICIAL INTELLIGENCE

Rural America is the new hotbed in the AI race: “On a rolling expanse of rural Ohio land, America's digital future is being sown. Last year, a partnership between the real estate investors Lincoln Property Company and Harrison Street purchased 190 acres in New Albany, a small city about 20 miles outside of Columbus where the pair plan to begin construction on a 200-megawatt data center by the end of the year. The project's neighbors include Google, Meta, Microsoft, and Amazon—all of whom have similar plans, or are already underway with major data center projects.”

• “The data center industry has long been clustered in a handful of well-established markets, primarily Northern Virginia, Dallas, Phoenix, Silicon Valley, and Chicago.”

• “But the emergence of places like New Albany shows how soaring demand and the sector's voracious appetite for energy is increasingly pushing data center developers and users throughout the country.” READ MORE

REGULATION

On Friday, Harry Elston, owner of Midwest Chemical Safety and a friend of 21 Hats, responded to a Wall Street Journal article that discussed when it’s too hot to work: “When is it too hot? The American Conference of Governmental Industrial Hygienists answered that question decades ago—at least for employers who care about their employees. Heat stress is a real issue in the workforce, and it does not necessarily mean outside in hot/humid weather. At the risk of shameless self-promotion, that's part of what I do for a living. My website has a free-for-use heat stress risk management tool available to help evaluate heat stress risk.” JOIN THE CONVERSATION

EMPLOYEE OWNERSHIP

Workers at Anchor Brewing, the oldest craft brewer in the U.S., are trying to buy the company: “The San Francisco-based brewer, founded in 1896, said last week it will close its doors after 127 years in business, citing economic pressures. Some of its unionized workers, however, want to keep the taps open by buying the company and making it an employee-owned business. Pedro de Sá, business agent at International Longshore and Warehouse Union Local 6, which represents some of Anchor’s employees, sent a letter Wednesday outlining the proposal to the president of Sapporo USA, the brewery owner. ‘We are not asking for a handout or charity. All we want is a fair shot at being able to continue to do our jobs, make the beer we love, and keep this historic institution open,’ said the letter, which was viewed by The Wall Street Journal.”

• “Sapporo USA didn’t respond to requests for comment. Sapporo Holdings, a Japanese beer company, acquired Anchor in 2017 for around $85 million. Sam Singer, a spokesman for Anchor, said roughly two dozen investors and individuals have expressed interest in buying all or some of the assets of the craft brewery, which traces its roots to the California Gold Rush.”

• “Workers need to move fast to get a strategy and financing lined up, said Trevor Gilmore, chief operating officer of the Menke Group, a financial firm that specializes in employee ownership transitions. Outright ownership isn’t the only option for Local 6 members, he said. The workers could potentially bid on key assets in liquidation—such as the physical Anchor building, as well as its brand—and then relaunch from there, he said.”

• “Anchor said in its closure announcement last week that employees were given 60 days notice and will receive severance packages ‘in line with company practices.’ Many craft breweries that have transitioned to employee ownership in recent years have found success, said Corey Rosen, founder of the National Center for Employee Ownership, a nonprofit research organization.” READ MORE

THE 21 HATS PODCAST: BONUS EPISODE

The Long Journey to Really Understanding ESOPs: If you’ve been listening to this podcast, you know that we’ve been taking periodic dives into the world of employee stock ownership plans. We started down this path because Jay Goltz was thinking about his own succession issues. In a series of podcast episodes and conversations and seminars over the course of more than a year, Jay progressed through the three stages of ESOP discovery: First, he had his eyes opened. (“Wait a second. If you’re an ESOP, you don’t pay taxes?”) Then he got a little euphoric. (“I think I can make more money owning 70 percent of the business than I do now owning 100 percent.”) And then he confronted what I’ve been calling the ESOP industrial complex—the big firm lawyers and consultants who sometimes seem inclined to make ESOPs as complicated and expensive as possible. (“They want to charge me a ‘success fee’ for finding a buyer even though they didn’t find the buyer.”)

That introduction to Big ESOP occurred at a conference that Jay and Shawn Busse attended in Portland and that left Jay convinced that ESOPs are probably right for a lot of people but not for him. And yet, it was also at the conference in Portland that Shawn and Jay met Phillip Hayes, who takes a decidedly different approach than the industrial complex gang. What immediately stood out about Phil, who calls himself The ESOP Guy and who has his own podcast, Journey to an ESOP, is that he doesn’t view his mission as selling owners on ESOPs. His goal is to help owners figure out which solution is best for them, whether that’s an ESOP or something else. Which is why Shawn and I decided to sit down with Phil and have a conversation about his approach. 

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

Thanks for reading, everyone. — Loren