Car Parts, Computer Chips, Sunflower Oil
The invasion of Ukraine is wreaking fresh havoc with the world’s already troubled supply chains.
Good morning!
Here are today’s highlights:
Despite rising prices, U.S. consumers are spending “with a vengeance.”
Corporations are raising prices and bragging about the profits.
Here’s a simple way to encourage better adoption of your CRM platform.
This is how Ikea breaks the rules of retail architecture—and gets people to buy more stuff.
THE RUSSIAN INVASION
A Ukrainian entrepreneur has been posting through the invasion:
Once again, José Andrés steps into the breach:
You can track the economic fallout of the sanctions here:
THE GLOBAL ECONOMY
The supply-chain challenges are reverberating: “The fighting has shut down car factories in Germany that rely on made-in-Ukraine components and hit supplies for the steel industry as far as Japan. It has severed airways and land routes that had become crucial since the pandemic began gumming up sea trade. The conflict is also bottling up Ukraine and Russia’s vast commodity exports, sending the price of oil, natural gas, wheat and sunflower oil rocketing. Shipping from Ukrainian ports, an important corridor for grain, metal and Russian oil shipments to the rest of the world, has all but ceased.”
“Economists and business leaders fear this will hit supply chains that rely on components and little-known commodities from Russia such as neon gas and palladium, important ingredients to make semiconductors.”
“The threat of rising prices on top of already high inflation adds another challenge for interest-rate-sensitive businesses: having to gauge whether the world’s central banks will accelerate their recent moves toward tighter money, or back off if they see a bigger risk to the global recovery.” READ MORE
PRICING
Corporate America is raising prices and bragging about the profits: “Companies are taking advantage of a moment of hot and seemingly unshakable demand — one in which consumers are spending ‘with a vengeance,’ to borrow the words of one executive — to cover rising costs and to expand their profit margins to pre-pandemic or even record levels. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last. If it pans out, that trend that could have big economic implications.”
“‘It’s a really very, very good constructive pricing environment that we’ve seen right now, probably the best in recent memory,’ Richard J. Kramer, the chief executive at Goodyear, said on a Feb. 11 earnings call.”
“The restaurant family that includes Outback Steakhouse, Bloomin’ Brands, is planning to raise prices about 5 percent across its brands to cover rising labor and food costs — and, by pairing that with efficiency improvements, it is managing to increase its profits.”
“The end of 2021 showed that ‘fresh premium sweet treat’ business like ourselves — we can manage that inflationary environment that you referenced with price increases,’ Josh Charlesworth, the chief operating officer at Krispy Kreme, said in a Feb. 22 earnings call. ‘We effectively ended the year with a double-digit price increase for the year in the U.S.’”
“Mr. Charlesworth said the company expected to expand profits in 2022.” READ MORE
A surge in shipping costs is on the way: “Yearlong freight contracts, which contribute up to three-quarters of annual revenue for ship operators, will largely be settled at the TPM conference in Long Beach, Calif., next week. The average price to move a 40-foot box from China to the U.S. West Coast is likely to be between $7,000 and $8,000, a record high for annual freight pacts and higher than last year’s average of around $5,500, according to executives of carriers and importers involved in the talks.”
“Spot prices to send a container from Shanghai to Los Angeles have since eased but continue to hover around $16,000, according to the Freightos Baltic Index, compared with about $4,700 a year earlier.”
“The shipping industry suffered a decade of steep losses after the 2008 financial crisis and began consolidating in 2016. The big carriers also formed three alliances where they share ships, port calls and networks, leaving little space for smaller players to compete.”
“‘With the alliances controlling capacity, there is no chance freight rates will fall off a cliff and return to pre-pandemic levels,’ Mr. Berglund said.” READ MORE
Prices are disappearing from online products: “When a holiday toy catalog from Amazon arrived in the mail in late October, Krista Hoffmann noticed something amiss. In 100 pages of Lego sets, princess castles, action figures and the impossible-to-find Sony PlayStation 5, the catalog presented just about everything — except the prices. ‘At first, I thought I wasn’t looking close enough, so I flipped through a few more pages,’ said Ms. Hoffmann, a stay-at-home mother of three children in Colorado Springs. ‘Then I realized, ‘Oh, this is intentional.’”
“In the early days of the internet, there was breathless excitement that e-commerce would lead to greater price transparency, allowing shoppers to know exactly where to find the best deals.”
“This was supposed to be good for consumers and bad for retailers forced to compete with one another in a profitability-killing race to the lowest prices.”
“Instead another reality has emerged: Shoppers are losing sight of what things cost.” READ MORE
SMALLBIZ TECHNOLOGY
Gene Marks says there’s a simple way to improve your team’s CRM adoption: “The problem is solvable and here’s a simple way to fix it: focus on reports. Get rid of your spreadsheets. Eliminate your email updates. Cut back on your weekly meetings. Stop filling out forms. Replace all of that with your CRM data. Emphasize the output and you’ll find yourself getting the right input. What kind of output? My best clients who get the highest level of adoption use reports as their weapon for doing so. The reports can be automatically generated and sent by email. Or in dashboards. Or retrieved on a mobile device. Or — old school — printed out and reviewed. Regardless, it’s about the data. And these are the most popular reports that my best clients use.”
“The Pipeline Report: This is a report of all open opportunities. It shows the date created, contact information, potential value and the probability of closing the deal.
Rule of thumb: it’s a 50 percent probability when a quote is issued, 90 percent when accepted — which allows for potential back outs — and 20 percent for when a prospect cools down and doesn’t respond to your phone calls and emails.
“The Activity Report: This report is used by sales and service managers as a way to look into the future, especially for under-performing employees. Where are they spending their time? How are they spending their time? What appointments are scheduled and with who? Are these prospects worth it?” READ MORE
RETAIL
Here’s how Ikea breaks the rules of retail architecture (and gets customers to buy more stuff): “Most companies use store layouts that give customers the freedom to explore at their own will. Commonly used configurations — grid, racetrack, freeform, and spine — don’t have defined routes: You can wander down any aisle you please, in any order you want. Ikea breaks all of these rules. Inside, customers are led through a preordained, one-way path that winds through 50+ room settings. The average Ikea store is 300,000 square feet — the equivalent of about 5 football fields — and their typical shopper ends up walking almost a mile. Want a lamp? You’re going to have to walk past cookware, rugs, toilet brushes, and shoehorns to get there.”
“It forces wider product exposure: At most retail shops, customers only lay eyes on ~33 percent of all the items for sale; Ikea’s layout herds shoppers past its entire catalog.”
“It creates a false sense of scarcity: When shoppers pass by items they’re on the fence about, they’re inclined to just put them in the cart because they don’t want to backtrack through the maze later on.”
“It’s estimated that 60 percent of Ikea purchases are impulse buys. And Ikea’s own creative director has said that only 20 percent of the store’s purchases are based on actual logic and needs.” READ MORE
FINANCE
Credit services are going to start tracking buy-now-pay-later purchases: “Starting Feb. 28, Equifax said it would begin recording the popular ‘pay-in-four’ installment loans, which have attracted millions of shoppers but have largely gone untracked by traditional credit-reporting methods. The move is part of a larger effort by all three major credit bureaus to offer lenders a wider view of a borrower’s financial obligations.”
“The convenience of these plans, as well as the hazy or nonexistent credit implications, have been part of their appeal, analysts say.”
“Last year, buy-now-pay-later transactions were projected to hit $55 billion, according to payments consulting firm Mercator Advisory Group.” READ MORE
HUMAN RESOURCES
Big tech companies are moving from offering stock grants to just handing out cash: “Alphabet, which owns Google, adopted a new cash bonus plan in October that lets the company give employees bonuses of nearly any size for nearly any reason. Amazon said this month it doubled its cash-pay cap for employees. Some cryptocurrency and nonfungible-token startups are offering pay packages with larger cash components than long-established tech companies in the hunt for workers, according to some tech recruiters.”
“Tech companies have long competed to siphon engineering and software programming talent from universities and smaller companies.”
“Engineers are frequently telling their bosses that they are exploring their options or have received an offer to work elsewhere, said Sherveen Mashayekhi, chief executive officer of Free Agency, a firm that advises tech employees on career transitions.”
“‘Bosses who usually leave this to HR or recruiters are panicked, saying, ‘A lot of my team is in a job search,’ Mr. Mashayekhi said.” READ MORE
THE 21 HATS PODCAST
We Don’t Have a Brand: This week, Paul Downs talks about why furniture makers traditionally have not stamped their names prominently on their work—and why he’s rethinking that now. That change of heart is the direct result of Paul’s unlikely experience connecting two very different businesses: One a Mennonite company manned by master craftsmen, and the other a startup manned by tattooed hipsters with a mastery of Kickstarter. In this conversation, Paul explains what he’s up to and also talks about how close his business came to failing, how he plans to double his revenue, why he’s thinking about trying TikTok, and how he feels about his son’s success in the alternative reality of venture-backed startups.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
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