‘Emotion Always Trumps Price’
American corporations are not holding back on price increases. What does that mean for you and your business?
Here are today’s highlights:
An Elvis impersonator in Las Vegas says the convention business has never been so good.
As digital-marketing costs increase, brick-and-mortar retail continues to strengthen.
The Great Resignation may be over, at least for now.
Why a successful Airbnb entrepreneur is having second thoughts about what she does.
Some of this week’s Morning Reports may be a little shorter than usual. That’s because we’re holding the first 21 Hats in-person event in Chicago, starting with dinner Wednesday and running through lunch Friday. We’ll be breaking bread, touring Jay Goltz’s operation, taking an architectural cruise, and talking business. We’re planning to do more of these events, so if you have a location to suggest, please let me know.
Today’s Dashboard podcast with Gene Marks will be published just a tad later than usual: In it, Gene and I talk about why the Great Resignation, the metaverse, and government regulation may all be things of the past.
“You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Conferences are back: “The thousands of construction workers, business owners, and suppliers who thronged [Las Vegas] in March helped its conferences pass a major milestone: their biggest monthly attendance since before the pandemic. Nearly 140,000 of them flocked to ConExpo, the nation’s largest construction industry event, where they could check out the latest excavators and cranes, network, and eat barbecue together. This marked the first ConExpo since it closed early three years ago when fear of Covid-19 halted most big, in-person gatherings.”
“Now, convention halls here and across the country are filling up again, restoring a vital source of economic fuel that had been cut off during the pandemic and was slow to recover in many cities. The Events Industry Council, a federation of meeting-industry trade groups, said its indexes that track conference and hotel demand in North America surpassed 2019 levels in the fourth quarter.”
“‘It’s a feast for the eyes,’ said Kris Guetterman, the owner of an excavation company in Bucyrus, Kan., who said he spent $1,500 to fly to Las Vegas to look at new equipment, including a material loader that sells for $80,000 or more. ‘Everyone brings their biggest toy. Their biggest product. Their most high-end thing.’”
“‘In 32 years, it’s the busiest it’s ever been,’ said Elvis impersonator Jesse Garon, who performed for a crane-parts supplier at ConExpo. ‘I didn’t know it could get this good.’” READ MORE
Corporate America is raising prices aggressively: “Companies continue to jack up prices on a range of goods from diapers to handbags—and some are even bragging about it to investors as a sign of brand strength. In some cases, the increases more than cover the hit from higher raw material, labor, and other costs, fattening profit margins. The price increases come as inflation is moderating and a weakening economy foreshadows a potential pullback in consumer spending. U.S. household spending rose in March from the prior month, but growth is tapering, suggesting that the pain of higher prices is starting to take a toll.”
“Walt Disney CEO Robert Iger said the company lost an insignificant number of subscribers in the U.S. and Canada after it raised prices on the ad-free tier of its Disney+ streaming service. The service now costs $10.99 a month versus $7.99 before. Mr. Iger said the company plans to raise prices further later this year ‘to better reflect the value of our content offerings.’”
“More than halfway through the first-quarter earnings season, the net profit margin of companies in the S&P 500 has clocked the first increase after six quarters of sequential declines, suggesting that price increases are helping to offset rising costs.”
“The average price consumers are paying for a Coach handbag is up about 30 percent over the past three years, the company said. [Joanne Crevoiserat, chief executive of Tapestry, which owns handbag and apparel brands Coach and Kate Spade] noted that one of Kate Spade’s most popular styles is a nearly $500 handbag that looks like a sheepdog.”
“Coach CEO Todd Kahn said that some of the brand’s smallest bags cost the most, because they are on trend and in demand by consumers. ‘Emotion always trumps price,’ he said.” READ MORE
Primark, one of Europe’s fastest-growing retailers, is bringing its online-shunning model to the U.S.: “Primark has attracted cult-like status across the Atlantic, where it is known for its large physical stores stacked with bargain-price clothes. The brand has garnered the nickname ‘Primani,’ as in Giorgio Armani, for its marriage of fashion and everyday price tags. The Dublin-based chain thinks that formula will drive American sales, too. ‘There is nobody who is doing what we’re doing around price, quality, and value,’ said Kevin Tulip, Primark’s U.S. president, throwing down the gauntlet to Walmart, Target, and others in low-price clothing. The company is also vying for shoppers with online-fashion retailers such as Shein.”
“Primark first entered the U.S. in 2015, opening a store in the Downtown Crossing shopping district of Boston, once the home of another go-to place for bargains, Filene’s Basement. Since then, Primark has gradually opened other stores, selling women’s jeans priced at $16 to $22, dresses at $10 to $25, and men’s shirts from $14 to $28.”
“Cavernous and brightly lighted in the brand’s trademark white and neon blue color scheme, Primark stores often take up several floors and feature homeware and beauty products alongside racks of low-price clothing. In recent months, Primark has been accelerating its U.S. rollout, aiming to grab a bigger slice of a retail market worth around $7 trillion.” READ MORE
Commercial real estate is in the doldrums, but retail real estate is doing surprisingly well: “Buoyed by strong retailer demand and low levels of new construction in recent years, vacancy at U.S. shopping centers fell to 5.6 percent in the first quarter, the lowest level since real-estate services firm Cushman & Wakefield began tracking in 2007. The average rent landlords asked for available shopping-center space also reached an all-time high in the quarter that ended March 31. After years of shunning bricks-and-mortar in favor of e-commerce, even companies that started online have been signing leases. Helping drive the move, retailers said, is the fact that rising digital-advertising costs are making it more difficult and expensive to attract new customers online.”
“Warby Parker’s executives, for example, said that when the company opens a physical location in a new market, online sales in the area roughly triple. Long term, they believe they could operate at least 900 U.S. stores.”
“Behind the leases Warby Parker signs, for example, are years’ worth of data about where the retailer’s customers live and work. ‘That’s a massive advantage of starting online,’ said co-CEO and co-founder Dave Gilboa. ‘We know where all of our customers are ordering home try-ons or they’re making their purchases.’”
“This data helped persuade Warby Parker to enter Miami’s Wynwood neighborhood, where it signed an 18-month lease in 2015. The area was gritty and didn’t have much retail, but the founders knew it was a magnet for young people who frequented its burgeoning bar and restaurant scene.” READ MORE
Groupon issued a warning that it could be insolvent within a year (surprising many who didn’t know Groupon was still in business): “The onetime Chicago tech unicorn, which has been downsizing and retooling amid declining revenues, had a net loss of $29 million in the first quarter and about $164 million in cash left as of March 31, according to a filing with the Securities and Exchange Commission. Last year, Groupon used up $136 million for operating activities, meaning belt-tightening and revenue-generating measures will have to take hold soon to keep the online marketplace known for discounts on laser hair removal, kickboxing classes, doughnuts, and other deals open for business.”
“‘We recognize that turning our business around is going to be tough and that it won’t happen overnight,’ interim CEO Dusan Senkypl told investors during the earnings call Wednesday. Groupon also disclosed it was terminating the lease at its massive River North headquarters next January — two years early.”
“In March, Senkypl, a Czech investor and Groupon’s largest shareholder, replaced Kedar Deshpande and took over as interim CEO at Groupon. Senkypl, who built a 22-percent stake in the company, entered into a standstill agreement as part of his appointment, capping his stake at 25 percent for one year.
“Senkypl outlined the eight-point transformation strategy during the earnings call, and in a letter to shareholders. The goal is to follow the path of a Groupon clone in the Czech Republic which successfully transformed from a ‘daily-deal discount flash site to a destination experience marketplace,’ he said in the letter.”
“Topping the to-do list is fixing the supply-side of the marketplace by attracting and retaining local merchants with more flexible online offerings. The process of transitioning merchants away from the heavily discounted daily deals format will take at least 12 months, Senkypl said.” READ MORE
The Great Resignation is officially over: “Americans started job-hopping in earnest in 2021 and stayed strong through 2022. Between June 2021 and December 2022, over 4 million Americans quit each month. But the labor market has changed. The share of Americans quitting their jobs has broadly been declining, according to Bureau of Labor Statistics data. The monthly job openings rate has also been sliding. ‘The days of a quits rate near 3 percent are behind us, or at least for the foreseeable future,’ Nick Bunker, the head of economic research at the Indeed Hiring Lab, told Insider.”
“Richardson pointed out in her post that 2022 saw the largest job quits level on record at least since the Bureau of Labor Statistics started tracking that data over two decades ago. While there's only three months of data available so far, quits in 2023 are much lower than they were in the first quarter of 2022.”
“‘The great resignation, as it came to be known, was fueled by abundant job opportunities, labor shortages, and big pay increases for workers who quit one job to take another,’ Richardson wrote. ‘A year later, all three of these dynamics are abating, and the great resignation itself is looking like a thing of the past.’” READ MORE
A little-noticed part of the Republican debt-ceiling bill could render regulation all but impossible: “The legislation would require Congress to approve [regulatory] actions before they go into effect, under a fast-tracked legislative process that would force up-or-down votes on the rules without any possibility of amendment. Any major rule that failed to pass both houses of Congress could not be proposed again for at least a year. Current law allows Congress to upend a regulation it does not like, but the process requires majority votes by both houses of Congress, and a signature by the president, meaning nearly all regulations go into effect.”
“The legislation to change this default was first written more than a decade ago by Geoffrey Davis, then a Republican congressman from Kentucky. Mr. Davis, who came from a business background, was concerned about the number of high-cost regulations he saw approved while he was in government.”
“Supporters of Mr. Davis’s idea, known as the REINS Act — for Regulations from the Executive in Need of Scrutiny — say it would force Congress to take more responsibility for being clear about what its laws mean. Mr. Davis said he felt that Congress had too often written vague laws that delegated too many important decisions to executive agencies to decide.”
“‘The practical impact of this in a time of divided government like we have now is that I think no major rule would ever get done,’ said Jonathan Siegel, a law professor at George Washington, who has written about the bill at length.” READ MORE
Is Texas going to reverse its clean-energy miracle? “Because the Texas energy system is so large and central to the American economy, we all have a shared stake in its energy success. When the Texas grid goes down, Atlanta might not get jet fuel. When Texas gas production freezes up in winter storms, a surprisingly frequent phenomenon, fuel prices spike in Minnesota. And because Texas is by far the nation’s largest emitter of greenhouse gasses among the states, the country cannot decarbonize its economy without Texas. The Lone Star State has seen rapid growth not only in oil and gas production but also in wind and solar generation, a boom that has been justly called the Texas Miracle. But now reactionary forces in the Texas Legislature want to turn the clock back to the days before the state became a national leader in producing electricity from solar and wind power.”
“The rapid development of large-scale wind and solar power generation has helped push a rapid decarbonization of the Texas economy (and the national one) while lowering consumers’ energy bills. It has also reinvigorated rural economies by raising prevailing wages, reloaded the coffers of county governments and school districts with tax revenues from renewable power plants and provided landowners with handsome royalties as developers construct new wind and solar farms.”
“Now Texas stands to benefit more than any other state from the recent federal Inflation Reduction Act and Infrastructure Investment and Jobs Act. Tens of billions of dollars of new clean energy projects have been announced in Texas, which will further boost the state economy while accelerating cuts in emissions. That is, unless the Texas political leadership gets its way.”
“This is a ‘radical departure,’ as Locke Lord, a national law firm active in the energy business, put it, for a state that ‘has long prided itself on a regulatory climate that is business-friendly and encourages, rather than stifles, economic development.’” READ MORE
An Airbnb entrepreneur becomes a crusader for affordable housing: “When Precious Price bought her first home four years ago in Atlanta while working as a marketing consultant, she took advantage of her frequent business trips by renting out her house on Airbnb during her absences. ‘I knew I wanted to use that as a rental or investment property,’ she said. ‘I began doing that, and it was honestly very lucrative.’ For Ms. Price, 27, and other young entrepreneurs of color, online short-term rental platforms like Airbnb and Vrbo represented a path to building wealth on their own terms.”
“Some of these entrepreneurs see it as a more equitable alternative to corporate America, with its legacy of institutionalized bias and inflexibility toward caregivers and working parents. Others are motivated by the desire to cater to Black travelers, who say they still face discrimination even after platforms like Airbnb promised to address issues like documented cases of bias.”
“Ms. Price became an evangelist of sorts, establishing social media channels to teach other would-be entrepreneurs how to follow in her footsteps, and churning out a digital library’s worth of videos, tutorials and advice using the handle @AirbnbMoney.”
“She even added to her portfolio, buying a second house and renting several furnished apartments in Atlanta’s popular Midtown neighborhood, and she eventually left her consulting job to manage her rental business full time.”
“Then, the distressing messages started to come. First one or two, then too many to ignore: a litany of increasingly distraught calls and emails from people who didn’t want her Airbnbs for a weekend away — they were in desperate need of a place to call home.” READ MORE
THE 21 HATS PODCAST
I’m Not a Real CEO: This week, Jay Goltz, Liz Picarazzi, and Sarah Segal talk about the inherent conflicts between being an entrepreneur and being a CEO—and the different skill sets each role requires. Does it make sense for the same person to do both jobs? Is being CEO even a full-time job? And when does it make sense to replace yourself as CEO? Liz says she’s thought about it. Jay, not so much: “Could I have found somebody 10, 15, 20 years ago that was a better manager? Sure. But it just wasn't worth it.” Why not? “It's gonna cost you $250,000 a year,” Jay says. “Is it worth paying that?” Plus: Liz and Sarah talk about positioning a company to be acquired. And Sarah proposes a PR campaign for Liz’s package bins right on the spot.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren