Even Struggling Businesses Are Hoarding Labor
“I felt very strongly that even though business is slow, my staff is the backbone of our restaurant and should be paid.”
Here are today’s highlights:
Luxury brands are testing the limits of price hikes.
There’s a reason we don’t have enough truck drivers.
How one business owner splits the difference, paying salespeople with both salary and commission.
In today’s 21 Hats Dashboard: Are Philadelphia’s restaurants suffering more because they can’t seat the unvaccinated? Or is it because they can’t keep their customers and employees healthy?
THE COVID ECONOMY
There’s a wedding boom coming this year, the biggest in decades: “Roughly 2.5 million weddings are expected to happen this year, the most since 1984, according to the Wedding Report, a trade group that gathered its data through a survey of vendors and consumers. And the events that are not 2020 or 2021 reschedules — the majority — are likely to be dominated by couples who got engaged during the pandemic.”
“[Shane McMurray, the Wedding Report’s founder] anticipates that the average cost of a wedding in 2021, around $22,000, will rise to just under $25,000.”
“At Brooklyn Winery, a popular wedding venue in New York, bookings have picked up ‘aggressively,’ said its chief revenue officer, Rachel Sackheim.”
“‘What we have left on the calendar for this year is scarce,’ she said. Mostly, that’s a relief. ‘The last two years have been so challenging. This boom is reinvigorating.’”
“‘People should realize that this is not growth in the industry, it’s just pent-up demand,’ Mr. McMurray said.” READ MORE
Luxury brands are testing the limits of price hikes: “Luxury companies have been taking advantage of surging demand to reposition their brands as even more exclusive and costly, according to industry executives and analysts. The practice predates the pandemic, but has received a renewed push in the past year as shoppers, emerging from pandemic-induced lockdowns, have snapped up high-price handbags, shoes, jewelry and other items. ‘All the luxury industry is raising prices,’ John Idol, the chief executive officer of Capri Holdings Ltd, owner of Michael Kors, Jimmy Choo and Versace, told analysts recently. ‘We’ve seen absolutely no consumer resistance to any of the price increases that we have taken, and there will be more.’”
“Chanel’s small Classic Flap bag was always a luxury item, but after three price hikes last year, it is selling for $8,200. That is up from the $5,200 it cost in 2019.”
“Chanel’s new prices put it more in line with Hermès, whose Birkin and Kelly bags have waiting lists despite prices that run into the tens of thousands of dollars.”
“‘As much as some people are upset at Chanel’s price increases, they are still buying,’ Ms. Mahoney Dusil said. ‘As the price goes up, it becomes unattainable for some. But the core customers won’t be priced out.’” READ MORE
To combat inflation, HBR suggests employing “precision pricing” with enterprise profit management software: “EPM brings digital precision to pricing. It’s a SaaS software process that generates full, all-in P&Ls for every transaction in a company. Because the costs are sourced directly from a company’s general ledger, they’re precise, timely, and accurate. This enables managers to replace traditional standard costs, which were created before today’s digital era, with actual costs that reflect a company’s true cost picture and are updated periodically (usually monthly). Because each transaction has a set of identifiers like customer, product, vendor, store, date, and so on, the EPM system can create an accurate, current profile of customer profitability using actual, current costs.”
“Profit peaks: Their high-revenue, high-profit customers (typically about 20 percent of the customers that generate 150 percent of their profits).”
“Profit drains: Their high-revenue, low-profit/loss customers (typically about 30 percent of the customers that erode about 50 percent of these profits).”
“Profit deserts: Their low-revenue, low-profit customers that produce minimal profit.” READ MORE
When omicron hit, many businesses that lost revenue decided not to lay off employees: “‘Businesses are hoarding labor,’ said Mickey Levy, chief U.S. economist at Berenberg Capital Markets. ‘With such an extraordinarily tight labor market, businesses just didn’t want to lay people off because the cost of searching around and finding new employees is very high.’ In New York, Sarita Ekya kept paying all 11 full-time employees at her Manhattan restaurant, S’MAC (which stands for Sarita’s Macaroni & Cheese), even while it was closed in late December and early January because of an omicron outbreak.”
“‘I felt very strongly that even though business is slow, my staff is the backbone of our restaurant and should be paid,’ she said. ‘You hear of businesses struggling to find help, but many of my employees have been working here for a decade, and I want to keep them.’”
“She has found creative ways to keep workers busy when sales are slow, by building up the restaurant’s online shipping capabilities, for example, or revamping its basement. She’s hopeful that business will pick up again in the spring.” READ MORE
The labor shortage has heightened calls for foreign workers: “‘The pandemic offers a little taste of what we may be facing if demand is robust and we don’t have workers,’ said Pia Orrenius, a senior economist who studies immigration at the Federal Reserve Bank of Dallas. ‘We will see price and wage inflation, and growth will be choked off.’ Immigration is not going to make this problem go away, but it certainly could help,’ Ms. Orrenius said. If immigration had continued at a pre-pandemic pace, the economy would have two million additional foreign-born workers in occupations such as manual labor and computer science, according to a recent study by economists at the University of California, Davis.”
“Lower immigration from Mexico, traditionally the biggest source of new immigrants, has contributed to falling U.S. birth rates overall.” READ MORE
There’s a reason we don’t have enough truck drivers: “Until 1980, long-haul truckers were generally employed by regulated companies whose routes and rates had to pass muster with the Interstate Commerce Commission. Under the terms of the 1935 Motor Carrier Act, the ICC kept potential lowball, low-wage competitors out of the market. Drivers were also highly unionized, under a Master Freight Agreement between the Teamsters and close to 1,000 trucking firms. For which reasons, truck driving was a pretty damn good blue-collar job, with decent pay, livable hours, and ample benefits. The Motor Carrier Act of 1980 changed all that, scrapping the rules of the 1935 act so that startups, charging far less than the pre-1980 rates and paying their drivers far less as well, flooded the market. Facing that competition, established companies dropped their rates and pay scales, too. By 1998, drivers were making between 30 percent and 40 percent less than their pre-1980 predecessors had made.”
“According to the Bureau of Labor Statistics, following the steep decline in wages in the decades after the 1980 deregulation, trucker income has flatlined for the past 20 years.”
“The median income of long-haul truckers who are employees was roughly $53,000 in 2018; for contractors, it was $45,000—though drivers in both groups had to put in many more than 40 hours per week to reach these totals.”
“Over the past decade, dozens of lawsuits from misclassified drivers have resulted in judgments affirming that they’ve been misclassified and awarding them compensation from the companies that misclassified them. XPO recently paid a $30 million fine to a large number of its drivers.”
“But neither XPO nor any of the other fined companies have stopped misclassification. It’s cheaper for them to pay a fine than to pay their drivers a living wage.” READ MORE
Avocados are pricier than ever this year: “A 9-kilogram box of Hass avocados from the state of Michoacan, Mexico’s biggest harvester, cost 540 pesos ($26.23) Thursday, according to an index that measures prices from the region. For the time of year, it’s the most expensive in data going back two decades. Avocados typically see a price surge in the weeks before the Super Bowl, the biggest day for consumption in the U.S. But this year, demand is booming amid labor shortfalls, higher production costs and wage hikes that have plagued the broader economy. Food companies are betting consumers love the Super Bowl-favorite enough to pay up.” READ MORE
We got some interesting responses to our Saturday question—prompted by William Vanderbloemen—about paying sales people with commission or with salary, including this one from Jim Kalb who detailed what he does at Triad Components Group: “We pay about half of our staff on some kind of commission plan, where they are compensated based on monthly sales. The other half participates in a company profit-sharing plan. The commission-/profit-sharing programs are in addition to the team member's base salary which is fairly competitive with a similar position at another company.”
“Commissions are always calculated using the gross profit (GP$), not sales (this encourages the salesperson to sell at the highest margin) nor on net profit (since they have no real say in overhead costs).”
“A baseline goal (bogey) is established for each member of the team when they start with the company based on the average GP$ being generated by their current accounts.”
“If they help to develop a new piece of business, then they are paid a commission on this business as long as they are with the company. Effectively then, they are building their business within our business (which, if they are successful, binds them to the company for the rest of their career.” READ MORE
THE 21 HATS DASHBOARD
A Tale of Two Cities (Fort Myers and Philadelphia): This week, Loren Feldman and Gene Marks talk about whether a four-day work week is a benefit small businesses can use to lure employees. Plus: Is your website ADA compliant? And what do you do if you get a complaint that it’s not. Gene also talks about why he prefers Florida’s response to the pandemic to Philadelphia’s, which he says is killing the city’s restaurants. But are Philadelphia’s restaurants suffering because they can’t seat the unvaccinated? Or is it because they can’t keep their customers and employees healthy?
You can find Dashboard in your 21 Hats Podcast feed.
If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren