From Retail to 'Medtail'
Landlords with vacant storefronts are turning to dentists and doctors to fill their empty space.
Here are today’s highlights:
Regulations in Des Moines and other cities are chilling entrepreneurship.
DoorDash is getting into finance with merchant cash advances.
Frustrated employers are searching for ways to lure employees back to the office.
Is it any surprise that dry cleaners are giving up?
THE RUSSIAN INVASION
Russia’s invasion of Ukraine brings fresh risk to a global economy already facing challenges: “The economic impact will depend on the scale of the fighting and the new sanctions that the U.S. and its allies have promised. Those penalties would come on top of the more limited sanctions the U.S., the U.K., and the European Union have already rolled out against Russia in response to the Ukraine crisis. Extensive fighting and sanctions that disrupted Russia’s energy exports would have an outsize impact on the European economy, given its heavy dependence on Russian gas. Some European banks and businesses also have extensive ties with Russia.”
“The price of oil surged above $100 a barrel and prices for commodities supplied by Russia such as aluminum and nickel that are key inputs into the automotive industry also leapt.”
“Wheat prices in the U.S. rose to their highest levels since July 2012 on Thursday. Russia and Ukraine are breadbaskets, exporting millions of tons of wheat to fragile economies in the Middle East including Egypt, Turkey and Lebanon.”
“Analyzing the impact of eight shocks that have hit the eurozone economy since September 2001, the economists concluded that businesses are first to react with cuts in investment spending, while households are slower to adjust spending, but when they do the impact is larger.” READ MORE
Here’s how Des Moines and other municipalities chill entrepreneurship: “Opening a brick-and-mortar enterprise during the Covid-19 pandemic presented challenges. But as [Sara] Hopkins moved forward with her project, she realized that her biggest obstacle was not the economic uncertainty that came with the pandemic, but City Hall. Des Moines requires aspiring entrepreneurs to navigate a long, complex and expensive approval process that shuts down many ventures before they get started. ‘It felt like the rules were designed to make it difficult for someone like me to start up,’ Hopkins says.
“The study, published Feb. 8, 2022, analyzes city codes and startup requirements for five common business types in 20 U.S. cities, including Des Moines.”
“Opening a restaurant, for example, is a 66-step process in Des Moines. When diagrammed, the flow chart looks like a tangled mess. Those who attempt the feat must fill out 12 forms, pay 10 fees, make eight in-person visits to government offices, and interact with six different city and state agencies.
“Opening a barbershop is similarly daunting. The process involves 64 steps, 11 forms, 11 fees, nine in-person activities and six different agencies.” READ MORE
Lending expert Ami Kassar explains why he deleted DoorDash from his phone: “DoorDash has recently gotten into the merchant cash advance business. Based on my cursory research, it appears to be the lone third-party delivery service breaking into this kind of financing business. For the uninitiated, merchant cash advances are a way for small businesses to get cash fast, as the services typically extend money to companies based on their potential future sales. So if the business closes, the financier is out of luck, as these arrangements typically don't require personal guarantees of collateral unless stated otherwise in the contract. Sounds like a good deal, right? Not quite. I've seen personally how quickly these arrangements can turn into a debt trap that can decimate small businesses.”
“The company offers to ‘advance’ you $100,000 and says that at the end you'll owe them $130,000. There is no interest rate but there is a fixed daily or weekly fee that is calculated based on your historical sales (which is why the fee is not advertised but is usually around 8 percent, 10 percent, or 12 percent).”
“In this case, the company has historically had around $4,200 in sales a day, meaning its account would automatically be debited $500 a day. The expectation is that it will take you a year to pay back the money. Without requiring collateral or personal guarantees it would seem DoorDash—or any other merchant cash provider—is defenseless if you close up shop, but that's not the full story.”
“When calculating these advances as an APR, they can quickly skyrocket into double and triple digits (this one being 76.92 percent). The high costs combined with the daily/weekly repayment schedules can create major cash flow problems for a business. Often, small businesses soon need to take another advance, starting a debt cycle that is nearly impossible to escape.” READ MORE
Amazon has filed suit against two companies it says acted as fake-review brokers: “The lawsuits filed in King County Superior Court in Seattle accuse the companies, AppSally and Rebatest, of fostering fake reviews on Amazon’s online marketplace. The companies allegedly connected third-party sellers with consumers who would leave a positive review of their product, in exchange for free products or payments. The case represents Amazon’s latest effort to root out fake reviews on its sprawling third-party marketplace.”
“After providing AppSally with a link to their product, the sellers would ship out empty boxes and provide AppSally with photos to be included with a user’s review, according to the suit.”
“Sellers would allegedly pay for the service with the hope that it boosted their product in Amazon search results.”
“AppSally’s website allegedly promised sellers they’d be able to “outrank your competitors from your bedroom,” according to the complaint.” READ MORE
COMMERCIAL REAL ESTATE
In a trend known as medtail, landlords are turning to dentists and doctors to fill empty retail space: “Taking advantage of depressed rents, medical providers are opening facilities in storefronts on city streets and moving into malls and shopping centers in suburban and rural areas, sometimes occupying the hulking shells vacated by big-box and department stores. In the past, landlords might not have welcomed such tenants — some just didn’t want sick people around their properties, experts say — but they are increasingly seeking them out to fill vacancies and help generate foot traffic that may benefit the other occupants. This has been especially true for health care providers that brand themselves as so-called wellness companies, adopting the look and feel of consumer-oriented retailers.”
“‘The retailization of healthcare has really exploded,’ said Barrie Scardina, a retail expert for Cushman & Wakefield.”
“The medtail concept has been gaining traction for some time. Today, about 20 percent of leased medical space is in retail buildings, up from about 16 percent in 2010, according to data from the research firm CoStar Group.”
“Tend, a boutique dental chain, has been opening offices in retail space in urban areas, where rents can be 20 percent below pre-pandemic levels.”
“The company selects real estate in much the same way a retailer does — figuring out foot traffic patterns, demographic data and transportation options.” READ MORE
Employers are still looking for the right way to lure employees back to the office: “John Rowady has done everything he can think of to make his company’s Chicago office a place where workers want to be. As president of rEvolution, a sports marketing firm, he’s installed a scoreboard, bleachers and a tunnel between the elevator and lobby to make his 100 employees feel like athletes emerging from a locker room into an arena. To further entice his staff to come back, after many got comfortable doing their jobs from home during the pandemic, Mr. Rowady stocked an office bar with free beer and bourbon for on-site happy hours. Then there’s the full-size race car in the lobby.”
“‘It can be frustrating to really do everything that you could possibly do, try not to be overbearing, engage with your employees—and then have to deal with situations where people still aren’t comfortable coming back,’ he says.”
“Aaron Johnson, president of Automatic Payroll Systems in Shreveport, La., maintains people work best together, and for the past six months he has expected most of his 165 employees to report to the office at least a few days a week.”
“Last year 30 percent of his staff turned over—twice the typical rate. Many job-hopped to firms based in California, Texas and New York, collecting hefty raises while staying in lower-cost Louisiana and working from home.”
“What stings, Mr. Johnson says, is that his company trained a lot of those workers and retained them when the economy was at its worst, in 2020. Yet the investment in his people didn’t seem to matter when it was time to reopen the office.” READ MORE
Here’s another company that went to a four-day work week: “During the first month, most teams operated with the mindset that they were doing the same amount of work in a shorter period of time, but they realized it wouldn’t be sustainable. ‘The short-term instinct is to do things the way they were in four days and power through,’ Griffis says. ‘But in the long-term you have to question: How should we do things differently?’ To get everyone closer to a 32-hour four-day workweek, they had to change how they worked. Buffer teams cut down on meetings (Griffis’ weekly marketing check-ins were changed to monthly), moved to asynchronous communication tools like Threads, and adjusted expectations of how long it would take to meet project deadlines. It required a big shift in mindset, starting with senior leaders, Griffis says. ‘Going into projects knowing we have four days instead of five, you get used to it.’”
“Then comes another problem: Are people secretly working on Fridays in order to get all of their work done?”
“Another big challenge was figuring out which day to take off. At first, Buffer gave each team their own choice. Griffis’s team took off Wednesday: ‘You’re never working more than two days at a time. It’s really phenomenal.’”
“But when that proved to be too disorganized — people still needed to work with other teams — Buffer standardized to Fridays off.” READ MORE
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THE COVID ECONOMY
As the workplace changes caused by the pandemic settle in, dry cleaners are closing: “In the D.C. region and other large metro areas, dry cleaning has long been seen a vehicle to the middle class for immigrant families, many of them Korean Americans who settled here in the 1970s through 1990s, industry experts say. There were low barriers for entry and limited need for language skills, not to mention a community of other store owners often willing to help with loans and training. But even before the pandemic, many of those independent stores were bracing for change: Their U.S.-born children were choosing not to take over the family business, opting instead for white-collar fields. Even in buttoned-up Washington, offices were loosening their norms for professional attire and lessening the need for professional cleaning.”
“‘At one point, you had casual Friday, and then you went to casual every day,’ said Mary Scalco, the chief executive of the Drycleaning & Laundry Institute, a trade group based in Prince George’s County.”
“Many of them repositioned themselves as convenience stores and took on a wider range of clothes — it’s your golf shirts, polos, khakis, not just your ties and suits.’” READ MORE
Rental car shortages are expected to continue into summer: “Demand for rental cars is expected to be strong this spring and summer as Americans plan to get out for vacations. Since the beginning of the Covid-19 pandemic, the highest number of American travelers—93 percent—say they plan to take at least one leisure trip in the next 12 months, according to a recent survey from market-research firm Destination Analysts. Travelers are optimistic about the course of the pandemic and their ability to travel safely, the survey data show. That demand is running up against a car crunch. Rental-car companies say they have started to restock inventory after selling off their fleets earlier in the Covid-19 pandemic, but supply is still limited.” 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.
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