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Today’s Highlights: The U.S. economy is now expected to surge. Furniture shoppers have changed the way they shop. A restaurant chain loses its fight over business-interruption insurance.
THE 21 HATS PODCAST
Episode 52: It was a year ago this week that the W.H.O. declared a pandemic, the NBA suspended its season, and toilet paper started to disappear. It has all taken a toll. “This is where it gets tricky,” Jay Goltz tells us. “Just because everybody shows up every day and looks like they're happy-go-lucky, they're not. People have stresses in their life, whether it's their kids, whether it's their aging parents, whether it's their financial situation, whether it's their physical well-being—any of the above. This is just layered on top of whatever was going on in their life before.” Plus: Karen Clark Cole’s company goes to Mars, Dana White gets a smart question about expansion from a retailer in Canada, and Jay discovers that ESOP companies don’t have to pay federal income tax.
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The U.S. economy is now expected to surge: “The American economy will accelerate nearly twice as fast as expected this year as the expected passage of President Biden’s $1.9 trillion stimulus plan, combined with a rapid vaccine rollout, ignites a powerful recovery from the pandemic, the Organization for Economic Cooperation and Development said Tuesday. ... In its half-year outlook, the organization said the United States would expand 6.5 percent this year, up sharply from 3.2 percent forecast in December. The surge in the world’s largest economy will generate enough momentum to help lift global output 5.6 percent, from a 3.4 percent contraction in 2020.” READ MORE
Despite supply-chain issues, furniture is selling and shoppers are changing the way they shop: “The furniture business is booming, driven by big jumps in work-from-home arrangements and home sales, making it an unexpected bright spot in the otherwise flagging retail sector. Americans last month spent an estimated $11.3 billion at furniture and home furnishing stores, up 12 percent from a year earlier, according to Commerce Department data. Monthly sales in the sector have soared 181 percent since April, while overall retail sales have grown 34 percent.”
“Dan Flickinger, the chief executive of Kasala, which has four stores in the Seattle area, said furniture that normally would take about three months to arrive from China can now take upward of nine.”
“‘The customer is coming into stores at a different point in their journey,’ said Debbie Propst, president of Herman Miller Retail, which owns the high-end modernist furniture chain Design Within Reach. ‘They used to come at the beginning, when they were just starting to look. Now they’ve done all of their research and are coming in to sit on a particular chair, to see if it’s right for them.’” READ MORE
A new apparel factory outside Los Angeles says it can compete with foreign manufacturers: “Saitex says it can boost L.A. manufacturing in a way that benefits both brands and the local economy. Its new factory is highly automated, equipped with all the latest tech, from 3D cutting to auto-sewing to a ‘dancing box’ that requires only 0.6L of recycled water to wash each garment. To get the operation up and running, Saitex chief executive Sanjeev Bahl hired Kathy Kweon, a denim industry veteran, as the factory’s president. Along with running the day-to-day operations, she’s responsible for recruiting the skilled workers and denim experts who are still needed to manage the machines and perform quality control. But while it takes 250 people to make 1,000 pairs of jeans in Vietnam, in Vernon it takes less than 100.”
“Denim manufacturer Saitex, a B-Corp known for setting new sustainability standards for jeans production in Asia, has seen demand for its services soar as brands face increased pressure from investors, consumers and regulators to clean up their supply chains.”
To begin with, the factory will make only about 500,000 pairs of jeans per year — 10 times fewer than Saitex makes in Vietnam — for clients including Madewell, Everlane, Outerknown and Filson.”
“With small-batch production options and proximity to American consumers, Saitex’s Vernon plant enables brands to quickly replenish inventory, responding to consumer interest for particular products rather than placing big bets upfront.” READ MORE
A restaurant chain has lost its fight to secure business-interruption insurance: “A federal judge in Boston threw out the restaurant chain’s case and found in favor of the insurer, saying that Legal did not suffer ‘direct physical loss of or damage to’ its properties due to the pandemic. The suit, which was filed last May by the chain’s former owner, Roger Berkowitz, argued that Strathmore Insurance Company had wrongfully rejected Legal’s damages claim stemming from the COVID-19 pandemic. Unlike some companies, Legal’s policy did not contain a pandemic exclusion, which insurers have been writing into some business interruption contracts since the SARS outbreak in 2003. Legal said it signed its policy on March 1, 2020, by which time it was widely known that the coronavirus was spreading globally.”
“But US District Judge Nathaniel Gorton disagreed, writing that the mere presence of a virus in a facility ‘does not impact the structural integrity of property.’”
“His decision cited several recent business-interruption insurance cases across the country that have been filed in the wake of the government-imposed shutdowns, all of which found for the insurers.” READ MORE
Thousands of PPP loans are on hold at the SBA: “Those loans, flagged by a tightened set of automated checks by the agency, could mean many small business are shut out of the program as the PPP deadline of March 31 fast approaches, groups including the American Bankers Association, the Credit Union National Association and the Independent Community Bankers of America, said in a letter to the House and Senate small business committees. ‘With the approaching authorization expiration date of March 31, 2021, we have serious concerns that many of these loans currently tagged with a hold code will remain outstanding through this date,’ the groups wrote.”
“We also have concerns that new loans uploaded to SBA’s portal this month will be outstanding when the portal shuts down.”
“As a result, those businesses that should have been eligible to receive PPP funds – including those in hardest hit communities who may not have taken advantage of PPP last year – will be locked out.” READ MORE
Long disadvantaged, Black farmers will benefit from the new stimulus plan: “Black farmers in America have lost more than 12 million acres of farmland over the past century, mostly since the 1950s, a result of what agricultural experts and advocates for Black farmers say is a combination of systemic racism, biased government policy, and social and business practices that have denied African Americans equitable access to markets. ... Many Black farmers don’t have clear title to their land, which makes them ineligible for certain USDA loans to purchase livestock or cover the cost of planting, and they have seldom benefited from subsidy payments or trade mitigation compensation — almost all of President Donald Trump’s $28 billion bailout for those affected by the China trade war went to White farmers.”
“Of the $10.4 billion in the American Rescue Plan that will support agriculture, approximately half would go to disadvantaged farmers ...”
“About a quarter of disadvantaged farmers are Black.” READ MORE
Gmail, Zoom, or Slack? “Send an email, and you might not get a timely reply. Post a question in Slack, and you might miss information from a colleague who never checks your team channel. Schedule a videoconference when a phone call would have sufficed, and you’ll annoy everyone who’s exhausted by living life online. How do you assess the relative strengths of your communication options, the preferences of colleagues and your own digital skills?”
“‘If you are going to interrupt what I am doing with a direct message, it should be important,’ says David Johnson, principal analyst atForrester Research Inc. ‘If it can wait overnight or even a few hours, email is probably fine.’” READ MORE
Gig companies fear a shortage of workers: “Gig companies say they’re having trouble finding people to drive, pick up, and deliver for them. ‘I'm worried about one thing going into the second half of the year: Are we going to have enough drivers to meet the demand that we're going to have?’ Uber CEO Dara Khosrowshahi told an analyst last month. DoorDash chief financial officer Prabir Adarkar called the situation ‘a tale of two cities,’ with hordes of new customers racing to order takeout but fewer drivers offering to deliver it. DoorDash orders more than tripled in the last part of 2020, compared with the same period a year earlier.”
“After the pandemic hit, people stopped moving around, and demand for ride-hail went through the floor. Drivers responded by leaving the services.”
“Lyft said last month that it would spend between $10 million and $20 million more this quarter on driver incentives, after cutting its recruitment costs by $15 million at the end of last year.” READ MORE
These days, techies are celebrating their riches with some restraint: “Silicon Valley’s cash-gushing, millionaire-minting initial public offerings have been bigger and buzzier than ever. But in the pandemic, the newly rich aren’t celebrating with the usual blowout parties and early retirement into round-the-world travel. They’ve adapted. The parties are on Zoom, the tax talk is on Slack, the house shopping is slightly less intense, and the vibe is cautious. It’s a weird time to become rich.”
“‘People’s mind-set is not in a place to be ostentatious,’ said Riley Newman, who was an early employee at Airbnb, which went public in December and immediately topped $100 billion in value.”
“People have shifted their focus from vacation homes and flashy cars to suburban homes and schooling, said Mr. Newman, who now runs Wave Capital, a venture capital firm. ‘It’s just different.’” READ MORE
Indoor dining is back, but the challenges remain for restaurants: “Every state in the country now permits some level of indoor dining. Even heavily restrictive states including Michigan, Illinois, and California are reversing dine-in bans that were imposed late last year to try to curb a surge in coronavirus cases. Some restaurant operators said the new uncertainties represent another daunting phase of the pandemic, and one they can’t foresee ending soon. Those whose businesses survived the past year said they are struggling to predict how many patrons will come back, and how fast. They also have no template for how much food to buy, staff to retain and which pandemic-related changes to keep.”
“Many customers remain hesitant. Fifty-three percent of Americans are comfortable with the prospect of eating at a restaurant now, while the rest said they needed more time.”
“Chicago-based restaurant EL Ideas reopened for indoor dining on Valentine’s Day weekend, and the robust business surprised co-owner Phillip Foss. Soon after, sales slumped again.”
“‘I feel like I’m a yo-yo,’ said Mr. Foss, whose personal savings are tied to the restaurant. ‘I don’t think I’m going to feel like my feet are on solid ground for a year.’” READ MORE
THE 21 HATS CONVERSATION
Today at 3 ET, I’ll host a webinar conversation on the future of restaurants with Ari Weinzweig of Zingerman's, Brian Canlis of Canlis, and Carol Downs who co-founded and ran Bella Luna & the Milky Way for more than 27 years. Here’s the beginning of the note Carol and her partners sent to friends of the restaurant last June:
After several months of considering all options, we have concluded that we cannot reopen Bella Luna & The Milky Way. We are heartbroken to announce that we will remain closed permanently. The mission of our business is to gather people together in groups, to foster social closeness—the opposite of social distancing. Gathering in groups is not going to be a safe activity until there is a widely available vaccine or treatment. We are not comfortable putting our team members and guests at risk of contracting the virus while working and dining in our space. Also, the public health hazards of Covid-19 will exist for over a year; and without being able to operate at full capacity, our business is not financially sustainable.
We are tremendously grateful for our 27½ years in this beautiful neighborhood of Jamaica Plain and the wonderful City of Boston. Thank you for dining, dancing, bowling, celebrating and gathering with us! Many of you have been visiting Bella Luna for all of our 27+ years, and we have been blessed to serve many of your families through several generations. Thank you for making Bella Luna & The Milky Way your second home, for becoming friends with us and our team, for celebrating life’s most precious moments with us. It has been our honor to serve you all.
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