If Amazon and TikTok Had a Baby
Temu, a fast-growing Chinese shopping platform, has a simple premise: If America’s retail giants are becoming mere middlemen, why not just cut them out?
Good Morning!
Here are today’s highlights:
The cost of health insurance is putting smaller businesses at a disadvantage in the job market.
Introducing the Main Street Summit, a promising new event for small and mid-sized businesses.
John Arensmeyer offers some hope for businesses that just want to compete on a level playing field.
More Americans are being priced out of the new car market.
ECOMMERCE
Think of Temu, which just might be the future of shopping, as what would happen if Amazon and TikTok had a baby: “Temu seemed to come out of nowhere, and now it’s everywhere, its customers summoning $5.79 yoga pants, $27.98 doorbell cameras, and $10.29 garment steamers by the thousands, directly from factories in China to their front doors within a week or two. In some ways, Temu could not be more out of step with some current trends in the American market, where delivery times are all-important, name brands carry enormous weight, and sustainability and ethical sourcing are marketing fodder. Like TikTok, it’s a corporate sibling to a major Chinese internet platform competing with entrenched American giants, which means it faces potentially existential political risks.”
“To engage with Temu is to be cornered in conversation with an AI-powered salesperson who is ushering you past endless tables of assorted goods to sell, right now, with escalating special offers, chained promotions, exclusive limited-time discounts, and lots and lots of free stuff.”
“American retail has long relied on imports from countries with cheaper labor and human-rights practices ranging from questionable to disturbing. The messy and often exploitative processes of overseas manufacturing are concealed behind domestic branding and acknowledged, if at all, with a sticker, a tag, or maybe some fine print.”
“Domestic online retailers — most notably Amazon but also Walmart and Target — have spent the last decade outsourcing not just their products but their entire e-commerce operations to third-party sellers, many based overseas. Temu’s underlying proposition is brutally simple: If America’s retail giants are becoming mere middlemen, why not just cut them out?”
“Juozas Kaziukėnas, who runs the research firm Marketplace Pulse, describes Temu as emblematic of a long-coming change in e-commerce. ‘Made in China cut out domestic manufacturing,’ he writes. ‘Sold by China cut out domestic sellers. Marketed by China is cutting out domestic retailers.’” READ MORE
Shopify has given up on competing with Amazon in logistics: “Shopify's nearly four-year foray into fulfillment came to an abrupt end Thursday when the company announced Flexport would buy most of its logistics assets in exchange for a 13 percent stake in the global logistics company. Flexport will become Shopify's official, though not its exclusive, logistics partner, executives said Thursday.”
“From the beginning, providing an alternative to Amazon's barrage of seller services — especially Fulfillment by Amazon — was the right goal, according to multiple analysts and experts.”
“‘If Shopify can't help its merchants deliver merchandise in two days or less in an increasing number of situations, their merchants will be disadvantaged versus Amazon,’ said Gil Luria, analyst with D.A. Davidson in an interview Thursday.” READ MORE
SAVE THE DATE
Brent Beshore of Permanent Equity is planning a two-day, immersive festival—the Main Street Summit—for small and medium-sized businesses, November 8-9, in Columbia, Mo.: If you know anything about Brent, you know the event will be smart, it will be done right, and it will feature red meat (both figuratively and literally). If you don’t know about Brent, you might want to listen to this interview I did with him in which he explains the unusual approach Permanent Equity takes to buying businesses—especially as compared to a typical private equity firm. Event details are still to come, but I’d suggest keeping an eye on this one. LEARN MORE
HUMAN RESOURCES
In Massachusetts (and elsewhere), the cost of health insurance is increasingly making recruiting harder for small businesses: “Neil Abramson offers health insurance to the 26 employees at his Leominster consignment stores, ECi Stores, but many of them don’t take it, choosing instead to get insured by a spouse’s plan or through the state-subsidized Health Connector. ‘It’s just too expensive,’ Abramson said. With costs rising each year, his company’s family plan costs $2,100 a month, of which the company pays half. Deductibles have also increased. Abramson employs mostly women in positions ranging from management to cashiers. Abramson said the health insurance he can offer as a small business isn’t as good as a big company’s, putting him at a competitive disadvantage when recruiting new workers. He has had workers leave to take other retail jobs or even to become teachers’ assistants or entry-level health care workers because schools and hospitals offer better benefits.”
“Since Massachusetts implemented health care reform in 2006, followed by the national Affordable Care Act in 2010, access to insurance has become nearly universal. But where people are getting their coverage has changed, and fewer people are insured by small employers.”
“That trend reflects a growing competitive concern for businesses that are the economic backbone of the state — one that also threatens to increase costs for taxpayers.”
“Massachusetts in 2006 merged its individual and small-business markets. This was a policy decision intended to make coverage more affordable for individuals, and it worked: small businesses now subsidize individual coverage.”
“‘The concern here is a death spiral,’ said Josh Archambault, a senior fellow on health care policy at the Pioneer Institute, who sat on the merged market advisory council. ‘Everyone who can leave leaves, and the only people left are by far the sickest for small employers.’” READ MORE
A new bill would make it easier for employees to file race-discrimination cases: “Democratic lawmakers unveiled a new bill this week that would allow victims of workplace racial discrimination to file cases in public court, instead of being forced into arbitration. Forcing these cases into secretive courts — essentially private courtrooms shielded from public view — makes it harder to hold companies or individuals accountable when they violate workers' civil rights, opponents of arbitration argue.”
“Forced arbitration denies to many Americans the choice to freely decide for themselves, whether and how to enforce their fundamental rights in a public court of law,’ said Sen. Cory Booker (D-N.J.) who introduced the legislation along with Rep. Hank Johnson (D-Ga.).”
“The bill follows last year's passage of a law that bans forced arbitration in cases of sexual assault and harassment. That new law already changed the way employers write employment contracts, employment lawyers told Axios.” READ MORE
Roger Lee’s website tracking tech layoffs is helping remove the stigma from layoffs while also making it easier for tech workers to find new jobs: “Since starting Layoffs.fyi as a side project at the start of the pandemic, he has cataloged nearly 450,000 tech layoffs in a public spreadsheet, updating the list whenever he can find a few minutes. Though Mr. Lee, 36, reads bad news constantly, he remains a stalwart optimist about tech. He recognizes the pain that layoffs cause, but he also believes the industry will ‘100 percent’ bounce back.”
“Over the past three years, Mr. Lee’s site has become a meaningful resource. Recruiters scour the listings for talent after big layoffs, and workers post their information when they lose their jobs.”
Tim Sackett, who runs an I.T. and engineering staffing firm, said that looking at Layoffs.fyi saves him ‘a tremendous amount of time,’ because it points him to workers who are actively looking for jobs.”
“Mr. Lee runs Layoffs.fyi as a hobby, and he spends money on it. In addition to his time, he estimates that he spends about $200 each month on the cost of its servers. He said he has declined to run ads, though he has been approached.”
“But the site’s popularity did help give him the idea for a new company: Comprehensive.io, which tracks compensation in tech job postings, on a public list.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Solving Monopolies, Immigration, Tipped Wages, and the Debt Ceiling: This week, John Arensmeyer, CEO of the Small Business Majority advocacy group, talks about some of the most intractable problems confronting business owners. And John offers some reason for hope -- mostly, he says, because there’s a growing, bipartisan effort to level the playing field for smaller businesses. The debt ceiling, of course, is another matter.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
PRICING
Buying a new car is an out-of-reach luxury for more and more Americans: “Even as inflation is easing and global chip supply shortages are beginning to resolve, more Americans are being priced out of the nation’s new car market, industry and government data suggests. Spending on new cars by the lowest 20 percent of earners dropped to its lowest level in 11 years. Meanwhile, spending on new cars by the top 20 percent reached its highest level on record, going back to 1984, according to the most recent data from the 2021 Consumer Expenditure Survey, not adjusted for inflation.”
“‘New vehicles were maybe never an everyman product in America,’ Charles Chesbrough, senior economist at Cox Automotive, said at an automotive conference earlier this year. ‘We like to believe that they were, but they probably haven’t been for a long time. But certainly they are even less so today.’”
“The problems pushing new cars out of reach are twofold. On the demand side, rising interest rates have made car loans far more costly — the average monthly payment reached $686 in mid-2022, according to data from Edmunds. Last month, it hit $730.”
“But even if shoppers can snag a decent interest rate, the supply of cars available for purchase has been trending far more expensive, in part because manufacturers have been funneling resources into souped-up versions of pricey models and cutting back on cheaper options.” READ MORE
Meanwhile, the cost of used vehicles just fell: “Cox Automotive reported Friday a 3 percent decline from March to April in its Manheim Used Vehicle Value Index, although levels remain elevated compared with historical figures. The index, which tracks vehicles sold at its U.S. wholesale auctions, is still up 5.2 percent from December but is down 4.4 percent from April 2022. ‘We’ve experienced eight straight months of year-over-year declines, averaging 8.3 percent, and it’s likely not over yet,’ Chris Frey, Cox senior manager of economic and industry insights, said in a release.”
“Used vehicle prices have been elevated since the start of the coronavirus pandemic, as the global health crisis combined with supply chain issues caused production of new vehicles to sporadically idle.”
“Cox reports the average listed price of a used vehicle was $26,086 in February, the most recent data available, down slightly from January.” READ MORE
PROFILE
This cafe owner doesn’t shoo the homeless: “Soon after Collin Doran purchased the Homemade Cafe in Berkeley, Calif. in 2011, he noticed homeless people would sometimes stand outside of his restaurant and ask customers for money or food. It pained him to see them go hungry, so he came up with a plan: He’d give anyone in need a free two-egg breakfast with the works, no questions asked. ‘Instead of ushering people away, I told them, If you're hungry, let us know and we’ll feed you,’ said Doran, 53. ‘Right away, people started taking me up on it.’ Twelve years and thousands of free breakfasts later, his offer still stands. But now, Doran’s customers are also chipping in to keep the free breakfasts coming.”
“‘My customers raised more than $30,000 for the restaurant through a GoFundMe I started last fall when we were struggling financially,’ Doran said, noting that he’d drained his savings account of $200,000 to keep his employees paid for two years during the pandemic.”
“‘It became clear to me that the reason customers wanted to help was because they’d seen how we’d fed people in the community over the years,’ he added. ‘People didn’t want to lose that. It made sense to continue to provide them with a way to chip in.’”
“One of those people was Daniel Amokye, who lives in a homeless shelter in Berkeley. When a friend told him he could get a free hot breakfast at the Homemade Cafe, ‘it was like a blessing,’ said Amokye, 56.
“Two months ago, Doran hired Amokye to work as a dishwasher at the cafe.” READ MORE
THE 21 HATS PODCAST
Bonus Episode: Not Sold on ESOPs? There’s a New Alternative: This week, two special guests who have built highly successful companies talk about what they ultimately plan to do with those companies. Ari Weinzweig is co-founder of Zingerman’s Community of Businesses, a collection of mostly food-related companies that are an iconic part of Ann Arbor, Michigan. Brad Herrmann is co-founder of Text-Em-All, a software firm based near Dallas that helps organizations deliver personalized, informational, and emergency messages by text and by phone. Both Zingerman’s and Text-Em-All consider themselves purpose-driven. Both practice open-book management. And so, not surprisingly, the founders of both companies took a hard look at selling to an employee stock ownership plan, or ESOP, in the hope that the cultures they’ve created might live on.
But both companies, independently, soured on the notion of creating an ESOP, one after spending more than $200,000 and coming within a week of closing the deal. And now, both have settled on a little known alternative, what’s called a perpetual purpose trust. So far, only a handful of companies have tried to create a purpose trust for this particular purpose, but Zingerman’s and Text-Em-All are taking the leap. As both Ari and Brad acknowledge, they’re kind of figuring it out as they go.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
The Homemade Cafe story shows what faith in human nature can achieve.