It Absolutely, Positively Might Not Get There

The rise of ecommerce has overwhelmed FedEx, which is trying to keep up with UPS and the Post Office.

Good morning!

Today’s highlights: The pet-care industry is exploding upscale. Clothing rentals (and crop tops) are surging back to life. And do you really think it’s the federal government that sets the minimum wage?

LOGISTICS

As ecommerce continues to rise, FedEx is struggling with late deliveries: “From March through mid-April, about 87 percent of FedEx Ground shipments arrived on time, compared with 95 percent for the similar service at UPS, according to ShipMatrix, a software provider that crunches parcel shipping data. The delays are frustrating customers, some of whom say they have turned to other shippers to fulfill orders. The pandemic has accelerated the shift to e-commerce by years, filling the streets of America with delivery trucks. FedEx and United Parcel Service handled a record number of parcels last year even as Amazon is increasingly delivering its own packages.”

• “According to delivery-tracking software company Convey, FedEx’s deliveries were 71 percent on-time in April, compared with UPS at 88 percent and the U.S. Postal Service at 90 percent.”

• “May Hertz, who runs a small business selling fine Mexican folk art in The Woodlands, Texas, had used FedEx for more than two decades to import products from Mexico. ‘We have never had a problem with FedEx until the end of last year,’ she said. ‘They started losing boxes and not delivering on time.’”

• “She has since stopped using FedEx and said she is ‘happy with UPS’s service so far.’” READ MORE

THE ECONOMY

Home prices are growing at their fastest pace since 2005: “The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 13.2 percent in the year that ended in March, up from a 12 percent annual rate the prior month. March marked the highest annual rate of price growth since December 2005. Also on Tuesday, the Commerce Department said the median price of a new home sold in April was $372,400, up 20.1 percent from a year earlier, the strongest annual gain since 1988. The median sales price for existing homes rose 19.1 percent in April to $341,600, the National Association of Realtors said last week.”

• “Troy Charlton of Century 21 Charlton Realty Co. in Nashville, Tenn., said more of his clients are choosing to buy new homes because it is so difficult to compete for an existing home in the current market.”

• “Phoenix had the fastest home-price growth in the country for the 22nd straight month, at 20 percent, followed by San Diego at 19.1 percent.” READ MORE

The pandemic hit the clothing rental business hard, but things are looking up: “Rent the Runway’s chief executive, Jennifer Hyman, said this month that users had been returning to the service in droves. Since a pandemic low last May, there has been a 92 percent increase in active subscribers — lured in part by recent discounts — and the number of customers was on track to outpace 2019 levels by the end of the year. Traditional rental hubs in the South such as Texas, Florida and Georgia were the first to show signs of recovery this year, though they are not yet back to 2019 subscriber counts, she added.”

• “Daring new trends have also started to emerge in terms of what women want to wear — bolder, brighter and sexier styles than ever before.”

• “Some companies are calling this peacocking or hedonism, while Rent the Runway has been referring to it as the new ‘joie de vivre.’”

• “‘It is truly surprising that women above the age of 35, women in their 40s, are renting crop tops at the exact same rate as our teenagers on the platform,’ Ms. Hyman said.” READ MORE

FOOD & BEVERAGE

Food companies are trying to keep the baking surge alive: “During the pandemic, people fought stress and boredom by whipping up cookies, breads, cakes and brownies. Enthusiastic new bakers cleared grocery aisles of flour while millions hunted online for recipes. Now, as lockdowns ease, the baking industry is pulling out all the stops to make sure new bakers keep baking. To convert pandemic rookies into lifelong bakers, companies are rolling out new baking kits and recipe collections, along with bigger promotions and package sizes to remind shoppers to bake more often.”

• “After flat or declining sales since 2016, sales of baking mixes and ingredients rose 25 percent in 2020 to $8.3 billion, according to market researcher Mintel Group.”

• “Sales are expected to decline 6 percent this year to $7.8 billion, but will still be 17 percent higher than sales in 2019.”

• “‘Cookies really are the gateway category—that’s your way in, that’s where you start,’ she says.” READ MORE

HUMAN RESOURCES

Who exactly sets the minimum wage? The federal government? Or is it Amazon? “In early May, as business was ramping back up after a year of pandemic disruption, the Miami-area chef Phil Bryant said his efforts to find enough workers to expand had run into a problem: Amazon. Bryant told The Washington Post that many of his colleagues had left the industry in the past year to take jobs with the e-commerce giant. They said things like, ‘If I can make $17 per hour at an Amazon warehouse but only $14 per hour as a line cook, a notoriously hot, stressful, intense job, why would I do that?’ A few weeks later, Under Armour announced it would raise its minimum pay rate to $15 an hour. It also hinted at growing competition for workers from Amazon.”

• “More than 10 major employers, from Target and Walmart to Under Armour, have raised their hourly rate in the past year alone. The federal minimum wage, meanwhile, remains at $7.25.”

• “Economists at the University of California, Berkeley, and Brandeis University found that Amazon's 2018 wage hike drove average hourly wages 4.7 percent higher at other employers in the same area.” READ MORE

FINANCE

The SBA’s secret weapon, says Ami Kassar, is its 504 program, which helps business owners with owner-occupied real estate and equipment loans: “The 504 loans are structured so that the SBA (through the CDC) provides 40 percent of a project's total costs. A participating lender accounts for 50 percent, while the borrower must contribute 10 percent of the project's cost. The participating lender, usually a bank, will hold the first lien position, while the CDC has the second lien on the 504 loan, which is for 20 or 25 years at a fixed rate.”

• “Does this sound good to you? It should. Not only do you get 90-percent financing, but there are extended loan amortizations and no balloon payments on the CDC loan.”

• “Rates are at historic lows, and if you get a 504 loan before September 30th, the government is waiving the CDC fees, and your first three months of payments will be made, up to $9,000 a month.” READ MORE

GOVERNMENT SUPPORT

The new leader of the SBA promises a more customer-friendly approach: “It is by far the smallest cabinet-level agency, with an annual operating budget that is typically less than half of what the Defense Department spends in a day. It was long viewed within the government as a sleepy backwater. But when the pandemic sent unemployment claims soaring, Congress responded with an unprecedented plan: Give businesses money to keep their workers employed.”

• “This month, a new emergency popped up: The [PPP] ran short of money and abruptly closed to most new applicants. ‘There was no warning,’ Toby Scammell, the chief executive of Womply, a company that helps borrowers get loans, said of the latest debacle. His company alone has more than 1.6 million applicants caught in limbo.”

• Ms. Guzman, 51, hears those criticisms relentlessly — the response threads to her agency’s social media posts have turned into primal screams of pain. (“I SERIOUSLY CANNOT TAKE THIS WITH SBA ANY LONGER” is one of the milder replies.) She said she understood the urgency.” READ MORE

ECOMMERCE

Amazon has been hit with an antitrust suit for allegedly blocking third-party sellers from offering lower prices on other web sites: “Until 2019, Amazon explicitly prohibited U.S. sellers from offering their products at a lower price or better terms elsewhere online, the lawsuit says. Amazon removed that policy but replaced it with a new ‘Fair Pricing Policy’ that was an ‘effectively identical substitute,’ the lawsuit says. Mr. Racine said he hopes the lawsuit will help put an end to such agreements. The Fair Pricing Policy allows sellers to set their own prices, according to Amazon. The company also monitors prices elsewhere on the web. If a seller offers a product on Amazon for a higher price than listed elsewhere, Amazon may not feature that seller’s offer. The company may send the seller a warning to that effect.”

• “Amazon has said the policy is designed to protect consumers from being overcharged, as well as to give sellers information so that their offers can be featured. The company says it decides which offers to feature based on price, delivery speed and other factors.”

• “Mr. Racine said the policy ends up hurting consumers because it leads sellers to choose not to offer lower prices on websites not named Amazon, even when the sellers may want to do so.” READ MORE

STARTUPS

The pandemic puppy boom has sent vets scurrying upscale: “The heightened demand for veterinary services has drawn investors and others to the market. Landlords — who might previously have spurned tenants associated with unpleasant odors and noise — are more amenable to leasing to the clinics after a year when the vets paid their rent while other businesses fell behind. And architecture firms that specialize in the design of vet space are busier than ever. Tech-savvy start-ups like Bond Vet are promising a reinvention of the experience, with phone apps, round-the-clock telemedicine and boutique storefronts where refreshments (for pet owners) run to LaCroix and cold brew.”

• “The pet care business is riding a growth spurt: Morgan Stanley projected that it would be a $275 billion industry in 2030, up from $100 billion in 2019, with vet care the fastest-growing segment over the next decade.”

• “Start-ups make up fewer than 1 percent of the more than 28,000 vet practices across the country, but they are growing quickly. In New York, Small Door Veterinary recently announced it had raised $20 million and planned to go from a single location to 25 by 2025.”

• “And in Los Angeles, another membership-based company, Modern Animal, has an office in a high-end shopping district in West Hollywood, with three more to come in the city by year’s end and a dozen clinics in California by 2022, said the company’s founder and chief executive, Steven Eidelman.” READ MORE

THE 21 HATS CONVERSATION

A Skeptical Conversation about ESOPs: “The proponents of employee stock ownership plans can make them sound like the greatest thing ever. With an ESOP, a business owner can take a big chunk of money off the table—or even all of it—while still getting to run the business. And there are some pretty great tax breaks. Oh, and it may even solve income inequality in America. On the other hand, if ESOPs are so great, why are there so few of them? Both Jeff Taylor and Jim Kalb run companies with employee stock ownership plans. Jay Goltz is thinking about implementing one — but he’s got questions, such as: Where does the money to buy the company come from?”

• “What if you do the ESOP and the business gets into trouble? Does the owner come out okay in that deal?”

• “Do you need to be a certain size? Do you need to be profitable? What are the key requirements to even consider doing this?” VIDEO AND TRANSCRIPT

THE MORNING REPORT AUDIO

We’ve been publishing a daily podcast in partnership with the Small Business & Entrepreneurship Council that offers an audio version of the Morning Report. Given that the vast majority of you prefer to read this newsletter, we’re discontinuing the daily audio version. Every Friday, though, Gregg Stebben, who has been the host of the podcast, and I will continue to offer our weekly wrap-up of the most important stories for business owners and entrepreneurs. You can LISTEN HERE

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