‘It’s Placing a Big Bet’

The supply-chain chaos has led small retailers to hoard products as they head into the holidays.

Here are today’s highlights:

• There’s a shortage of last-mile warehouse space.

• The number of immigrant workers with H1-B visas has fallen dramatically.

• Omicron is already having an impact on business travel.

• Ghost kitchens may not be the slam dunk some thought.

THE PERFECT GIFT

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LOGISTICS

Small retailers are solving their supply-chain problems by hoarding: “[Megan] Searfoss, the owner of two running stores in Darien and Ridgefield, Conn., would normally have about 3,000 pairs of shoes in stock ahead of the holiday season. But as she watched supply chain concerns in Vietnam mount this summer and into the fall, she secured a new storage facility and is now carrying around 4,100 pairs. It’s a costly gamble for Ms. Searfoss, who said she was extended about $165,000 more than she would typically be in November because of worries about potential shortages.”

• “‘It’s placing a big bet and anticipating that what all the analysts are saying is correct,’ Ms. Searfoss said. ‘Usually, we get through the New York City Marathon and then we stop buying shoes — we sell off what we have and go into January super, super lean. But we’re being told not to do that because there’s just not going to be any shoes.”

• “She anticipated that shipping delays and out-of-stock issues at bigger chains might drive business to her stores. ‘People, those days before Christmas, will be buying whatever they can from whatever local store they can,’ she said.”

• “‘It’s just a little bit stressful for me, thinking, OK, look at all that I’ve bought,’ Ms. Searfoss said. ‘If I buy it, will they come?’” READ MORE

There’s a shortage of last-mile warehouse space: “Retailers face a scarcity of final-stage warehouses near major cities; and as more companies promise same-day or even two-hour arrivals, such space is rising in demand and value. More than half of U.S. industrial leasing in the third quarter involved users looking for space of less than 100,000 square feet, often a mark of a last-mile facility, according to a report from real-estate firm Jones Lang LaSalle.”

• “Overall, industrial rents in the third quarter were up 7.1 percent from a year earlier while vacancy rates dropped to a new low of 4.3 percent, according to JLL. In areas like Los Angeles and New Jersey, industrial vacancy rates are below 2 percent.”

• “‘Space in our markets is effectively sold out,’ said Thomas Olinger, chief financial officer of large industrial landlord Prologis, during an October earnings call. Prologis owns warehouses in most major U.S. markets, including New York, Los Angeles, and Houston.”

• “‘The pandemic advanced us 10 years in the e-commerce business model,’ said Bret Jordan, president of the northwest region for Ryan Companies. ‘So really, we’re trying to respond to conditions that we were expecting to show up in 2030.’” READ MORE

TECHNOLOGY

Facebook—that is, Meta Platforms—got all of the attention but there are other businesses building the metaverse: “Cesium, a software company, provides a platform to create applications using three-dimensional location data. For example, the construction equipment giant Komatsu uses Cesium’s platform to build digital twins of construction sites to track safety and progress. Clients can use drones and rovers to gather location data to build up-to-date models using Cesium’s platform. CEO Patrick Cozzi said his company is deeply involved in building the metaverse and one of the strongest advocates for making sure it is open and interoperable, so users can own their data and bring it from one metaverse to another.”

• “The [Philadelphia]-based company was spun out of Exton-based Analytical Graphics in 2019. It now has about 40 employees and clients in the energy, defense, and real estate industries.”

• “Just like you stream video for Netflix or YouTube, we enable streaming of these massive digitized worlds.” READ MORE

HUMAN RESOURCES

The number of immigrant workers with H1-B visas has fallen the most in a decade: “Foreign engineering and mathematics workers on H-1B visas fell 12.6 percent in the fiscal year ending September 2021 compared to the previous year, according to a Bloomberg News analysis of data from the U.S. Department of Labor. It was the second consecutive annual decline for a segment of the workforce that has historically seen consistent job growth. The drop was largely due to a significant slowdown in visa processing during lockdowns and tightened immigration policies stemming from the pandemic, according to immigration lawyers and experts.”

• “Compared with pre-Covid levels in 2019, this year’s number of H-1B employment cases was down 19 percent for the engineering and mathematics job category.”

• “‘What we’re seeing right now is a resurgence in hiring across the board whether it would be for those sponsorships or not. I do expect there to be an up tick as we pull out of the pandemic,’ said Shannon Donnelly, a partner at Morgan Lewis.” READ MORE

Transit agencies around the country are joining the competition to hire: “New York subway workers have been lured out of retirement with temporary jobs paying up to $35,000 for three months because of a shortage of operators to run the trains. Bus drivers have scored signing bonuses of up to $6,000 to work for New Jersey Transit, which is competing with trucking and e-commerce companies for qualified drivers. And halfway across the country, the transit agency in Houston, which is restoring service that was scaled back during the pandemic, has offered bus drivers and light rail operators incentives up to $4,000 while hard-to-find mechanics have been offered up to $8,000.”

• “The nation’s transit agencies are rushing to hire train operators, bus drivers, mechanics and other workers as they try to fill critical vacancies and rebuild a workforce that has been battered by the pandemic.”

• “The deadly outbreak has killed hundreds of frontline transit workers, led to widespread absences because of Covid-19, prompted many to retire and spurred vaccine mandates in some cities that have forced unvaccinated transit workers to take leaves.” READ MORE

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THE COVID ECONOMY

Omicron is already having an impact on business travel: “Airlines are warning of lower bookings, executives in Europe are tweaking business travel plans and a handful of organizations have canceled or downscaled events across the continent amid new government-mandated restrictions and uncertainty over the spread of the Omicron variant of the coronavirus. EasyJet PLC, one of Europe’s largest and the first major airline to report financial performance since the identification last week of the new variant, said it was seeing some softening in bookings as customers defer flights.”

• “The British discount carrier said it had trimmed its flying plans for the three months to Dec. 31, with quarterly capacity now expected to be 65 percent of 2019 levels, down from earlier plans to operate at 70 percent of pre-Covid-19 capacity.”

• “On Tuesday in Barcelona, a global exhibition for the meeting and events industry kicked off with some attendees needing to recruit replacements or pull out at the last minute because of fast-developing Omicron-related travel curbs, organizers said.”

• “‘The show is smaller than usual, before the pandemic, but those who are here are enthusiastic,’ said Barbara Weizsäcker of the European Exhibition Industry Alliance.” READ MORE

BUSINESS MODELS

Ghost kitchens may not be the slam dunk some thought: “Investors have poured more than $3.5 billion into ghost-kitchen startups in the past three years, according to data tracker PitchBook Data, a large slug of funding for a fledgling sector. Much of that funding has come from tech-focused investors who want the rapid growth often seen in software companies—and delivery apps, such as DoorDash. Reef’s operational strains illustrate the challenges of meeting investors’ high expectations in the food business, a sector typically defined by low profit margins and modest growth and one that depends on executing daily in the nondigital economy with workers, supplies and logistics.”

• “Seeking to leverage a boom in food-delivery apps, Reef and competitors build restaurant kitchens in warehouses or trailers, which are meant to be cheaper and nimbler than traditional storefronts.”

• “Business models vary, but Reef generally acts as a franchisee, preparing and selling food with its own workers and paying a restaurant brand a percentage of each order.”

• “In addition to the three fireball incidents, Reef has faced multiple citywide shutdowns over permitting and other regulatory violations, challenges connecting to local utilities, higher-than-expected costs and a labor shortage, said former executives and managers.” READ MORE

STARTUPS

A New Jersey entrepreneur wants to help people commute by Jet Ski: “Currently, New York City regulations make it illegal to park a Jet Ski along most of the shoreline without a special permit. But Orazem has been talking with legislators in New Jersey about updating its laws, and he hopes to convince New York, too. One warmish Saturday, Orazem jumped on a Jet Ski at one of the rental shops he owns, on the Hudson River in Jersey City, to begin his own commute: he would be zipping around the city’s waterways to scout potential places where he could establish boat slips.”

• “‘Once you have that liberty on a Ski, it’s so enthralling,’ he said. ‘Who wouldn’t want to transport themselves like that?’”

• “Orazem puttered into the marina. ‘Easy as that,’ he said. ‘You’re at the front door of the World Trade Center.’ Two security guards on the promenade began yelling at him; he swept noisily out.” READ MORE

THE 21 HATS CONVERSATION

When Buying an Unsexy Business Becomes Sexy: This week, we talk to two people who walked away from promising careers to buy blue collar businesses. Long before search funds and sweaty startups became all the rage, Bob Schwartz left a Wall Street investment banking career to buy a chain of laundromats, SuperSuds, which operates in Delaware, Maryland, Pennsylvania, and Virginia. More recently, Mills Snell left a prominent private equity firm to buy a roofing contractor, Aqua Seal Manufacturing and Roofing, which is based in Columbia, South Carolina. In this conversation, Schwartz and Snell talk about what they were thinking, what they learned about buying a business, what they’ve learned about operating a business, and whether they’re looking for an exit.

• You can listen through the 21 Hats Podcast feed.

• Or you can read the transcript and WATCH THE VIDEO.

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