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It’s Time to Start Thinking About Next Year
Here’s one way to figure out how much your customers are likely to buy: Ask them.
Here are today’s highlights:
Yes, there are a lot of boarded up storefronts, but watch boutiques are opening all over.
Will customers accept surge pricing for beer?
A startup is offering a way around high mortgage rates.
Does Mr. Wonderful really need the money that badly?
The key to good planning, Bill Fotsch says, is talking to your customers: “It's planning season. In some meeting rooms, the phrase alone brings conversation to a halt. Preparing the annual plan can eat up time and produce little benefit. There's usually fallout, too. When it's time to strategize, the senior team sequesters themselves to some offsite retreat for a couple of days. Everyone else is left to do the work, and to roll their eyes about what ‘planning’ really means. Short-term, it's fruitless. Long-term, it's futile. But it doesn't have to be this way.”
“The good news is that [if you talk to your customers], you'll get just the right information to focus your plans on what your customers value—on what drives the value of your company. The great news? Just by asking customers what they really care about, your relationship grows, as does the chance for repeat and referral revenue. Short-term and long-term wins.”
“One note: While the purpose of every company is to serve customers, not all customers are equal in terms of their value to you. So before you pick up the phone, sort your customers by relative size profitability. With one Chicago-based tool manufacturer I work with, the margins on products varied from 70 percent on the high end to -10 percent on the low end.”
“We immediately instituted a minimum margin requirement of 10 percent on all products, ridding us of negative margin products immediately. Then we compared low-margin jobs to similar high-margin jobs and corrected the pricing by raising it. Finally, we recognized that we were underestimating the costs of small product orders.” READ MORE
It may be the digital age, but watch boutiques are opening like crazy: “David Hurley, the New York-based deputy chief executive of the Watches of Switzerland Group, headquartered in Leicester, England, said competition for the best and biggest retail locations had reached a fever pitch. ‘If you look at the best malls around the U.S., you’ve got the major luxury groups, particularly LVMH and Kering, where it’s almost like a land grab out there,’ Mr. Hurley said. ‘If they’ve got stores that are 5,000 square feet, they’re looking to expand them to 15,000 square feet.’”
“He cited an example from his own company’s retail playbook: In late 2018, Watches of Switzerland opened its first multibrand store in the United States, in Manhattan’s SoHo neighborhood, followed in March 2019 by a second in the Hudson Yards retail complex. Come January, the company is planning a third city location at One Vanderbilt, a 93-story skyscraper on 42nd Street, next to Grand Central Terminal.”
“‘When we opened SoHo and Hudson Yards, there weren’t many people opening or expanding their watch locations,’ Mr. Hurley said. ‘We were confident in the investment, but I didn’t think we’d be looking at ourselves a couple years later with Hudson Yards at 6,500 square feet and SoHo at over 8,000, going, Wow, I wish we had bigger stores. And that’s why we’re opening up another location in New York — because it’s either that or elastic walls.” READ MORE
Britain’s largest pub company has adopted surge pricing for pints: “About 800 of the 4,000 pubs owned by the company, Stonegate Group, are either using ‘dynamic pricing,’ in which prices rise at times of increased demand, or may use it in the future to help cope with higher costs for staffing and licensing requirements, Maureen Heffernan, a spokeswoman for Stonegate, said on Tuesday. Stonegate owns the popular pub chains Slug & Lettuce and Craft Union. Ms. Heffernan said that the timing of surge pricing, in which a pint of beer would cost about 20 pence (25 cents) more, would vary by pub, but that generally prices would be higher on weekends and evenings.”
“Customers have become accustomed to surge pricing across various industries, including retail and travel. But some Britons said applying it to pubs went too far. Pete Favelle, an I.T. consultant in Abergavenny, Wales, said that surcharges made sense for products that had limited availability, like flights or hotels, but that charging extra for pints at certain hours was ‘just a grab for cash.’”
“Zhe Liu, an assistant professor of operations management at Imperial College Business School in London, said companies relied on surge pricing to increase revenue or to lower demand, or both. He said it was realistic that Stonegate was raising prices to cover increased costs, since it had to employ additional staffing during peak hours.”
“Tom Stainer, the chief executive of Campaign for Real Ale, which represents pub goers in Britain, called the new pricing policy an ‘unhappy hour surge’ and said it would not help bring consumers back to pubs after the pandemic dented business.” READ MORE
Gene Marks warns about businesses facing increased costs if the proposed overtime rule takes effect: “Under the current provisions of the Fair Labor Standards Act, any salaried workers with certain job titles and duties and that earn a salary that’s more than $684 per week ($35,568 per year) are not entitled to be paid overtime for any hours worked past 40 in a week. These exempt employees are usually in administrative, professional, or executive positions. The Department of Labor has proposed changing those wage limits to $1,059 per week, or $55,068 per year and then index this amount for inflation every three years. The rule, which could affect as many as 3.6 million workers across the country, will also better define responsibilities for the executive, administrative, or professional employees who would be entitled to overtime pay.”
“Some employers may choose to cut the hours of salaried workers or put in place more stringent requirements for allowing overtime. Others may choose to raise the wages of some employees to make them exempt from the rule or may instead decide to replace existing salaried workers with lower paid alternatives, or even lean more on technology.”
“Adam Garner, an attorney at the Garner Firm Ltd. in Philadelphia, advises employers not to average the hours worked throughout the year. ‘If an employee works 45 hours in one week and 35 hours in another week, they’re still entitled to overtime for the hours worked over 40,’ he said.”
“Both [Matthew Luber, a managing partner at McOmber McOmber & Luber, a New Jersey-based corporate law firm] and Garner warned that employers who don’t follow the regulations may find their employees reporting them to state or local labor departments who are required to comply with the federal rule.” READ MORE
The lunch business is off in almost every city—with two exceptions: “Toast, a point-of-sale platform for restaurants, analyzed 19 major U.S. metros to gauge how work-from-home has affected lunchtime business. It compared the average number of same-store weekday lunchtime transactions during the first quarter of 2023 with the same quarter in 2019. Kansas City was one of only two metros that saw an increase in lunchtime traffic. Kansas City was up 3 percent and Charleston, South Carolina, climbed 2 percent. Kansas City’s tipping culture also outranked all 18 metros, with customers leaving an average tip of 20.7 percent.”
“The Mixx and Caffetteria, which collectively have three locations in Kansas City, Prairie Village and Overland Park, are beating the metro’s 3-percent uptick in lunchtime transactions, owner and founder Jo Marie Scaglia said.”
“‘During the pandemic, we lost quite a few great restaurants. There was a culling of the herd, so you’re left with restaurants who worked together. We partnered, we survived, and we came out stronger,’ said John Hildebrand, director of operations for The Mixx and Caffetteria. ‘Our guest base wants to get back to having their quality of life and enjoying dining out.’’’
“More employees also have returned to the office, helping to bolster lunchtime business, the restaurateurs said. Unlike some markets, Kansas City now has ample third-party delivery drivers, which means food isn’t left sitting out at the restaurant. ‘So the food’s moving a lot faster as well and getting to our guests,’ Hildebrand said.” READ MORE
Ami Kassar calls out Shark Tank’s Kevin O’Leary for supporting an ERTC mill: “‘Mr. Wonderful,’ is deeply involved in a partnership with a company called Bottom Line that is actively promoting the Employee Retention Tax Credit. To top it off, he is lobbying Congress to extend the program.I am sure I am not alone in getting a dozen or so solicitations a day from for-profit companies like Bottom Line offering to help me apply for the tax credit for a small success fee of 15–25 percent of the take. Here is my beef with their model: Your accountant can help you with work for a couple hundred dollars, and your payroll company can help you for free.” READ MORE
Thanks to gas prices, inflation picked up again in August: “But underlying price pressures stayed mostly mild.The consumer-price index report comes a week before the Fed’s two-day policy meeting. Officials are likely to hold interest rates steady while debating whether another increase in November or December will be needed to maintain recent progress slowing inflation and economic activity.”
“Higher gasoline prices last month reflected oil-production cuts by Saudi Arabia and Russia, among other factors.”
“Food prices also rose in recent months because of a drought in parts of the U.S. and other factors, said Juneau, of Bank of America.”
“Grocery and energy prices heavily influence how many Americans view inflation, and can affect their behavior, including the wages they demand from their employers.” READ MORE
A startup thinks it has a solution for high mortgage rates: “Mortgage rates are now above 7 percent, leaps and bounds above the 3 percent they grazed two years ago. Buyers and sellers alike are giving up, sucking demand and supply out of the housing market. And things are expected to stay that way, with the Federal Reserve signaling plans to keep rates high for the foreseeable future. Roam, a real-estate company set to launch Wednesday, is betting that it can popularize an obscure workaround. ‘Assumable loans’ allow sellers to transfer their own mortgage loans to the buyer alongside the house.”
“Some 22 percent of active mortgages are part of the government programs that have assumption features, according to the mortgage-data and technology company Black Knight. That includes loans extended through the Department of Veterans Affairs and the Federal Housing Administration programs.”
“Few consumers know about the option, and fewer still follow through with it. The FHA has processed 3,349 assumptions in the fiscal year that ends Sept. 30, up from 2,566 in the year prior.”
“Raunaq Singh, Roam’s founder and chief executive officer, says his new company will find and advertise home listings attached to attractive assumable mortgages. It is initially launching in Georgia, Arizona, Colorado, Texas, and Florida.” READ MORE
Startups are scaling up efforts to turn the world’s most-used material into yarn: “Polyester is the refined sugar of our wardrobes: It’s cheap, has an iffy reputation and is in almost everything, from stretchy leggings to $4,000 jackets. An estimated 34 million tons of it went into apparel in 2021, according to Textile Exchange, a nonprofit focused on climate change and the fashion and textile industries. That makes it the most-used material in clothing. The petroleum-derived synthetic may also be the ultimate recyclable fiber. Though very little polyester clothing currently gets recycled, the fiber is ‘a fantastic reversible polymer,’ said Josse Kunst, a chemical engineer and the chief commercial officer at CuRe Technology, a Dutch polyester-rejuvenation startup. Meaning: Old polyester can become as good as new.”
“‘We are in the business of displacing waste as much as that of replacing virgin raw materials,’ said Erik Koep, CEO of Worn Again Technologies. In the U.S., 85 percent of discarded textiles end up incinerated or in landfill.”
“Scaling is a Herculean task. These startups have built a miniature ‘model house’ and now ‘have to build the real thing,’ said Kathleen Rademan, innovation platform director at Fashion for Good, a Dutch sustainability-focused organization. ‘You need way more money, you need more expertise, things can go wrong.’”
“Facing pressure from consumers and industry groups, major fashion brands have publicly pledged to up their recycled-textile intake in the coming years. H&M is aiming to produce goods using 30 percent recycled materials and phase out virgin polyester by 2025, said Erik Karlsson, head of H&M Group Ventures.” READ MORE
THE 21 HATS PODCAST
The temptation of private equity: This week, Shawn Busse, Jennifer Kerhin, and William Vanderbloemen discuss private equity. Both William and Jennifer have been getting emails and calls from representatives of PE firms who come promising all kinds of gifts—connections, expertise, money to invest in the business, and money to take off the table—which is why the temptation can be great. “If anybody even just offered me a three-day vacation, I think I would jump at it,” Jennifer jokes. But of course PE firms do exact a price, possibly including control of what used to be your business, which is why Jennifer says she wonders whether she should even take the phone calls. Entering the conversation, she says, feels a little like entering the Garden of Eden. Do you take a bite of that apple?
Plus, Shawn thinks he’s found a better way to manage his company’s credit cards, and Jennifer gives us an update on her new website.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren