Recession? That’s When You Attack
In our latest podcast episode, the owners talk about how they would cope with a recession, including by looking for other businesses to buy.
Here are today’s highlights:
If banks tighten their credit standards, does recession become more likely?
The percentage of workers who are actively disengaged continues to grow.
Companies are saving millions by shipping goods in made-to-fit boxes.
From ‘Got Milk?’ to Not Milk: The dairy industry may have lost Gen Z, but it’s not giving up.
THE 21 HATS PODCAST
This week, Paul Downs, Sarah Segal, and Laura Zander discuss how they think about recession: Do they proceed with planned hires? Do they continue to spend on marketing? Do they look for unexpected opportunities? In addition, Sarah, having recently taken back ownership of her PR firm, asks Paul and Laura how they pay themselves, how much cash they keep on hand, and whether they think she should expand her offerings to include digital marketing. Plus: Laura, who’s acquired several businesses over the years, explains what she looks for, how she decides how much to pay, and why she’s come to see acquisitions as necessary for the survival of Jimmy Beans Wool. As usual, all three owners are remarkably generous about sharing their thinking and even their numbers.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Car sales rebounded in the first quarter: “U.S. auto-industry sales, beaten down through much of the pandemic, are starting to rebound as buyers see something they haven’t in a long time: more cars and trucks on dealership lots. In a reversal from last year, many car companies reported higher U.S. sales in the first quarter, with some manufacturers, such as General Motors and Hyundai posting double-digit gains. Inventory levels, which had been constrained in recent years due to supply-chain snarls, are rising and helping to lift sales as dealers work to satisfy the pent-up demand that has accumulated.”
“Industry wide, U.S. auto sales are expected to hit 3.5 million for the first three months of this year, a 6 percent rise over the previous first-quarter period, according to estimates provided by J.D. Power, an industry research firm.”
“The quarterly increase in new-car sales follows a difficult year in 2022, when the auto industry as a whole posted its worst annual performance in more than a decade.”
“The dismal results were largely driven by continuing supply-chain problems and difficulties keeping factories running flat out, leaving dealers with little to sell and consumers paying top dollar to secure what was available.” READ MORE
Your deposits may be safe, but fallout from SVB is increasing the risk of recession: “In the wake of SVB’s collapse, America’s 25 largest banks gained $120 billion in deposits, while smaller lenders bled $108 billion from their accounts. Assets held in money-market funds, meanwhile, hit a record $5.2 trillion this month, as savers added more than $300 billion to them in the last three weeks. This has adverse implications for American economic growth, since savings stashed in money markets do less to fuel investment and consumption than those stored at banks. At present, close to $2.3 trillion of all money-market funds are parked at the Federal Reserve’s reverse repo facility, where they are effectively removed from circulation.”
“This leaves small and regional banks with less scope for providing capital to borrowers. With less cash on their balance sheet, and depositors already on edge, such lenders are bound to grow more risk averse and tighten credit standards. Which has major implications for the broader economy. Smaller banks have expanded lending by more than Wall Street’s titans since 2000, supplying 38 percent of all outstanding loans.”
“What’s more, midsize banks are especially crucial players in the commercial real-estate industry, providing 67 percent of all loans to that sector. That’s less than ideal for both builders of office towers and smaller banks, since the former were already facing serious economic headwinds, even before their primary lenders started tightening access to credit.” READ MORE
Employers continue to revamp benefit offerings: “Covid-19 sparked tremendous change in employee-employer relations and an intense battle for talent, but it also shaped the benefit offerings for many companies. That's according to a new analysis of job postings by job search engine Adzuna, which found fertility benefits and adoption leave were among the once-rare benefits being embraced by employers in the post-Covid-19 era. Experts say the emerging benefits are gaining traction as more companies seek to differentiate themselves in a tight labor market where employees still have an abundance of options.”
“Fertility benefits, which includes egg freezing and IVF treatments, were found in only 25 job postings analyzed by Adzuna in February 2018. That soared to 2,587 in February 2022 and to 3,477 in February 2023. Adzuna said the trend started among large companies like Facebook, Spotify and Bank of America Corp., but has since become more widespread.”
“Some other benefits soaring in popularity include adoption leave, which was advertised in 8,874 job postings in February compared to 3,513 during the same month in 2022 — a 150 percent increase.”
“About 16,791 job ads offered workers their birthday off, compared to just 2,668 the year before, according to Adzuna.” READ MORE
Still, disengagement in the workforce continues to grow: “But since the pandemic hit, there's been a startling shift. From 2019 to 2022, according to Gallup surveys, the share of people under 35 who reported being engaged with their jobs dropped from 37 percent to 33 percent — the lowest level since 2011. At the same time, the share who reported being ‘actively disengaged’ rose to 17 percent from 12 percent. This rise in workplace disenchantment has been so powerful that it has virtually eliminated the old-young engagement gap. Gen Zers and young millennials, in other words, have soured on work just as much as everyone else.”
“This is very bad for companies. Low engagement is linked to higher job turnover and reduced profits; Gallup estimates it costs the global economy $7.8 trillion a year in lost productivity.”
“It's also bad for young workers. If they were simply stepping away from their jobs and finding fulfillment elsewhere, that might be OK. But it's far deeper than that.”
“All of this points to a single, troubling conclusion: Something about today's workplace is failing our youngest workers.” READ MORE
Activists known as “salts” have been key to labor’s recent victories: “Through interviews and exclusive visits to undercover training sessions over the past year, Bloomberg Businessweek got an unparalleled look at the revival of American salting, which has been around for a century. Until now, salts have been the mostly secret ingredient in a once-in-a-generation wave of union organizing that’s spread from Starbucks and Amazon to other Fortune 500 companies in the Covid-19 era. At least 10 undercover activists, including [Will] Westlake, landed jobs at Starbucks cafes in the Buffalo area, where they quietly laid the groundwork for the first successful organizing campaign among the company’s U.S. employees in decades. That victory inspired hundreds more successful union votes at Starbucks and other companies.”
“Early on, a group of six salts made up half the organizing committee for the Amazon Labor Union that won an election at an 8,000-person warehouse in the Staten Island borough of New York last spring. ‘They didn’t make or break us, but they were definitely helpful,’ says the Amazon campaign’s most prominent organizer, Christian Smalls.”
“From the start, these training camps have been designed both to attract prospective salts and to hone existing employees’ organizing skills. The March session opened with an icebreaker: Participants introduced themselves by describing the most outrageous thing a boss had told them.”
“The next couple of days included a presentation called ‘TikTok as Class Struggle,’ a role-playing session about raising the idea of a union with co-workers, a panel discussion about trans rights in the workplace, and a closing presentation from Amazon salts in Canada.” READ MORE
More online sellers are saving on cardboard by moving to made-to-fit boxes: “Big retailers are rolling out machines in their e-commerce distribution operations that make packages sized specifically to fit the items being shipped, potentially reining in some of the big volumes of cardboard generated as online shopping has grown. Walmart said it has installed machines that churn out custom boxes at 12 of its fulfillment centers, and plans to add the technology to more facilities. The retailer said it has been able to cut down the amount of cardboard and filler material it uses per order by making individual boxes. Amazon.com, the largest e-commerce merchant in the U.S., has been increasing its use of made-to-fit packaging to ship items from books to shoes. The company said it started using custom packaging in 2016 and is expanding its use of the technology.”
“Walmart is using machines from packaging-technology company Packsize International Inc. that take dimensions needed to ship an item, then cut, crease and glue corrugated cardboard to make custom boxes. The machines then label and seal the packages.”
“Electronics seller Crutchfield Corp. has been shipping orders in made-to-fit packaging for roughly a decade. Chris Groseclose, chief fulfillment officer of the Charlottesville, Va.-based company that sells products from wiring to big-screen televisions, said installing the automation has cut his average box size in half and reduced shipping and packaging material expenses.”
“‘I think we’re saving several million dollars a year pretty easily by having these smaller packages,’ Mr. Groseclose said. In the first year the company used the technology, it saved about $300,000 on material stuffed into boxes to ensure items don’t rattle around during shipping, he said.” READ MORE
Big Milk is going after Gen Z (with limited success): “[Yvonne] Zapata is part of the Not Milk generation, teenagers and young adults who grew up ordering milk alternatives at coffee shops and toting water bottles everywhere. Turned off by the no-fat and low-fat milks served at school, worried about climate change and steeped in the increasing skepticism toward the dairy industry on social media, many of them have never embraced milk. Last year, members of Generation Z bought 20 percent less milk than the national average, according to the consumer market research company Circana.”
“‘Nobody drinks regular milk on purpose nowadays,’ said Masani Bailey, 30, who created a nostalgic deep dive into the celebrity-driven ‘Got Milk?’ campaign from the 1990s and early 2000s for her TikTok account, @cultureunfiltered.”
“The dairy industry isn’t banking on nostalgia to save the day. It has embarked on a full-frontal marketing assault intended to do what the ‘Got Milk?’ mustaches on celebrities like Taylor Swift and Dennis Rodman did for previous generations.”
“‘We have to reclaim milk’s mojo,’ said Yin Woon Rani, the chief executive of the Milk Processor Education Program, a marketing and education arm of the dairy industry based in Washington, D.C.”
“Milk processors are betting that supporting women and girls who run, and promoting gender equity in sports — with plenty of post-race chocolate milk — will change some minds.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Winter Is (Still) Coming: This week, Mel Gravely, CEO of Triversity Construction in Cincinnati, explains why he sees a recession looming—even though 2023 has been good so far, and he still has a solid backlog of work. He also talks about how he’s addressing the construction industry’s long-term labor issues, how Triversity lands new business, and what he’s doing to prepare for that recession.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren