Selling a House May Never Be the Same
A billion-dollar jury verdict finds that real estate agents have been conspiring to boost commissions, and there’s more litigation on the way.
Good Morning!
Here are today’s highlights:
A luxury-brand influencer says she’s trying to maintain her credibility.
Fewer than half of business owners plan to hire in the next 12 months, according to a survey.
This has not been a good harvest for farmers who bet on tourism.
Is McDonald’s going upscale? Or are higher income consumers trading down?
REAL ESTATE
A jury found that Realtors conspired to keep commissions artificially high and awarded $1.8 billion in damages: “The verdict could lead to industry-wide upheaval by changing decades-old rules that have helped lock in commission rates even as home prices have skyrocketed—which has allowed real-estate agents to collect ever-larger sums. It comes in the first of two antitrust lawsuits arguing that unlawful industry practices have left consumers unable to lower their costs even though internet-era innovations have allowed many buyers to find homes themselves online. Announced in a packed Kansas City, Mo., courtroom, the verdict came after just a few hours of jury deliberations.”
“‘It’s a wake-up call for real-estate agents,’ said Sissy Lappin, owner of Lappin Properties, a real-estate brokerage in Houston. The verdict, she said, could change the industry, leading more buyers and sellers to forego hiring agents.”
“Under antitrust rules, the presiding judge could triple the damages verdict, which would total more than $5 billion. The plaintiffs also have asked the judge to order changes to how the industry operates.”
“A much larger suit against the Realtors association and brokerages, involving 20 markets from Philadelphia to Miami, could go to trial next year in an Illinois federal court. The damages in that trial could top $40 billion, according to an analyst estimate.” READ MORE
MARKETING
A leading influencer for luxury brands says she doesn’t take freebies: “Morgan Stewart McGraw is rich: rich with an enviable wardrobe, rich with witty one-liners and yes, rich with family money. This wealth has made the 35-year-old famous twice: first as a star of the E! series ‘Rich Kids of Beverly Hills,’ and more recently as a fashion influencer with fine taste. With 1.6 million Instagram followers, many of whom track her every pair of sunglasses and sandals, Stewart McGraw has become something of a linchpin in the global sale of luxury goods. ‘When people ask me what I see as a trend, I say, I don’t know and I don’t care,’ she said during a Zoom call one recent morning. ‘I’m just going to wear things that make my day-to-day feel easy and comfortable.’”
“Social-media users are inundated with advertising these days—actors, models, and overnight celebrities shilling for gummy vitamins and gut cleanses. Stewart McGraw’s fans see her as a counterpoint to the glut of sponsored posts.”
“She often shares her outfits without tagging brands. She doesn’t offer discount codes. And she says luxury brands don’t send her free clothes. ‘That makes her more trustworthy to me than people constantly posting sponsored stuff,’ said Maeve Lawruk, 28, a social-media manager in Boca Raton, Fla.”
“On the website LTK, where influencers can make commissions on sales from shopping links, she is a top earner in luxury: Fans who shop her posts spend an average of $550—more than double the industry standard, said Reesa Lake, a vice president at LTK.”
“Stewart McGraw shares links to the site in her Instagram Stories. She sold 81 pink $1,600 mini skirts from the New York brand Area after wearing the skirt in March, Lake said. Fans also bought over 70 pairs of $800 Louboutin sandals after she wore them, she said. ‘She is a powerhouse,’ Lake said.” READ MORE
Maybe you should be more open about your business as you build it: “Back in 2018, Atlanta startup founder Karthik Puvvada, who goes by KP, had hit his lowest point. He and his chief technical officer had spent months building a software-as-a-service product. When they were ready to go to market, nobody wanted it. Puvvada realized remaining in stealth mode while developing the product had been a mistake. By the time the product was ready, nobody knew about it and there was no demand. That spurred Puvvada to adopt a new tack: He started working on tech projects for fun and tweeting about what he was doing.”
“People started following him because they were interested in his explorations — and Puvvada realized the power of being radically open. Eventually Puvvada decided to pitch himself as a product, tweeting out that he was looking for a new job at an ambitious startup.”
“The result: 42 direct messages leading to 13 interviews and three job offers. That was the ultimate endorsement for the build in public approach. Puvvada is one of a growing number of people in the tech community promoting this strategy.” READ MORE
HUMAN RESOURCES
Wage growth is slowing: “The latest Paychex | IHS Markit Small Business Employment Watch found hourly earnings growth at small businesses clocked in at 3.56 percent in October, the fourth straight month hourly earnings growth fell below 4 percent, according to Paychex. The slower growth of hourly wages by small businesses comes amid a slowing job market.”
“While small-business job growth remains above pre-pandemic levels, it has slowed about 0.66 percent from a year ago. And wages have slowed in 16 of the past 17 months, declining from 5.17 percent in May 2022 to 3.56 percent in October 2023.”
“A survey of 1,500 small business CEOs by CEO advisory firm Vistage found just 48 percent planned on hiring in the next 12 months, the lowest percentage in the past 10 years except for the second quarter of 2020 — the height of Covid-19 pandemic uncertainty. About 42 percent of small-business leaders said their workforce would remain the same in the next year and about 10 percent said it would decrease.” READ MORE
PRICING
McDonald’s demographics are shifting: “The chain's sales gains were driven by an uptick in traffic among ‘middle- and higher-income consumers’ who are trading down to McDonald's from more expensive restaurants, McDonald's Chief Financial Officer Ian Borden said. The company expects to raise menu prices by about 10 percent for the full year, he said. That's on top of a roughly 10-percent increase the previous year. In the U.S., a Big Mac cost $5.58 in June, up nearly 16 percent from $4.82 in June 2020, according to the Big Mac Index, which has been tracking the cost of the burger for decades. In Orange, California, the cost of a Big Mac meal is $10.39.”
“The chain, which saw U.S. traffic dip in the third quarter, said it is losing sales from ‘more discriminating’ consumers who feel pressure from inflation and rising interest rates. For McDonald's, that has led to a downturn in visits from lower-income consumers earning about $45,000 a year or less, CEO Chris J. Kempczinski told investors during the chain's third-quarter earnings call on Monday.”
“The fast-food industry is also broadly seeing a slowdown in traffic. According to restaurant analytics firm Guest XM by Black Box Intelligence, traffic in September decreased by 3.3 percent. It was the third consecutive month of slowing traffic in the industry and the lowest level of traffic growth since November 2022.” READ MORE
THE ECONOMY
The Hollywood strikes have been devastating a small-business ecosystem: “Charley Gilleran’s rigging-equipment warehouse on the outskirts of Los Angeles is a lot quieter than it used to be. A Hollywood production freeze caused by months of writer and actor strikes has meant the chain hoists, trusses and ramps used in movies like ‘Oppenheimer’ and Zack Snyder’s coming ‘Rebel Moon’ now sit largely unused. Gilleran and his partner have borrowed against their homes to keep their company afloat and are pursuing work on live events and commercials instead of film and TV. C&C Studio Services is among the Los Angeles-area small businesses crippled by the nearly six-month-long work stoppage resulting from the strikes. In a city reliant on the film and TV industry, the strikes have pinched household incomes, pushed small businesses to the brink, and put families behind on bills.”
“‘Once the strike hit, we fell off a cliff,’ Gilleran said. The company lost 70 percent of its business and cut its 16 full-time employees’ hours to about 30 a week.”
“Jennifer Janiak-Ross and her husband, who run a specialty costume jewelry-design business that crafts niche props, such as the ‘Romanov Black Diamond’ necklace featured on a recent episode of ABC’s ‘The Company You Keep.’ If production work doesn’t resume in earnest by the end of the year, the couple has decided to pivot their Long Beach, Calif.-based business to consumer-focused online sales. ‘It’s not the way I want to go, but at least it would be survival,’ she said.”
Janiak-Ross said the couple received a family inheritance in May, which has helped them get by. ‘We have no business, zero business,’ said Janiak-Ross. ‘The phone doesn’t ring.’” READ MORE
Farmers in the Northeast who rely on tourism are having a tough harvest: “According to [Peter] Barton, this has been, without question, the most miserable fall tourism season since he converted the family apple orchard to a pick-your-own outfit in the 1990s. Over the decades, Mr. Barton said, he has spent ‘millions upon millions’ building the venture up, adding a corn maze, an enormous playground, a petting zoo, and a tap room that sells hard cider and local microbrews. In recent years, he said, the property has drawn more than 10,000 visitors on peak weekends. For Barton Orchards, which like many apple-picking farms makes most of its annual income from tourists filling bags with Galas, McIntoshes and Granny Smiths during two months in the autumn, the recent spate of wet weather has been nothing short of disastrous.”
“The weekend outlook had recently shifted from two dry days to just one. Steady showers were predicted for Sunday. ‘That’ll be eight weekends in a row,’ Mr. Barton said. ‘It’s absolutely, absolutely unheard-of.’”
“It’s the same story at Apple Dave’s Orchards, in Warwick, N.Y., where the owner, Peter Hull, said the bad weather has cut autumn visits to the farm by half. Mr. Hull’s father, Dave, switched from selling apples wholesale to a pick-your-own model in 1974, when the farm’s storehouse burned to the ground with the year’s entire crop inside.”
“‘The next year he couldn’t pay pickers or packers or truckers,’ Mr. Hull recalled, ‘so he sat out there with paper bags from Shop Rite and said, Come pick your own.’” READ MORE
STARTUPS
A minor update to ChatGPT is a major warning for tech founders: “Sam Altman's company introduced a new beta feature for ChatGPT subscribers on Sunday, which allows them to upload PDFs. The chatbot analyzes the files and allows users to start asking questions about them. Anyone who has ever tried scrolling through hundreds of pages of PDFs to pull out useful data and synthesize information will know just how tedious it can be. That makes the update a pretty nifty one for ChatGPT Plus users.”
“Some startups have built their businesses around ChatGPT's lack of interactivity with PDFs. Now that ChatGPT can interact with them, what can these other startups offer that ChatGPT can't? The simple answer may be a whole lot of nothing.”
“Sahar Mor, product lead at payments giant Stripe, wrote on LinkedIn that ‘OpenAI just executed a move that will wipe out dozens of AI companies.’ Specifically, he referred to ‘wrapper startups.’ These are essentially startups that ‘wrap’ themselves around an API like ChatGPT, using the core technology underneath the chatbot to offer some sort of service that isn't available directly from that API.” READ MORE
THE 21 HATS PODCAST
Sometimes, Dreams Do Come True: If you’ve been listening to this podcast, you know we spend a lot of time talking about all of the things that can go wrong for a business owner. And yes, in part because we started recording these conversations just a couple of months before the pandemic hit, we’ve had plenty to talk about. Even this year, with the worst of the pandemic behind us, we’ve been talking about everything from excess inventory to lost clients to layoffs to ineffective marketing to surviving the valley of death. So, with that in mind, this week, I’ve chosen to replay an episode both because it offers an inspirational message and because, well, we here at the home office need a little break. It’s the episode we recorded two years ago when Karen Clark Cole sold her business.
“Especially given that Karen had only recently been through a tough period that prompted her to take time away from the business, the conversation is a nice reminder that sometimes things do come together. It’s also full of great advice for anyone who thinks they may want to sell their business one day.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren