Steal This Idea, Please
When others copy your business plan, it may mean you’re on to something.
Good Morning!
Here are today’s highlights:
Walmart holds its Open Call for American manufacturers.
Snow-dependent businesses may still have a future.
Online retailers are finding that return fees do indeed reduce returns. But there’s a but.
One of America’s best known office buildings is going residential.
MANUFACTURING
Walmart drew fewer entrepreneurs and cut fewer deals at its annual Open Call: “For the past 10 years, Walmart has drawn hundreds of entrepreneurs to its headquarters in Bentonville, Arkansas to pitch their American-made products to the chain’s buyers. This year, 700 made the trek, a surprising 36 percent decline over last year’s 1,100. A total of 180 products got a deal to sell at Walmart or Sam’s Club this year, a 45 percent decline compared with last year when more than 330 products got an immediate yes. ‘As we’ve done this 10 times, our vetting continues to get better,’ Jason Fremstad, Walmart’s senior vice president of supplier development and sourcing, told Forbes as its two-day Open Call wrapped up on Wednesday. The improved vetting ensures fewer pitches at the Open Call, he said, but the retailing behemoth has increasingly focused on making sure that suppliers don’t land a deal they can’t handle.”
“The Open Call represents something of a lottery ticket for small- and mid-sized American manufacturers. Beyond the celebrations, though, is serious dealmaking. Walmart’s buyers hold 30-minute discussions with each would-be vendor in small rooms, driving hard bargains on price and often offering local or regional deals as a test.”
“Its buyers have also been known to pair companies together, or to put together deals beyond what the entrepreneurs have pitched. Even those who get a no are invited to list their goods on Walmart’s online marketplace, which can be a training ground for a possible in-store deal.”
“Among the companies that made the cut this year are Brilliant You Denim, which makes women’s jeans at its North Carolina factory, and the Ugly Company, which makes dried fruit from the ugly fruit that farmers can’t sell. Walmart has said that nearly two-thirds of its annual spending goes to products that are ‘made, grown or assembled’ in the U.S.”
“Among them: Patti LaBelle-branded sweet potato pies and other desserts, a relationship that now accounts for $85 million in revenue, and mass-market bike manufacturer Kent International, which set up a factory in South Carolina to produce its BCA brand bikes after Walmart pushed its ‘buy American’ campaign.” READ MORE
COMPETITION
Is it a good thing or a bad thing when other entrepreneurs copy your idea? A business called Tong is finding out: “Naeem Khandaker believes he can see the future, and the future he sees is fuchka. Mr. Khandaker claimed he was the first person in America to sell the Bengali snack — crispy and orb-like, sweet and spicy in a single bite — when he opened his street cart five years ago on a busy corner in Queens. Today, no fewer than eight fuchka carts, with near-identical menus and similar design aesthetics, operate within a one-block radius of his original spot. Imitation, in New York, is often the sincerest form of entrepreneurship. But commercial copycatting in the city rarely comes with the physical proximity, personal familiarity and cheeky gamesmanship of the fuchka free-for-all deliciously erupting in Jackson Heights.”
“‘The first fuchka cart in USA,’ trumpets the sign on Tong, Mr. Khandaker’s business, on the northeast corner of 73rd Street and 37th Avenue. ‘We are the original,’ retorts the banner atop Fuskahouse, confusingly, a few feet away. ‘We are real,’ proposes Fuchka Garden, a couple more steps east, elevating the debate onto the astral plane.”
“When Tong opened in 2018, the crowd of unbelievers included Mr. Khandaker’s wife, he said. She left him a few weeks after Tong opened, he said, unmoved by his vision. (He feels no ill will toward her today, he emphasized multiple times.)”
“He said tears often fluttered down his face as he cooked in those early days. But the toil paid off, and after lines began forming at Tong, other carts began sprouting down the block, like mushrooms on a forest floor.”
“Everybody is copying Mr. Khandaker’s idea, but he could not be happier about it. ... Tong is flourishing, anyway, with multiple carts, a new restaurant, and plans to grow.” READ MORE
OPPORTUNITIES
Snow-dependent businesses may not be doomed: “It is a longstanding tradition for old people to tell young people that winters aren’t what they used to be. The difference now is that it is obviously true—and you don’t have to be all that old to remember when winters were colder. The climate has changed, temperatures have risen and snow falls less frequently. For many ski areas and ski towns, this has been bad news. It has been bad, too, for the makers of winter recreational equipment, as well as for companies in the business of removing snow. So it is natural to think that, with winters expected to keep warming, snow business will turn into no business. But what a warming planet would do to winter in the coming decades could be more complicated. While it could still cause plenty of headaches for snow-dependent businesses and communities, it would allow some of them to survive, and even thrive.”
“While a warming planet is reducing overall snowfall, it can also lead to more extreme snowfall events, explains Anders Levermann, a climate scientist at the Potsdam Institute for Climate Impact Research in Germany. This is because warmer air can hold more water vapor, leading to more precipitation generally, and more extreme precipitation events.”
“That already appears to be happening in Vermont, according to Gillian Galford, a climate scientist who led the University of Vermont’s latest state climate change assessment. ‘We are getting more precipitation in the winter and it is generally cold enough to fall as snow,’ she says.”
“One outcome is that many ski areas still in operation will likely remain viable. Throw in advances in technology, such as the ability to make snow at warmer temperatures than in the past, and skiers could have some very good seasons to look forward to.” READ MORE
ECOMMERCE
As expected, return fees are reducing returns. They’re also reducing sales: “About a third of companies surveyed by logistics company Happy Returns say they have lost customers since they began charging consumers fees to return items that they purchased online. That suggests merchants are seeing a backlash even as more than half of them say the tactic has slowed the flood of goods they have seen coming back into their warehouses over the past three years. Tom Enright, an analyst at research firm Gartner, said retailers risk alienating customers with the charges as the busy holiday shopping season approaches, when returns often peak alongside increasing sales.”
“Consumers during the pandemic got used to ordering items such as apparel in several sizes and colors at once to try on at home, sending back whatever they didn’t like. Shoppers returned about 16.5 percent of items they purchased online in 2022, up from 9.6 percent in 2019, according to data from Appriss Retail and the National Retail Federation.”
“Retailers are looking at various tactics to limit the practice. Those include alerts to shoppers about items that are frequently sent back, online tools to help consumers see how apparel will fit them, and discounts when customers agree in advance to keep whatever they buy.”
“Amazon charges a $1 fee when shoppers choose to ship returns through United Parcel Service rather than dropping off the items at certain stores. H&M charges $5.99 to send items back through the U.S. Postal Service and eliminates the fee for members of its loyalty program. Zara has a $3.95 fee to mail back returns.” READ MORE
LOCATION, LOCATION, LOCATION
There’s some evidence that, driven in part by A.I., Big Tech cities are rebounding: “The latest data, drawn from analyses by Brookings Institution experts William Frey and Mark Muro, show that big tech cities such as San Francisco, Seattle, and New York are significantly rebounding. Their population losses have abated, and they remain major hubs for innovation. In fact, big cities and their surrounding suburbs and rural areas greatly contribute to the strength of the U.S. economy and keep the United States at the global forefront of advanced computing and technology.”
“Despite their fluctuating populations in recent years, San Francisco, New York, Los Angeles, Seattle, and Boston remain the nation’s artificial intelligence capitals. From July 2022 through July 2023, nearly half of postings for jobs in ‘generative AI’ were published in these five cities, plus San Jose.”
“While it’s true that job postings are distinct from hires, they are nevertheless a good proxy for hiring activity. Nearly one-quarter of the postings were published in the Bay Area. San Francisco is hardly finished being a major tech hub; it’s the new Klondike of the generative AI gold-rush.”
“In short, the oft-cited ‘urban doom loop’ belies a broader resilience — demographic and economic — among U.S. cities. Yes, they still face challenges, but many are resurgent and even dominant. That’s good for the American economy.” READ MORE
The renowned Flatiron office building in New York City is being converted to apartments: “The proposed redevelopment by the new owners is aimed at starting a second life for the Flatiron — its sole office tenant, Macmillan Publishers, departed before the pandemic — and moving past a dramatic period in which its fate seemed uncertain. In March, a little-known buyer won an auction for the building, only to disappear without paying. The building’s future as housing began to take shape this week when the Brodsky Organization, a residential developer, bought a stake in the 22-story, triangular-shaped tower on Fifth Avenue. Brodsky will lead the conversion, carving out units — either for sale as condominiums or as rentals — from the notoriously awkward space.”
“The transformation is expected to take about three years, the owners said. They need approval from the Department of City Planning, a lengthy process that could take a year, and demolition and construction could take two years.”
“[Brodsky’s Dean] Amro said that despite the Flatiron’s quirky interior, its numerous windows would make a conversion into residences far easier than most office buildings. But the construction would require some major internal changes: Stairs and elevators must be moved around and consolidated.”
“Over its 121-year history, the Flatiron Building became as identified with Manhattan as the Empire State Building or the Chrysler Building.” READ MORE
THE ECONOMY
The American economy continues to do a lot better than Americans realize: “When Covid-19 struck, the initial economic impact was devastating. Large parts of major economies shut down, both because of official lockdowns and because people feared that in-person interaction would expose them to infection. In the United States, 20 million jobs suddenly disappeared. At the time, there was widespread concern that the pandemic would leave lasting economic scars. After all, the 2008 financial crisis was followed by a weak recovery that left real gross domestic product in many countries far below the pre-crisis trend even a decade later. Indeed, as we approach Covid’s four-year mark, many of the world’s economies remain well short of full recovery.”
“But not the United States. Not only have we had the strongest recovery in the advanced world, but the International Monetary Fund’s latest World Economic Outlook also points out that American growth since 2019 has actually exceeded pre-Covid projections.”
“It’s true that one recent poll found that a majority of Americans and 60 percent of Republicans say that unemployment is near a 50-year high. But it’s actually near its lowest level since the 1960s.”
“Meanwhile, retail sales are strong, and the rate at which workers are voluntarily quitting their jobs is high, which normally indicates a good labor market in which people are confident of finding new jobs. What about inflation? When you use comparable measures, America also has the lowest inflation rate among major economies.” READ MORE
CANNABUSINESS
Super-lawyer David Boies is challenging federal restrictions on the sale of marijuana: “Once banned in Boston, marijuana now pervades the nation, with legal sales in Massachusetts alone grossing more than $5 billion since a 2016 state ballot measure legalized recreational use. But while dispensaries have proliferated across the country, the pot industry faces an obstacle: The federal government still classifies cannabis among the most deadly of narcotics, alongside heroin and LSD. Looking for a remedy, a raft of reefer businesses have turned to superlawyer David Boies, who on Thursday sued Attorney General Merrick Garland, seeking to strike down marijuana restrictions now in place under the federal Controlled Substances Act.”
“The suit, filed in federal district court in Springfield, Mass., argues the prohibition exceeds congressional authority over interstate commerce by interfering with state-based businesses that don’t operate across state lines.”
“Pot’s formal status creates tax burdens and legal obstacles to integrating the business into the banking system, said Jason Wild, a one-time pharmacist now running TerrAscend, which refers to itself as a ‘vertically integrated’ cannabis company. Marijuana businesses can’t qualify for Small Business Administration loans, Wild said, and retailers are all-cash because credit-card companies and major banks won’t touch clients with a cannabis aroma.”
“Worst of all, he said, marijuana’s prohibited status means companies can’t deduct most expenses from their income, so ‘you end up paying a much higher percentage of your profits, and then some,’ to Uncle Sam.” READ MORE
THE 21 HATS PODCAST
And Some Days the Bear Eats You: This week, Liz Picarazzi tells Jay Goltz and Sarah Segal that her trip to a bear sanctuary in Montana to get her trash enclosures certified as bear-resistant did not go precisely as planned. Because of a logistical snafu, she has not yet obtained either the certification or her real goal: a marketing video of the grizzlies attempting to crack open her baited enclosure. Fortunately, things went better for Liz in a more traditional marketing venue, a trade show in Chicago where she promoted her rat-resistant enclosures. Meanwhile, Sarah follows up on how things are going since losing two big clients and having to lay off three employees, and Jay explains his new catch phrase, “Let me not sleep on it.”
“Plus: we discuss the owner of a two-year-old construction business who wonders how long he should keep going if he doesn’t start to make a profit. He also asks why no one ever talks about how hard it is to run a business. While we can’t know for sure what’s happening inside his company, we can be pretty confident that he’s not listening to the right podcast.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren