The Health Insurance Burden
Isn’t running a business hard enough without having to solve the financial and bureaucratic challenges of offering health insurance to employees?
Good Morning!
Here are today’s highlights:
It’s not just homeowners who are finding it’s getting harder to buy property insurance.
Can Goodwill ever compete online with the for-profit resale sites?
There’s a lot of evidence that Americans are just not going back to the office full-time.
Now CEO of Doc Johnson Enterprises, Chad Braverman grew up wondering precisely what business his family was in.
INSURANCE
The insurance crisis is spreading from homes to businesses: “Naomi Silverman got the news in the mail in April: Her business property insurance was not being renewed, and she had just two months to find a replacement. When the third-generation owner of Mendels, a family-run art and fabric supplier on Haight Street [in San Francisco], started contacting insurance brokers, she said they had few policies to offer. And insurers have become very picky: One company declined to give a quote because Mendels doesn’t have sprinklers, and another because there was graffiti on a neighboring building. ‘It just seems so unfair,’ Silverman said. ‘I was so worried because I’ve heard so many horror stories.’”
“A perfect storm of rising inflation, soaring construction costs, increased crime concerns, and mounting fears of catastrophic wildfires has combined with insurers’ long-term frustration with California’s regulation of insurance premiums to turn off the taps.”
“Commercial property insurance costs have risen 7.6 percent annually on average since 2017, according to Moody’s Analytics, but in 2023, commercial property premiums increased 8.8 percent in the first quarter, more than they had in over 20 years, according to a survey from the Council of Insurance Agents & Brokers. In the second quarter, they ticked up another 8.9 percent. For the year as a whole, rates will rise more than 20 percent.”
“Across the bay in Oakland, small merchants are struggling even more with the insurance issue as that city has been beset by soaring crime rates in 2023. In late September, Oakland merchants went so far as to hold a one-day business strike to call attention to rampant crime.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The Insane Burden of Health Insurance: This week, we learn that Gene Marks and Bernie Sanders agree on something, which is that there are better ways to handle health insurance than making business owners responsible for providing it to their employees. Isn’t running a business hard enough without this financial and bureaucratic burden? Does it really have to be this way? Plus: Why Gene thinks what he calls “the era of the worker” won’t last forever. And what business owners need to know and do before they lay off or fire employees.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
REPUTATION MANAGEMENT
A restaurant where Jews and Palestinians have gathered for years is suddenly flooded with bad reviews: “Since Ayat opened its door in Bay Ridge, Brooklyn, the restaurant has been proudly Palestinian. Inside its cozy storefront, Palestinian flags flank a glass case filled with grape leaves, fried eggplant, and beef pies. It is a place to celebrate Palestinian culture — ‘something beautiful to share with others,’ said Ayat Masoud, who owns the restaurant with her husband. And in one of New York City’s most diverse neighborhoods, where Arabic signs announce businesses, and people of many faiths and ethnicities work, shop and live side-by-side, a sizable portion of Ayat’s customers are Jewish. ... After the Hamas attack on Israel on Oct. 7, Ayat was suddenly flooded with dozens of one-star reviews online.”
“Ayat is built on Ms. Masoud’s love of cooking. Ms. Masoud, 33, a lawyer, and her husband, Abdul Elenani, 30, opened the restaurant in a former tanning salon in October 2020. Mr. Elenani, an entrepreneur whose businesses include a chain of coffee shops, said they wanted ‘to spread the message about what’s happening in Palestine through food and culture.’”
“Ms. Masoud’s cooking at Ayat quickly garnered rave reviews, but there was considerably less enthusiasm for a self-declared ‘Palestinian restaurant.’ Mr. Elenani said that some of their customers asked: ‘Why do you bring politics into food?’”
“After Ayat started racking up bad reviews, Mr. Elenani reported them and managed to get most of them taken down. Some reviews urged people to stay away from a Palestinian business. It did not work: There has been no drop-off in customers.” READ MORE
ECOMMERCE
Goodwill is trying to figure out how to compete with for-profits and sell online: “Since its founding in 1902, Goodwill’s locations have been go-to spots for millions of people looking to get rid of their lightly worn clothes and rifle through the racks for other people’s stuff. But when it comes to online shopping, Goodwill has a ways to go. For more than a decade, it has faced mounting competition from the likes of ThredUp, Poshmark and Etsy’s Depop, online platforms specializing in previously owned clothes.”
“Goodwill is made up of 154 independently run organizations that have their own chief executives and control the inventory that is donated to stores in their regions. More than 100 of them use an e-commerce auction site called ShopGoodwill.com, which was started in 1999.”
“Over the past year, a handful of Goodwills have been contributing to a new online site, GoodwillFinds. ‘There’s so much competition coming into the market now,’ Matt Kaness, chief executive of GoodwillFinds eCommerce, said. ‘So all the donations — the billions of pounds of donations that Goodwill gets every year — is now a massive market that for-profit players are targeting.’”
“Nowadays, people can easily get paid — by businesses including ThredUp and the RealReal — to offload their lightly worn T-shirts and designer bags, rather than donate them. While many devotees say it will always be easier to drop off a bag of goods at Goodwill than deal with the online consignors, the increasing competition poses a threat to the nonprofit.” READ MORE
THE ECONOMY
Home sales are on track for their slowest year since the housing bust: “Sales of previously owned homes in 2023 are expected to dwindle to a rate not seen since at least 2011, when the U.S. population was smaller and the country was still recovering from one of the worst housing crises ever, according to many economist forecasts. Chen Zhao, economics research lead at real-estate brokerage Redfin, estimated that total existing-home sales in 2023 would amount to around 4.1 million, which would mark the smallest number of sales since about 2008, the year that Lehman Brothers collapsed and sparked the global financial crisis. Zhao said sales are unlikely to pick up much next year, with mortgage rates likely to remain at elevated levels.”
“The average rate on a 30-year fixed mortgage rose to 7.57 percent last week, according to Freddie Mac. That is up about half a percentage point since August, when rates crossed above 7 percent for the first time in nearly a year and home sales fell to their lowest level since January.”
“Slowing home sales could also impede economic growth by limiting spending on housing-related items such as appliances and furniture, and prompt home builders to pull back on new construction.” READ MORE
OFFICE SPACE
OPINION: In case you hadn’t noticed, the return-to-office movement is failing: “A telling data point is the number tracking how many Americans swiped and tapped electronic cards to gain entry into their offices. This month, occupancy rates were at 50 percent of February 2020 levels. That is shocking — only half as many days are spent in the office compared with pre-pandemic times. That number has flatlined not only in office buildings in San Francisco and New York but also in workplaces in Atlanta; Charlotte, N.C.; Dallas; Denver; and Philadelphia. Blue and red, inland and coastal, Northern and Southern workers who might have disagreed on pandemic-related behaviors like mask wearing and vaccine boosters have quietly united behind work-from-home habits throughout 2023.”
“Why have the return-to-office maximalists lost? There seemed to be so much excitement and pent-up demand from people who wanted to leave their kitchen tables for ergonomically better office desks. There was. They just didn’t want to go in all the time.”
“Employees equate a mix of working in the office and working from home to an 8 percent raise. They don’t have to deal with the daily hassle and costs of a commute. In fact, the process of getting to work is more despised by employees than the need to actually work.”
“And, at the end of the day, despite all the noise some business executives made to the contrary, remote work saves firms money. It cuts overhead, boosts productivity, and is profitable. And what is profitable in a capitalist economy sticks.” READ MORE
RETAIL
Netflix plans to open retail stores in 2025: “These stores will offer fans the opportunity to fully immerse themselves in the worlds of their favorite TV shows, providing a unique and interactive experience. According to Josh Simon, Netflix’s vice president of consumer products, Netflix House will be a combination of retail, dining, and live experiences. Visitors to these stores will not only have the chance to shop for clothing and merchandise related to their beloved shows, but also indulge in themed food and participate in various activities. The first two Netflix House locations will be established in the United States, according to Bloomberg, with plans for global expansion in the future.”
“Netflix has already experimented with the concept of immersive experiences through its pop-up restaurant, ‘Netflix Bites,’ which opened in Hollywood, California, in July. The positive response to this venture likely encouraged Netflix to explore the potential of permanent retail spaces.” READ MORE
FEATURE
When the family business is making and selling adult toys: “Ron Braverman, who is Chad’s father and the company’s chief executive, founded Doc Johnson Enterprises in 1976. The sexual revolution was well underway, but America remained prudish compared with the free-spirited culture he saw during his four years living in London and Amsterdam, where he ran bookstores that sold adult magazines and novelties. In the U.S., he says, sex toys were commonly called ‘marital aids’ and sold under the counter in discreet poly bags, usually to men who shopped alone.”
“To destigmatize the shopping experience, he packaged Doc Johnson merchandise in clear boxes for open display on store walls. The products themselves were also upgraded to look and feel more realistic. ... Business boomed in the 1980s and Doc Johnson’s catalog continued to swell, reaching 2,200 unique items by the late 1990s.”
“All of it was manufactured in North Hollywood except for electronic items, which were produced in China, and what began as a small 1,500-square-foot operation grew to a 250,000-square-foot compound that in 2015 employed 575 people and churned out as many as 20,000 items a day.”
“Chad Braverman was born six years after Doc Johnson was founded and spent his early childhood in Sherman Oaks not knowing exactly what it was his father did for a living. ‘Mafia activities’ was his best guess.”
“The company brings in about $300 million in annual retail revenue ... Like it was for many sex toy companies, 2020 was by far the best year in its history as people quarantined at home, bored and with little else to do. The company saw revenue double that year, but things have slowed considerably since, particularly for premium products priced at $150 or higher.” READ MORE
THE 21 HATS PODCAST
Bonus Episode: An Accidental Entrepreneur: It took a series of sad losses to turn banker Channon Kennedy into an entrepreneur. If a friend hadn’t lost his son and if Channon’s mother and sister hadn’t been diagnosed with cancer, she never would have designed, prototyped, manufactured, and started selling the Morgan Square, a tool that can save carpenters time while framing a project. Channon is just getting started, but we’ll keep in touch as her journey continues.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren