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The Most Profitable Year Ever
Instead of imploding in the pandemic, profits for carmakers and dealers alike exploded and kept soaring.
Good morning!
Here are today’s highlights:
A near record number of small businesses increased compensation in March.
Outdoor dining programs saved a lot of restaurants. Should they be permanent?
Washington state will require employers to post salary ranges.
That yield curve finally inverted: “This is going to end in tears.”
SALES
Never mind those chip shortages. On a recent weekend in Las Vegas, the nation’s car dealers celebrated their best year ever: “And by the time the dealers gathered last month in Las Vegas for the 105th edition of their annual conference, they were ebullient, toasting at cocktail parties and stalking the convention floor. Vendors, with anything a car dealer could need or dream of, were armed with enough promotional tchotchkes to fill several gymnasiums. There was much to celebrate. Instead of imploding in the pandemic, profits for carmakers and dealers alike exploded and kept soaring. While some brands reported lower sales, transaction prices rose sharply to make up for lost volume, allowing many makers to notch record profits, sales or both. And, lo and behold, car dealers enjoyed their best year in history.”
“‘The average Toyota dealer in the Boston region in the best years made between $2 and $2.2 million. Last year, the average net profit was $6 million.’”
“Sheldon Sandler, a Wall Street accountant turned car dealership sales broker, agreed. ‘Every dealer today is making money hand over fist,’ he said. ‘Dealers are making money with all brands, even second- or third-tier ones.’”
“Mr. Sandler is a founder and managing partner at Bel Air Partners, a New Jersey consultancy that specializes in the sale of private dealerships and dealership groups to publicly traded companies. If he had a problem these days, he said, it was finding dealers willing to sell their stores.” READ MORE
FOOD & BEVERAGE
Should outdoor dining programs be permanent? “Cities across the U.S. are grappling with the messy details necessary to make permanent the outdoor-dining sheds, igloos and patios that helped restaurants stay afloat during the height of the pandemic. Seattle, Denver, Atlanta and Los Angeles are in the process of developing plans to make their expanded outdoor-dining programs permanent. These programs were often set up to be temporary and allowed restaurants to apply for permits that gave them permission to use parking spaces and sidewalks for dining space. New York City officials are fighting a legal challenge seeking to block its outdoor-dining program.”
“In Los Angeles, a survey of restaurants with curbside dining areas found that 81 percent said they would have permanently closed without the outdoor modifications, according to city officials.”
“But making those programs permanent can be tricky for city officials with limited funds to ensure outdoor dining is safe, clean and accommodating for people with disabilities. They also have to navigate the concerns of neighbors and other businesses and balance that with the desires of the restaurants.”
“‘There’s more rats, trash, noise, crowds,’ said Diem Boyd, a resident of the Lower East Side of Manhattan and one of the people suing to stop the outdoor-dining program. ‘That’s the reality of the situation.’” READ MORE
RETAIL
Across Vermont, as country stores close for good, some turn to a new business model: “These often ramshackle buildings are in many ways a metaphor for Vermont itself. Small, but mighty. Torn between the present and the past. For sale: hunting licenses, kombucha, fishing worms, and arborio rice. Bulletin boards with advertisements for sheep shearers and handmade hemp oils. Coolers with $2 Bud Lights and $8 Heady Toppers. A rainbow LGBTQ flag billowing next to a wooden caricature of a Native American. But their future in the changing landscape of Vermont is increasingly uncertain.”
“As longtime general store proprietors retire, they struggle to find anyone, even their children, willing to take on the debt, maintenance, and 12- to 16-hour days that come with ownership.”
“That, combined with the competition of Amazon and Dollar Generals, has led to over a hundred stores shuttering in the last two decades.”
“In other towns, where generational ownership of the local general store is no longer an option, another model has emerged in the form of the community trust. At least eight towns, from East Calais to Peacham to Gilford to Shrewsbury, have adopted this approach.”
“In Elmore, a tiny town in the state’s northeast corner, a community trust of nine citizens raised $400,000 to save their general store on the shores of Lake Elmore.”
“A young couple living in Mississippi, Mike Stanley and Kate Gluckman, answered the trust’s job posting, packed up their things and biscuit recipe, and took over as proprietors at the start of the new year.” READ MORE
HUMAN RESOURCES
A near record 49 percent of small businesses raised compensation in March: “The share of small firms boosting worker pay is just below the 50 percent seen in January, which was the highest in monthly data back to 1986. Some 28 percent said they planned to raise compensation in the next three months, up slightly from February’s 26 percent.”
“Higher pay is only slowly starting to bear fruit as 47 percent of small businesses reported open positions that they could not fill.” READ MORE
Washington State has passed a new gig worker law that cements the independent contractor status of ride-hail drivers: “The bill, which was the result of negotiations between Uber, Lyft, and the local affiliate of the Teamsters, maintains the independent contractor status of drivers in the state—and protects ride-hailing companies’ core business model. Drivers statewide will receive new rights. They will accrue sick pay and receive minimum pay guarantees based on the time and distance they spend on each trip, though the guarantees will only apply to the time they are carrying or picking up passengers. Drivers generally report they spend 40 to 60 percent of their time without people in their cars.”
“Drivers will not get the full set of traditional benefits that come with being staff members, including health care.”
“And ride-hailing companies will still not pay into unemployment insurance programs, a factor that frustrated many drivers during the pandemic, when rides suddenly dried up.” READ MORE
Washington state will also require employers to post salary ranges: “Once the law goes into effect on January 1, companies with 15 or more employees will be required to disclose the salary range and a ‘general description’ of the benefits and other compensation tied to a role. Washington is not the first state to pass such a bill. Colorado’s Equal Pay for Equal Work Act went into effect last year. Since then, that law has resulted in some employers (including Airbnb, according to the Denver Post) barring Colorado-based workers from applying to jobs in an apparent effort to circumvent the requirement to disclose pay ranges.”
“The Washington bill may be harder to circumvent, given the state’s mass of tech workers, according to Cher Scarlett, an engineer who testified in favor of Washington’s bill.” READ MORE
Thirty-eight companies in the U.S. and Canada are taking part in a four-day workweek experiment that runs through September: “Through the 4 Day Week Global program, businesses go through workshops to figure out more efficient ways of working, get matched with a mentor company that’s done it before, and in the U.S. will work with researchers at Boston College to measure changes in productivity and employee well-being over time. Most companies reduce the workweek to 32 hours over four days, rather than maintaining 40 hours within four days. The nonprofit calls this a 100-80-100 model: Workers receive 100 percent of their pay for 80 percent of the time and maintain 100 percent productivity.”
“One company taking part is Kickstarter, where chief strategy officer Jon Leland says piloting a shorter workweek is a next logical move after it became a fully remote company last year.”
“Kickstarter, which has just under 100 employees, doesn’t anticipate having to hire more people in order to meet their same deadlines while working fewer hours. The four-day perk is already coming up in hiring interviews as a competitive advantage, Leland says, and he expects it to decrease the company’s time to hire.”
“‘The biggest risk isn’t trying this out and it not working. Your biggest risk is your competitor doing it first.’” READ MORE
THE ECONOMY
The dread yield-curve inversion happened on Friday: “The closely watched differential between yields on two-year and 10-year Treasury notes inverted [last] week. On Friday, the yield on two-year Treasury notes hit 2.44 percent and on 10-year notes it lagged behind at 2.38 percent. Steve Englander, an investment strategist at Standard Chartered Bank, saw similar signals coming out of eurodollar futures markets, where traders make bets on future rates. He found that expected short-term rates in three years and four years were lower than expected rates in two years.”
“‘This is typically a sign that bad times are ahead, a recession or at least a slump is expected,’ he said. ‘The market seems convinced this is going to end in tears.’”
“In normal times, the longer it takes to pay back a loan, the higher the interest rate you have to pay. Lending money over a longer duration entails more risk and thus demands a higher return.”
“The interest rate for a three-month loan, in other words, should be less than the interest rate for a two-year loan, which should be less than on a 10-year loan. When these relationships invert, it’s a signal of turbulence on the horizon that often involves the Federal Reserve.”
“The high short-run interest rate is driven by expectations of Fed interest-rate increases and the long-run rate is driven by expectations of recession, a subsequent drop in inflation and Fed rate cuts later on.” READ MORE
Consumers are cutting back on staples: “Procter & Gamble, Clorox, Kraft Heinz and other consumer-products giants have made a bet that consumers will pay up for household products even as inflation takes hold. Over the past year, the companies have seen profits and market share grow as they have raised prices on products from detergent and diapers to snacks and soda. Now consumers, hit by soaring costs for everything from gasoline to child care, are drawing a line, analysts and retailers say. Shoppers are buying staples in smaller quantities, switching to cheaper, store-name brands and more rigorously hunting for deals. The shift is especially pronounced among lower-income consumers who splurged on household products amid the heights of the pandemic, they say.”
“Another telling sign: sales volumes have begun to fall in a number of categories, meaning people are buying mainstays in smaller quantities. Before and during the height of the pandemic, sales volumes of staples increased even as prices rose.”
“Jonathan Weis, chief executive of Weis Markets, said shoppers are buying more items on sale in addition to purchasing less, as he sees an increase of 5 percent to 8 percent in overall food prices. As energy prices increase and consumers pay more to commute or heat their homes, people will shed their spending elsewhere, he added.” READ MORE
SMALLBIZ TECH
Apple is launching a subscription service, Business Essentials, aimed at small businesses: “After a beta period with thousands of businesses, Apple is ready to extend simplified device management, iCloud Drive storage, and device repair solution to all small businesses. Originally launching in beta in November of 2021, Apple Business Essentials is designed to take the headache out of device management for growing organizations using Apple.” READ MORE
If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren