This Is How We’ve Always Priced It
In his latest video, Lou Mosca says that statement is no longer acceptable. To maximize profit, he says, you have to assess your costs and your pricing constantly.
Good Morning!
Here are today’s highlights:
Despite the heat waves, backyard pools aren’t selling. But ice is.
Fast food restaurants are thinking smaller and smaller.
A company promised to bring apparel manufacturing back to St. Louis.
Gene Marks checks in on the lipstick metric.
SCHEDULING NOTE
The Morning Report will return to your in-box on Monday. I hope you have a lovely Fourth and a nice break.
MANAGEMENT
In this week’s video, Lou Mosca talks about maximizing your profit: “It might sound straightforward, but there are a few key strategies you should be implementing daily to ensure your business thrives. It's not just about setting prices and leaving them be. You should constantly evaluate your costs and adjust your pricing—every month at the very least. We often hear from clients who have always priced their products or services a certain way, but given today’s volatile market, this approach is no longer sufficient. Are you getting the gross profit you need? Ask yourself this question regularly, and take action based on the answer.” CONNECT WITH LOU
THE ECONOMY
The pool boom is over: “Just 60,000 residential, in-ground pools will be constructed this year, one research firm estimates — half as many as in 2021. Pool Corp., which distributes pool supplies and equipment, said last week that pool construction would be down as much as 20 percent from last year. If the market continues to weaken further, there could be fewer new pools built than the 54,000 that were constructed in the Great Recession year of 2009, following a spectacular nationwide housing bust. Higher-end pools that have fancy waterfalls or decorative tiling are selling fine. It's demand for low-end pools that is slowing.”
“One reason: High-end pool buyers tend to pay in cash. Lower-end pools are more likely to be financed, and high interest rates have made that less palatable.”
“‘The middle-to-lower income consumers are strapped and out of gas,’ Ryan Merkel, who follows the pool market for William Blair, tells Axios.”
“The price of a pool has been rising even as demand has slowed. The average pool cost went from roughly $40,000 pre-pandemic to somewhere north of $65,000, estimates Garik Shmois, an analyst at Loop Capital.” READ MORE
Meanwhile, the ice business is thriving: “Amid the latest heat wave, recent Google searches for ‘ice machine business’ and ‘ice machine business for sale’ had been highest among those living in Texas, Louisiana, and Mississippi, which also experienced blistering temperatures late last month. Ice making comes in a range of shapes and sizes. Many restaurants have their own setups, while entire companies like Carlstadt are dedicated to producing ice en masse. Independent business owners or individuals can buy or rent their own self-service vending machines, which do best in highly trafficked areas like shopping centers or apartment complexes.”
“Plenty of how-to YouTube videos and websites tout an ice vending machine as a great way to make passive income -- that is, income not derived from actively managing a business -- which people turn to often in times of economic strain. The trend is particularly acute among Millennials and Gen Z, as reported recently by Vending Times.”
“But plenty of industry experts warn that people looking for a quick way to make cash should expect frequent maintenance and steep initial costs. The price to acquire an ice vending machine that holds 6,500 lbs of ice can clock in at almost $150,000.”
“Selling ice out of its single credit-card operated ice vending machine, located in front of Carlstadt's building, makes up about 10 percent of Carlstadt Ice's revenue of $3 to 4 million over the past year. [Carlstadt VP Rolando] Lugones says he'd like to purchase more ice vending machines in the near future. The rest of his business comes from his company's commercial-grade machines that supply ice for supermarkets, gas stations, state fairs, and every rest stop in New Jersey.” READ MORE
BUSINESS MODELS
Fast food outlets are getting faster and smaller, especially in NYC: “Chick-fil-A’s new location in New York City has everything you’d expect from the chicken shop: friendly servers, crispy waffle fries, and a line of hungry customers. It’s missing just one thing: seats. The shop, which opened on the Upper East Side in March, is the chain’s first to exclusively handle pickup and delivery orders. It’s part of a trend of smaller, takeout-focused stores that boomed during the pandemic and stayed popular, especially among Manhattan’s coffee-shop and fast-food chains.”
“From 2019 to 2023, the average size of a retail lease in Manhattan shrank 17 percent, to 2,585 square feet, according to the CoStar Group, a commercial real estate data company.”
“Among those thinking small is Benjamin Sormonte, co-founder and chief executive of the cafe and bakery chain Maman. Mr. Sormonte plans to open more miniature Mamans — appropriately called Petite Mamans — after opening the first in Moynihan Train Hall in 2022. Petite Mamans range from 350 to 800 square feet, while a full-service Maman can be as large as 3,200 square feet, Mr. Sormonte said.”
“‘All the retailers that are trying this have both models,’ said David Firestein, managing partner of the brokerage SCG Retail. ‘The brands that have 10, 20, 50 or 100 stores, they’re constantly looking at the model and they’re constantly changing and evaluating. That’s what good retailers do.’” READ MORE
REGULATION
The Biden administration wants to offer workers protections from extreme heat: “Under proposed regulations for the Occupational Safety and Health Administration, employers in the U.S. will be required to monitor their workers and provide access to shade, water and rest breaks, the White House said. The new protections will be required when the heat index—what the temperature feels like with added humidity—reaches 80 degrees or higher. Employers will also be required to identify potential heat hazards and develop an emergency response plan to treat heat-related illnesses, in addition to training employees and supervisors to deal with those illnesses.”
“Violations of heat-related protections will increase significantly in line with OSHA’s penalties, which include fines of up to $16,000 per violation, a White House official told the Associated Press. The proposal still requires approval from the Department of Labor and OSHA.”
“Only five states in the U.S.—California, Colorado, Oregon, Minnesota and Washington—have approved protections against excessive heat in the workplace. Florida and Texas have passed legislation in the last year preventing local governments from providing heat and water breaks for outdoor workers.” READ MORE
MANUFACTURING
A company that planned to bring apparel manufacturing back to St. Louis collapses, leaving small businesses on the hook: “Retta Tussey aspired to have a knitwear collection when she launched her fashion brand Retta Jane. Knitwear requires a more elaborate development process than other parts of Retta Jane's line, which is designed for adolescent girls. Tussey at first thought it would be out of reach. That was before she learned about Evolution St. Louis, the local firm that opened a factory in 2019 to specialize in contract manufacturing of knitted apparel. It seemed like a perfect match. Evolution, with a factory that included 3D-knitting machinery, invested $5 million with a goal of being a manufacturing hub for local designers like Tussey.”
“In 2022, after completing a residency with the St. Louis Fashion Fund, Tussey connected with Evolution to develop a sweater line for Retta Jane’s launch. In March 2023, she put down a $33,060 deposit for an order that was expected to be completed by Sept. 15, 2023.
But the work was never done. Evolution St. Louis missed the September deadline and Tussey is still waiting for the refund for her deposit, capital she says is critical to her self-funded small business. The unfulfilled order kept Tussey from launching her brand with knitwear, forcing her to rework the business' marketing strategy and reduce revenue expectations.”
“Evolution has shut down its operations and its landlord, an entity tied to TricorBraun Chairman Ken Kranzberg, has put its headquarters at 3830 Washington Ave., in the city’s Grand Center neighborhood, up for sale. But Evolution's CEO, Jon Lewis, contends the shutdown is only temporary, and that the business will be restarted.” READ MORE
THE ECONOMY
Frustrated by all of the contradictory economic indicators? Gene Marks reminds us that there are some unorthodox metrics to consider: “Goofy economic metrics like these are fun to talk about with your friends and colleagues. But they shouldn’t be taken seriously. I run a business, and my go-to economic indicator is my clients. I’ve learned that the best way to insulate my business from the economy is to diversify: have as many clients in as many industries and geographic locations as possible.” Still:
The number of uniform patches sold each year: “Yes, those are the emblems that go on the uniforms worn by millions of workers, from fast food cashiers to drywall contractors. The financial data of one of the world’s largest makers of emblems and patches — privately held World Emblem — can’t be easily obtained. But the company’s owner recently told USA Today that sales are up 19 percent from the same period last year. A recession? ‘We’re not seeing it,’ says Randy Carr, CEO of the Fort Lauderdale, Florida-based company.”
Overseas freight: “To track this phenomena, look no further than the Baltic Dry Index. This is a well-watched measure of freight costs for shipping items across the Baltic Sea, one of the world’s busiest shipping lanes. So how are freight costs doing? They’re up more than 55 percent over the past year and even slightly higher than pre-Covid times.”
Lipstick sales: “History has shown that women will cut back on more expensive beauty goods like makeup and perfume when times are tight. But lipstick? Don’t even go there. When lipstick sales increase as luxury beauty item accessories decrease, that’s another potential sign of economic headwinds. Where to research lipstick sales? Try the big cosmetics companies like L’Oreal, Estee Lauder, and Ulta Beauty. All three companies have shown strong revenue gains over the past year.” READ MORE
THE 21 HATS PODCAST
I Used to Sell to Consumers: This week, Paul Downs, Jaci Russo, and Sarah Segal talk about how they wound up pitching their products and services not to consumers, but to other businesses. They all agree that selling to business is more profitable, and they all agree that it has other advantages, as well. “In general,” says Paul, “it's easier to sell to businesses because the person you're talking to, it's rarely their money.” But some aspects of selling B2B can be harder. For example, how do you break through and reach the right person at a business, especially if you’re trying to reach the owner directly? And of course, there’s always a learning curve: Selling to a big business requires a level of professionalism that can be challenging, especially early on.
Plus: Sarah explains why—even though she had to lay off people last year—she’s doubling her office space this year. Jaci is exploring what policies make hybrid offices most effective. And Paul, who says he’s having his best year ever, spells out the way he calculates when it’s time to add employees, as he had to do earlier this year.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren