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Was the Paycheck Protection Program a Success?
“There is always some trade-off between efficiency and fraud, which is why the optimal amount of fraud is never zero.”
Here are today’s highlights:
Meet a landlord who asks his tenants what they think they should pay in rent.
Americans who switched jobs last year saw a typical raise of 6.6 percent.
Are American consumers nearing their breaking point?
Real estate investors are taking an interest in small business properties.
Billions in PPP loans were stolen. Was the program a success anyway? “We could, of course, have just let the businesses fail and supported the displaced workers with unemployment benefits. But when we were ready to reopen, we would have been short millions of jobs. So we decided — correctly, in my opinion — to establish a forgivable loan program that could keep affected businesses on life support until conditions became more normal. And we decided, also correctly, not to require the mountains of paperwork that might have made fraud close to impossible. Requiring more documentation would have made it easier to separate the bona fide wheat from the fraudulent chaff. But it also would have considerably slowed the whole process.”
“Once those businesses closed, the effects would begin to cascade through the system, deepening an already horrific loss of gross domestic product.”
“It wouldn’t do any good to get business owners money after they had laid off the staff and filed for bankruptcy; they needed it in their hands as soon as possible, so that it could go back out again in the form of paychecks.”
“Now, however, we have the leisure to track down the fraudsters, as the government seems to be doing. This is effort well spent, for the sake of justice, and to set an example for others.” READ MORE
The Great Resignation—or whatever you want to call it—continues unabated: “Americans continued to switch jobs at near-record rates in February, with 4.4 million workers leaving their positions in a historically tight labor market. Employers hired 6.7 million people that month while reporting 11.3 million job openings, according to a report released Tuesday by the Bureau of Labor Statistics. ‘We continue to have an unusual amount of churn in the job market,’ said Erica Groshen, an economist at Cornell University and a former head of the Bureau of Labor Statistics. ‘We were all just holding our breaths during the worst parts of the pandemic, but now that’s changing.’”
“‘The labor market is still raring to go, with strong employer demand and increased worker mobility,’ said Daniel Zhao, a senior economist at the job review site Glassdoor. ‘We’re still seeing very strong job openings and quits, as well as layoffs at record lows.’”
“Americans who switched jobs saw a typical raise of 6.6 percent in the past year, while those who stayed saw their pay go up 5.4 percent, according to a widely watched measure of wage growth from the Federal Reserve Bank of Atlanta. Both numbers, reported as three-month averages, are at or near the highest rates since the late 1990s.” READ MORE
Employer demand and greater flexibility are bringing retirees back into the market: “Some now are returning to work to shore up their finances. Others have been presented with another career challenge—much like former Starbucks CEO Howard Schultz, who will temporarily take the reins of the coffee chain again next week. Labor shortages, a recent stock-market rout, plus the widespread availability of remote-work options, could lure more early retirees back to the job market in the coming months, too, they predict.”
“Many older workers who made early exits from the workforce after losing jobs or finding themselves unable to work in the early months of the pandemic have retired mostly because they haven’t been able to find suitable work since.”
“Researchers say that is especially the case among those who did manual work, such as truck driving, hospitality or in cleaning services. Some early retirees, though, are being courted by companies in need of workers with in-demand skills and experience.” READ MORE
Small businesses suing Facebook will get their day in court: “A lawsuit accusing Meta Platforms’ Facebook of overstating its advertising audience got a lot bigger Tuesday when a court expanded the pool of plaintiffs to include more than 2 million small ad buyers. Dismissing what he called a ‘blunderbuss of objections’ by the company, a federal judge in San Francisco ruled that the case can proceed as a class action on behalf of small business owners and individuals who bought ads on Facebook or Instagram since Aug. 15, 2014.”
“User metrics have also been at the heart of challenges against other social media companies. LinkedIn is facing a suit accusing it of inflating video-viewing metrics to lure and overcharge advertisers.”
“Snap Inc., the parent of the Snapchat social-media app, was sued in 2017 by a former employee who claimed the company was inflating growth metrics ahead of its initial public offering.”
“In 2019, Facebook agreed to a $40 million settlement of a class-action suit brought by advertisers who claimed they overpaid for video ads based on overstated video-viewing metrics shared by the company.”
“The current case was filed in 2018 by an e-commerce business that spent more than $1 million on ads and a seller of firearm accessories who spent around $350.” READ MORE
COMMERCIAL REAL ESTATE
Real estate investors are taking an interest in small business properties: “A new breed of property firms is buying up buildings occupied by gas stations, doctors’ offices and corner grocery stores. They see an opening because big asset managers typically avoid these properties, which they consider risky. Withco, a New York-based landlord that signs rent-to-own deals with small businesses, recently raised $30 million in venture funding from backers including Founders Fund, Canaan Partners, Lennar Corp. , actor Will Smith and athletes Venus Williams and Kevin Durant. Keyway, also of New York, buys medical-office buildings from small businesses and then leases them back.”
“Big investors often avoid properties occupied by small businesses because they are considered more likely to shut down and stop paying rent than big chains, said Spenser Allaway, a senior analyst at real-estate analytics firm Green Street.”
“The sector was hit hard during the pandemic’s first year, when many shops and restaurants were forced to close for weeks or even months.”
“While small tenants are generally a bigger default risk, they often agree to share more financial information with their landlords, Ms. Allaway said. And building prices tend to be lower, making them more appealing to some investors.” READ MORE
Are American consumers nearing their breaking point? “U.S. households have until recently mostly absorbed higher prices on everything from coffee to chicken to clothes, helping companies maintain fat profit margins despite higher input. But that doesn’t mean consumers were happy about paying more for the same goods, which is why the University of Michigan’s sentiment index has steadily deteriorated to the lowest since 2011.”
“Although Americans have griped about higher prices, they have kept buying goods and have increasingly gone out to eat and started traveling as the pandemic waned.”
“But the latest surge in inflation rates, stemming in part from rising energy prices as a result of Russia's invasion of Ukraine, has pushed many households to the breaking point.”
“Meanwhile, the big increase in homes prices and the recent increase in 30-year mortgages rates to 4.5 percent from about 3 percent last year has pushed home loan payments as a percent of family income to 22.4 percent on average for new buyers from 18.7 percent, according to Tom Porcelli, the chief U.S. economist at RBC Capital Markets.” READ MORE
As prices rise, brand loyalty begins to fade: “Consumers often stick to brands they know out of convenience and buy more items from names they are familiar with, industry analysts said. But shoppers are inclined to switch brands when belt-tightening if they can find a better deal. During the financial crisis, major brands across the grocery store developed lower-priced versions of their products to try to keep consumers loyal, as Procter & Gamble did with cheaper versions of Tide detergent, Olay skin cream and Pampers diapers, for example. Today, however, shoppers feel the pressure of higher prices while also facing shelves that are short on products, companies said. Those factors, in tandem, are driving more consumers to switch brands, executives said.”
“About 70 percent of U.S. shoppers said they had purchased a new or different brand than they had pre-pandemic, according to a survey conducted from May 2020 to August 2021 by private-label consulting company Daymon Worldwide.”
“When it comes to foods like cereal and ice cream, many consumers still prefer specific brands, said Kristen Hanson, who oversees merchandising at Tops Markets.” READ MORE
This landlord asks tenants to set their own rent: “[Dion] McNeeley, who calls himself ‘lazy,’ would rather skip the rehab process and inherit tenants. He doesn't want to fix up the place, find a tenant, and potentially have to relocate someone. The problem with inheriting tenants, and the reason other investors prefer to look for empty properties, is that the tenants who already occupy the space might be paying far below market average, especially if they've been living there for a while.”
“That's where his ‘binder strategy’ comes into play. After acquiring a property, he'll set up a meeting with his tenants and bring a three-ring binder. The first page of the binder features a picture of the property they're renting and the amount McNeeley paid for it.”
“The second page includes a map that shows his property and all of the rentals in the area that have the same number of bedrooms and bathrooms. The following pages zero in on each of the similar rentals in the area and the amount they're renting for.”
“He gives the example of one of the duplexes he bought. His tenants in both units were paying about $1,100, but the area average rents were closer to $1,600, he said.”
"’I literally ask the tenant: What do you think is fair?' said McNeeley. ‘They know their budget. And they're now educated.’ Both sides of his rental said $1,460.”
“‘The tenants asked for more than a $300 increase, because it's still below the area average and they're still getting a deal,’ said McNeeley. He's now making about $700 more a month. ‘That took a good return on my investment to a great return on my investment.’ Plus, ‘the tenants are happy,’ he added.” READ MORE
A startup is working with Shopify merchants to offer two-hour delivery: “Instead of selling 7-Eleven-style goods like its rivals Gopuff and Gorillas, FastAF has built partnerships with businesses that use Shopify's platform. FastAF makes same-day deliveries of items like sexual-wellness products by Maude, nonalcoholic elixirs from Ghia, and hip face masks made by Evolvetogether. FastAF features 1,600 curated items. Of the 600 brands featured on the FastAF app, half are companies built on Shopify, according to the company.”
“Lee Hnetinka, the startup's CEO and founder, said these companies tended to hit a ‘strike zone’ resonating with its Gen Z target audience, which is tech-savvy and looking for mission-driven brands.”
“For small and medium-size business owners using Shopify, FastAF gives them a faster fulfillment choice than what's available through the e-commerce platform.”
“Rick Watson, the CEO and founder of RMW Commerce Consulting, said small businesses could use apps like FastAF to test the sales effect of on-demand delivery and have a third party handle all the logistics.” READ MORE
THE 21 HATS PODCAST
What If I Get the Contract? This week, Liz Picarazzi tells Jay Goltz that she’s pursuing multiple sales opportunities—and ponders what would happen if those opportunities actually came to fruition. Would her company, Citibin, be able to handle the additional volume? “In my fantasy world, where I am a lot,” Liz says, “I look at where this could go. And just like you, Jay, I go to, ‘How in the world would I produce all of these?’” Liz and Jay also talk about the pros and cons of pricing transparency: Do you volunteer your premium price up front? On your website even? Or do you wait until you’ve made your sales pitch and gotten your customer excited?
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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