Why Do You Pay What You Pay?
In our latest podcast episode, the owners talk about how the recent years of turmoil in the labor market have affected the way they compensate their employees.
Good Morning!
Here are today’s highlights:
The appeal of making things in America continues to grow.
Businesses of all sizes will have to consider carefully any employee requests for accommodation on religious grounds.
Car sales are running far higher than expected, more evidence of strong consumer spending.
Is that 18-percent service fee a tip?
THE 21 HATS PODCAST
Why Do You Pay What You Pay? This week, Paul Downs, Jay Goltz, and Sarah Segal talk about where the dust has settled after years of turmoil in the labor market. As you know all too well, we’ve been through Covid, supply-chain issues, inflation, labor shortages, the Great Resignation, minimum-wage hikes, new pay-transparency regulations, and countless rumors of recessions that have yet to come—all of which has had an impact on wages. And that’s why I decided to ask Paul, Jay, and Sarah where their thinking has landed. The consensus here is that leverage is shifting back to employers, but Paul, for one, remains committed to paying his people more than they can find elsewhere. “It's worth it to me to have the team I want,” he says. “And sure, it affects profitability, but turnover affects profitability, too. And I'd rather not have that.”
Plus: We also talk about whether Lululemon was right to fire two retail employees who tried to stop a robbery, and we answer the following listener question: If something’s not working, how do you know when it’s time to walk away?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
MANUFACTURING
The appeal of “made in America” continues to grow: “When Bayard Winthrop, the chief executive of the retailer American Giant, ordered the batch of shirts that his company would advertise for the Fourth of July, he didn’t think much of it. The retailer, which has been producing its apparel solely in factories around the United States for more than a decade, perennially leans into its ‘Made in America’ pitch for Independence Day. This year’s batch of crew neck T-shirts are fittingly available in red, white, or blue with very little embellishment other than getting straight to the point: Letters that read ‘American Made.’ They cost $60 each. And they sold out in the first day. Then he ordered another set, which also sold out quickly as well. The company is scrambling to secure its fourth order.”
“Sixty-five percent of U.S. adults said they intentionally bought ‘Made in America’ products over the past year, according to a Morning Consult survey released last month. That’s about the same rate of U.S. adults who said they had those intentions last year.”
“American Giant’s customer service representatives, Mr. Winthrop said, are receiving ‘emotional’ emails from shoppers saying it’s ‘refreshing’ to see a retailer ‘walking the walk’ on making items in the United States.”
“Mr. Winthrop said, ‘One of the great ironies about the apparel industry, I think, is this kind of bizarre disconnect between what the industry says and what it does.’ Old Navy, for example, has been selling flag T-shirts for the Fourth of July since the company started in 1994. Yet, all of the 25 flag tops and baby onesies the company currently has displayed on its website are listed as imported.” READ MORE
Still, U.S. manufacturing output has been declining: “U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the Covid-19 pandemic, but price pressures at the factory gate continued to deflate, a silver lining for the economy. Shrinking activity left factories resorting to layoffs, the survey from the Institute for Supply Management showed on Monday. ISM Manufacturing Business Survey Committee Chair Timothy Fiore described the practice as happening ‘to a greater extent than in prior months.’”
“At face value, the ISM survey is consistent with an economy that is in recession. But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits, and housing starts, suggest the economy continues to grind along.” READ MORE
HUMAN RESOURCES
After last week’s religious accommodation ruling, businesses face a minefield: “Business owners and managers will need to more carefully consider religious accommodation requests from employees — and it could get complicated. The Supreme Court on Thursday issued a unanimous opinion in favor of an evangelical Christian worker at the Postal Service who refused to work on Sunday because of his religious beliefs and said he was disciplined because of it. The court ruled federal law requires employers to show the burden of an accommodation must result in ‘substantial’ increased costs or expenditures in order not to grant one. But the lack of specifics in the ruling and the likelihood that additional court cases will be needed to figure out the new standards creates a complicated minefield for businesses, legal experts say.”
“It also means employers will need to consider religious requests in areas such as scheduling, dress codes, workplace breaks, and even paid days off.”
“Previously, the governing standard had been whether employers incurred a cost that was more than ‘de minimis’ or minimal, in denying a religious accommodation — a standard the Supreme Court said had been misapplied for decades.”
“For now, businesses of all sizes should make sure any requests for accommodations are dealt with in the specific context of the request and what that request might mean in terms of costs. A 15-employee company will be different than a 5,000-employee company.” READ MORE
REGULATION
It can be trickier than it seems to convert office space into residences: “We ask far more of buildings today than decades ago, including that they be accessible, sustainable, hurricane- and earthquake-proof, that they deter flying birds and provide public spaces. Each new goal, while worthy, widens the disconnect between buildings constructed decades ago and what regulation requires today. And we’ve developed over time more rigid ideas about the built environment: that housing should gain value indefinitely, that politicians should ensure that’s so, that property owners have a right to veto change around them. The cumulative effect today, if you want to turn an office into an apartment, or even turn your back porch into an enclosed home office? The building code says no. Or the zoning does. Or the neighbors do. Or a phrase in a decades-old state law does. Or the politicians asked to change that phrase decline to.”
“‘What a mess we’ve created for ourselves,’ said Emily Talen, a professor of urbanism at the University of Chicago who has studied zoning, or ‘the mother lode of city rules.’”
“These rules impede conversions in particular. In New York, a hotel requires a 20-foot rear yard. But a residential building requires a 30-foot one. Does that mean developers should lop off the back of hotels to make housing? Why do we draw such fine lines anyway between buildings where people sleep short-term and those where people sleep permanently?” READ MORE
RESTAURANTS
Is that 18 percent service fee a tip? The answer is now the subject of litigation: “The practice of adding service charges to restaurant checks has grown in Southern California in recent years, and debates over how it should be treated by customers and workers gets to a fundamental question: Should every employee of a restaurant share in what customers pay for being served? Tuesday’s lawsuit alleges that Jon & Vinny’s is in violation of California’s gratuity law, which requires that tips be remitted in full to non-managerial service staff.”
“Workers who serve food and drinks typically rely on tips as part of their take-home wages. For diners, the fees have resulted in confusion, according to interviews and online accounts. Complaints and questions about the increasingly ubiquitous added charges regularly pop up on social media, such as Reddit, Instagram, and Yelp.
“After a story published May 16 about the city investigating Hollywood restaurants for allegedly keeping service fees from workers, The [Los Angeles] Times received multiple messages from current and former Jon & Vinny’s employees who complained about the restaurant chain’s service fee. This article is based on allegations in Tuesday’s suit and on interviews with more than a dozen current and former workers.”
“Through a spokesperson, the restaurant group — including partners Jon Shook, Vinny Dotolo and Helen Johannesen, well-known figures in the L.A. culinary community — denied the claims. The business partners said their service-charge model democratizes a dining staff’s earnings for everyone in their restaurant, and that customers are offered information that states the fee is not a tip.” READ MORE
THE ECONOMY
Despite gloomy projections, car sales are far higher than expected: “The auto industry is expected to have notched a 12-percent-to-14-percent rise in new vehicle sales for the first half of this year, a pace far ahead of industry forecasts heading into 2023. Some automakers, including Kia, Nissan Motor, and Honda Motor, in recent days have reported strong first-half numbers, with more car companies scheduled to report sales tallies Wednesday. Ford Motor is expected to release results on Thursday. Electric-vehicle makers Tesla and Rivian Automotive earlier this week reported stronger-than-expected global deliveries for the second quarter, sending their share prices higher.”
“Dealers and car executives point to pent-up demand from shoppers who have been on the sidelines for three years as vehicle shortages resulted in slim pickings and high prices. Now that supply-chain pressures have eased and automakers are more consistently churning out vehicles, buyers are responding, and sales are bouncing back faster than many analysts had expected.”
“The surprise strength in the auto sector reflects resilient consumer demand elsewhere in the economy—from furniture to groceries and travel—as Americans continue to spend through economists’ predictions of a slowdown.” READ MORE
SOCIAL MEDIA
Is the social web era over? And if so, why is it happening now? “Twitter has been on a steep and seemingly inexorable decline for, well, years, but especially since Elon Musk bought the company last fall and made a mess of the place. Reddit has spent the last couple of months self-immolating in similar ways, alienating its developers and users and hoping it can survive by sticking its head in the sand until the battle’s over. (I thought for a while that Reddit would eventually be the last good place left, but… nope.) TikTok remains ascendent — and looks ever more likely to be banned in some meaningful way. Instagram has turned into an entertainment platform; nobody’s on Facebook anymore.”
“All these companies have had to switch from ‘growth at all costs’ to ‘actually make some money.’ Few social networking companies have ever made real money, and so they’re scrambling for new features and pivoting to whatever smells like quarterly results.”
“The rise of AI is also sending all these companies into a tizzy. Large language models from companies like OpenAI and Google are built on top of data collected from the open web. Suddenly, having all your users and content publicly available and easily found has gone from a growth hack to capitalistic suicide.”
“Add it all up, and the social web is changing in three crucial ways: It’s going from public to private; it’s shifting from growth and engagement, which broadly involves building good products that people like, to increasing revenue no matter the tradeoff; and it’s turning into an entertainment business.”
“It turns out there’s no money in connecting people to each other, but there’s a fortune in putting ads between vertically scrolling videos that lots of people watch.” READ MORE
STARTUPS
A Massachusetts company, Long Wharf Supply Co., makes clothes out of recycled plastic and oyster shells: “At first, Long Wharf sold bags and accessories; it then launched The SeaWell Collection in 2020 with the help of Kickstarter. Its signature clothing line, which includes sweaters and quarter-zips, is inspired by [Mike] Lamagna’s father’s fisherman sweater from the 1970s. The clothes are made by crushing and infusing oyster shells and water bottles together and blending them with natural lambs wool or cotton. Every garment diverts at least five oyster shells and eight water bottles from landfills, Lamagna said. Long Wharf launched its SeaWell Summer Collection, which includes T-shirts, in May.”
“Each SeaWell T-shirt sale will help reseed oysters through partnerships with nonprofits. The summer collection will help the company reach its millionth reseeded-oyster mark, which translates into filtering 50 million gallons of seawater daily, Lamagna said.” READ MORE
OBITUARY
David Gilmour brought Fiji’s water to the masses: “By the time he bought Wakaya from two business partners in 1987, Mr. Gilmour had built several businesses over 30 years. He imported Scandinavian home furnishings and built high-end stereos. He helped assemble a chain of hotels in the South Pacific, which made him familiar with the archipelago nation of Fiji, and he co-founded a gold-mining company. But there was something different about Wakaya. At the time, he was mourning the death of his only child, Erin Gilmour, who had been murdered in her apartment in Toronto in 1983. He called the island ‘the last bastion of sanity in the world,’ his wife, Jillian (Sweeney) Gilmour, said in a phone interview. ‘He thought when everything went kerflooey, this is where he would go.’”
“In 1990, Mr. Gilmour opened the Wakaya Club & Spa, a cluster of eight free-standing suites on a former coconut plantation. At the time, he said, he opened it as ‘really just a place where my friends, those I can’t put up in my own home, can come and share the peace.’ He added: ‘I don’t see it as terribly commercial, frankly. It will probably only break even.’”
“One day in the 1990s, Mr. Gilmour saw guests at the property drinking Evian water. ‘He said, There’s something wrong with this picture, and I said, What do you mean?’ Ms. Gilmour said. ‘And he said, We’re on our own island, and they’re drinking water from Lake Geneva. I know that with Fiji’s rainfall, there must be a greater water source.’”
“Fiji is now the second-largest imported water brand in the United States (after San Pellegrino), according to the Beverage Marketing Corporation.” READ MORE
Thanks for reading, everyone. — Loren