By Craig Webb
At least two months of hard work remain before you can finally ease up and enjoy the Holiday season. Between now and then lie numerous tasks, some ordinary (next year's budget) and some unusual (COVID vaccination rules). Here are five vital challenges you'll confront in coming weeks, and my ideas for how to face them.
Jump to: * COVID * Labor * Supply Chain * Inflation * Long-Term Issues
COVID
We're getting close to when the Biden Administration will issue rules requiring companies with more than 100 employees to mandate that workers be vaccinated or else submit to regular testing. Many dealers fear this based on the lack of willingness by their workers to get the jab, even when owners offer perks. Dealer groups say a lot of members fear employees will quit rather than submit.
You can't predict what will be in the rules, but you still can get ready for continued COVID-related challenges. Do these three:
* Learn Your Vaccination Quotient. Walkouts and protests become less likely the higher the percentage of employees who have been vaccinated. How many is that? A Webb Analytics survey of 141 dealers conducted in August found 20% of respondents estimated that at least 70% of their employees got the jab. But nearly 30% of the respondents had no idea at that time. That lack of knowledge could make it hard to plan a response, so don't be in the dark.
* Plan Now for Multiple Scenarios. Let's assume at least one of your workers will threaten to quit if required to be vaccinated or submit to regular tests. What will you do? What if 10 workers make the same threat? What about 10% of your workforce? Even if you can't predict what will be in the rule, you can start thinking about how you'll respond. That way, you won't be rushed when the rule does come out.
* Assume the Pandemic will turn Endemic. Regardless of whether what Biden does applies to you, you can expect COVID's impact on your operation will continue. It's expected to be an endemic problem, like the flu: An annual nuisance, albeit potentially more deadly. Assume even more people will be out sick in coming years, both from COVID and continuing from the flu (which, by the way, less than half the population gets vaccinated for any given year). And depending on how so-called long COVID evolves, your health insurance rates likely will rise.
Labor
At least you don't run a restaurant.
Increasing evidence suggests the nation's labor shortage stems in part from the fact that people are getting increasingly picky about where they want to work. Traditionally low-paying jobs like serving food and cleaning hotel rooms are hurting the most, but jobs more akin to construction supply, such as warehouse work, also are going wanting. This is despite big jumps in pay and benefits; Amazon is advertising jobs in the U.S. with starting pay of $18 to $21 per hour and sign-on bonuses of up to $3,000.
What to do?
* Examine which of your jobs can be done remotely or outsourced. Backoffice tasks got that name because they typically didn't involve face-to-face, in-store communications. If people want to work from home and you think it's possible they can do so, why say no? Likewise, consider how many of these potential work-from-home tasks are integral to your operations. Payroll, collections, take-offs, and credit all are candidates for outsourcing.
* Rewrite your online want-ads. The Wall Street Journal reported recently that employers who use online job boards like Indeed unwittingly hurt themselves by writing job descriptions that demand more than what's needed. For instance, a hospital might declare that a candidate have "computer programming" skills when all it really wants is someone who can use basic software. The jobs software doesn't know that, so if it doesn't see the word "programming" on the resume it gets tossed out. People are far more sophisticated readers. As a result, some companies have resumed using humans to look at the applications, looking for indicators that the computer failed to see.
* Consider your drug policies. The presence of marijuana during a pre-employment drug test remains cause to eliminate the job applicant at a hefty percentage of dealers across the country. But if you let someone have a beer on a weekend night, why not do the same for a marijuana user, especially if the impact on Monday's performance is no different?
* Keep Expanding E-Commerce. The more you do, the more efficient you can be. For instance, how much time could your staff save if your delivery system automatically told customers where their delivery truck is on the road?
* Remember that you're the main reason people leave. For years, surveys have found the No. 1 reason why people leave is because of their boss and their working conditions. Employees want an environment where they feel valued and where they believe their ideas will get heard. If your employee surveys--and you have been doing employee surveys, right?--don't show that, then part of the solution lies within.
Supply Chain
You just about never see "White House" and "supply chain" in the same sentence of a news report, partly because supply-chain issues rarely reach the crisis level they're at today and partly because there's little a chief executive can do to fix the problem. That's the likely result of President Biden's announcement last week that overnight operations will commence at Southern California ports. Experts predict the change will provide only tiny improvements to a container ship logjam that is five times worse today than in pre-pandemic times.
Here's what matters for you:
* Count on Backups Lasting Another Year. Earlier this year, lots of commentaries suggested current problems would ease around mid-2022. Now the predictions are stretching deep into next year and sometimes even 2023. Here's one reason why: Throughout the 2010s, retailers of all types stocked about $1.43 worth of goods for every $1 of stuff they sold. In 2021, that ratio has shrunk to 1.12:1. It'll take a lot of container vessels and most of next year to build stocks back up to historical levels. That will interfere with arrivals of any goods from Asia that you need.
* Buy Earlier, Store More. If you can't be sure when goods will arrive, it's incumbent upon you to buy what you expect to need and then store the goods until needed. This will reduce cash flow as well as strain your storage capacity, so keep an eye on those two areas. Still, you can't sell what you don't have.
* Speaking of Warehouses ... Prologis, the world's largest logistics warehouse operator, reported recently that it has pretty much filled out all 995 million square feet of space in its buildings. The situation is particularly dire in Southern California, where there's so little room available that wholesalers are said to be transferring goods to places like Phoenix and Salt Lake City. If you have spare room that you won't need for a while, this might be an opportunity to rent your space.
* A 24/7 Future? One oft-cited drawback to having ports operate round the clock is that truck drivers see little use in picking up goods at night when the places they deliver to aren't open by the time they arrive. Thus, you can't expect longshoremen and truckers to work overnight unless warehouses and even dealers are open, too. This doesn't mean they have to be staffed; Do it Best had a program pre-COVID in which its delivery drivers could open at night a storage area at a dealer's location and leave the products there. Reviving ideas like that could help night-time drivers make more deliveries within a shift and face less traffic.
Inflation
Just as the Federal Reserve thinks of inflation both on a short- (aka "transitory") and long-term basis, so too must dealers.
* Building material prices will keep rising. Manufacturers continue to keep pushing through increases amid expectations of continued strong demand. Our experiences from earlier this year, when lumber prices pretty much tripled before builders pulled back, suggest contractors these days are tolerating the hikes because the home buyer will accept them.
* Mother Nature Isn't Helping. For several years now, Southern yellow pine's sales and production have grown as the Mountain Pine Beetle's impact on Pacific Northwest lumber took hold. But Dixie is developing its own long-term resource issues. Hurricane Michael three years ago wiped out $1.3 billion worth of timber in Florida's Panhandle, and hurricanes last year ruined an estimated $1.5 billion worth of timber in Louisiana. It will take 10 to 15 years for those areas to regrow. No wonder log prices in the South have risen.
* Housing Affordability's Tipping Point Has Changed. Top-tier housing economists such as Ali Wolf of Zonda and Robert Dietz of NAHB used to say that mortgage rates could rise to as high as 5% before affordability becomes a serious problem. But that was before home prices rose 18% over the 12 months ending in August. Now, after factoring in such higher prices, Wolf and Dietz now believe affordability becomes a big deal when rates hit 4%. That could happen by late 2022.
Long-Term Issues
Webb Analytics is all about trends, threats, and opportunities. There are three long-term items that merit your attention.
* Crazy Money. "I don’t think I’ve ever seen this much capital in the housing space before," Scott Cox wrote in a recent column for The Builders Daily. That pile of cash plus COVID's many aftereffects, is causing investors to make to big and possibly over-optimistic assumptions about the housing market--assumptions that might not hold up. His advice? "Just because you believe you are being prudent, that does not mean others are," he says. "If you are in a position that being right about pricing but wrong about absorption is disappointing but not tragic, it will probably be fine. If you need to be right about absorption, you should be nervous."
* SFBFR's Potential. Single-Family Build for Rent strikes me as the Bitcoin of housing: a concept getting far more attention (including over $30 billion worth of investment) than is deserved by its actual place in the market. That often happens to shiny new ideas. SFBFR may be a case, as Cox implies above, of too much money chasing an idea. It could become a big deal in fast-growing parts of the country, like Phoenix and metro markets in Texas, but never expand to smaller, cooler markets. Then again, if mortgage rate hikes do make housing less affordable, it could provide an alternative to people all over the country who want more space but still can't make a down payment.
* An Existential Challenge? Lots of LBM operations basically do three things: They sell products, they deliver products, and they provide credit to buy those products. Of those three, deliveries often were the biggest selling point, particularly when you compared a dealer to the big boxes. But now comes news that The Home Depot is going to use Walmart's new GoLocal service to provide same- or next-day delivery on a variety of home improvement products. We're talking about smaller products here, like tools and fasteners and paint and other stuff that can fit in a car, but other companies are offering to make much bigger hauls. As these services grow, dealer deliveries fade as a Unique Selling Proposition.