Corporate Labor Pains

America is suffering through a major labor crisis. I’ve never seen a time like this. Not only are help wanted signs everywhere, but businesses are also proactively asking their customers if they know anyone at all who would like a job. Already many businesses are operating on reduced hours and reduced services due to a lack of workers. This should be a concern for investors if Americas’ largest companies are unable to get the employees they need to keep growing.

I have a great appreciation for the American entrepreneurial spirit because I have witnessed many times our ability to face new challenges, solve them, and come out better and more successful as a result. I was looking for just such a result when I read the recent annual report of one of Americas largest hotel chains. After sharing the challenges that remain from the ongoing Covid crisis, the CEO made an interesting comment. He said that with Covid they had essentially eliminated daily housekeeping at their hotels, choosing instead to allow visitors to leave towels and trash outside their doors. He reported that due to the labor shortage, this practice had continued even as the Covid concerns declined. He then said that due to reduced labor costs, the hotel was seeing significantly higher revenues. With travelers apparently adjusting to the new norm of not getting their beds made every day, the hotel chain planned to permanently adopt the new model.

I thought about how a similar situation was happening in other market sectors. Airlines eliminated blankets, reduced food options and even largely stopped allowing support animals on planes. Originally implemented using the Covid/labor/supply excuse, these items will save millions a year and apparently are now being accepted as normal to the traveling public. We have seen cost saving changes across many industries that began with the crisis but are continuing as the new norm for the consumer. A few that stand out are: Increased grocery store self-checkout lanes, restaurants that no longer print menus, new homes without color and design choices, higher education with low cost (to them) online options, fast food restaurants closing indoor dining, and vendors and suppliers of just about every product offering fewer options. Americans have been spoiled and a picky consumer increases costs to businesses. Covid has unspoiled us.

Finally, we have the race to replace labor with new technology. Smart businesses are looking at every aspect of their operations and asking, “Can we automate that?” Those who succeed in that area may stand the best chance of being the future in their industries. In the end, I believe American businesses will exit the current crisis with less need for labor, higher productivity, and better profit margins. At least the businesses that survive will. The challenges of today are forcing businesses yet again to become more efficient and less dependent on human labor, which is one of the largest and least reliable items on their profit and loss sheets. Investors have many reasons to be optimistic about these changes.