3 Stocks That Could Struggle Amidst the Global Labor Shortage

With job openings at or near all-time highs in recent months, it's no surprise that some companies are going to have a harder time than others grappling with the ongoing labor shortage. While there are a range of factors driving these workforce trends, the fact is that some companies are better equipped to ride out these headwinds than others.

In this segment of Backstage Pass, recorded on Oct. 15, Fool contributors Toby Bordelon, Trevor Jennewine, and Rachel Warren discuss three companies that could have a rocky road ahead. 

Toby Bordelon: Continuing with the food theme here, we had some tough news for Domino's. They reported earnings, I think it was last night, yesterday they reported earnings. Sales have fallen off a little bit. This was their first same-store sales decline after guys, 41 straight quarters of same-store sales growth, that's pretty major. Let's just take a moment with respect for Domino's for giving us 41 quarters of same-store sales growth. I think that's impressive. But the street comes to an end unfortunately. They did say that this really is a labor issue, is what it looks like. Because of the labor shortage they have not been able to meet demand. CEO Rich Allison said staffing has been a challenge.

Here's a question. A lot of companies are having staffing issues. We've heard about this. I think if you just walk around your town you've probably seen signs in stores "help wanted". There's a lot of need for workers right now. What's one company whose survival you are worried about based on staffing issues, you think that this might be a serious issue for them if they can't turn this around and do something to get people in the store. If you can't hire people to staff your stores, it's hard to sell the stuff. Let's start with you, Trevor. What do you think?

Trevor Jennewine: I'm going to cheat here. I'm not worried necessarily about them going out of business except for the first group. I'm going to talk about three different groups, and the first one is small retailers. I'm talking about the companies that aren't public, the mom-and-pop shops that are in that retail industry, and even some of the larger ones that I think Rachel is going to mention in a second. But they're competing with the likes of Walmart, Amazon, Target, and these companies have so many resources at their disposal. Amazon, I want to think the minimum wage now is $15 an hour.

They're offering to pay college tuition, Target has something similar setup where they pay college tuition and I think that gives them an advantage. So for those workers looking for that type of job, I think they're going to go to those larger companies that can afford those better benefits as opposed to the smaller retailers. As I know, that's not naming anybody specifically.

But I'll touch on a specific company with Marriott (MAR -0.76%). I don't think Marriott's on the verge of going out of business, but I do think, there is a recent article in the news that they have about 10,000 vacancies across 600 hotels, and I think that situation is going to get worse.

They're going to have to make a decision about, are they willing to pay their employees more, offer better benefits, and there's actually an interview with Marriott's CEO, a Bloomberg interview, and they essentially blamed Amazon for paying their employees too much, and that's why they're having these labor troubles. Because people like Amazon are paying their employees, "too much".

I thought that was interesting, and I think Airbnb is going to put pressure on the situation. Airbnb's revenue is already recovering from the pandemic. Marriott's still in decline. I think it's down 50% or so over the last year, while Airbnb's is headed the other direction, so the company is going to have to make a decision. Is it going to focus on profitability? Is it going to maybe spend a little bit more to get some employees. I think it's an interesting situation.

Then the last, I want to mention a whole industry and that's cybersecurity, during CrowdStrike's most recent earnings call, management mentioned that there are three million staffing vacancies in the industry, which is double the number of professionals that currently work in the field. I don't think CrowdStrike's in any trouble, but some of the smaller companies that are looking to acquire talent, they might have an issue if there are that many vacancies in the field compared to the existing number of experts that are already working there. I think the smaller cybersecurity companies might have difficulty attracting new talent.

Toby Bordelon: Trevor on Marriott, anyone who's stayed in a hotel recently has probably experienced this. You go and you check in and if you're there for more than one night, they'll tell you we're not going to do housekeeping while you're here because of COVID. They use COVID as the excuse. I don't think it's COVID. '

All you have to do is walk around the hotel and look who's working. I think they just couldn't clean the rooms if they wanted to, every night. I just don't think they have the people to do it.

At some point they won't be able to use COVID as an excuse anymore and they'll have to openly admit we can't clean your room because we don't have any employees.

At which point, you were talking about pricing, our last question on pricing power, are guests going to push back and say, "Well, if you're not cleaning my room, maybe I'm not going to pay you as much [laughs] as I've been." Lower service, lower price. So we will see. There's an interesting situation.

What you got for us, Rachel?

Rachel Warren: I do think it's a really interesting point that you bring up in terms of there being such a big difference between how the big companies are navigating this labor shortage versus how some of the smaller mom-and-pop companies are able to navigate this.

Because you do have this major labor shortage crisis. One of the things you hear is there's so much worker burnout. There's so many workers that are clamoring for fair and balanced pay, better benefits, all of which are incredibly valid points. You're also dealing with a very much changing workforce environment where freelancing is on the rise.

Remote jobs, hybrid jobs are more available than ever before. So I think it's this perfect storm of all of these different things converging. But there is very much, I think, a limited capacity to which some of these smaller companies can meet some of the demands that might be presented now by the changing workforce. I think the crazy thing about this current labor shortage crisis is the fact that it's affecting companies of all sizes across all industries, everyone from these small businesses to major hotel chains like you mentioned, like the Marriott are struggling to find the workers they need. I've been seeing it called on different news sites, "The Great Resignation". I guess now there's a name for it. But it was interesting.

This past week, the U.s. Bureau of Labor Statistics released their job openings and labor turnover summary, and the data was for the month of August, and according to that report, 4.3 million Americans quit their jobs in August. That number just blew my mind.

What was interesting about the report was that there were very high rates of basically Americans quitting their jobs across a range of industries; education, healthcare, retail, trade, hospitality. For example, about 7% of workers in the U.S. food service and lodging industry quit their jobs in August, which is about double that of the quit rate for the rest of the labor economy.

Definitely seeing these huge shifts, and I think again, there are so many catalysts at play. There was a recent article I was reading as well that was saying that two-thirds of businesses globally are struggling to hire workers, so it's clearly not just a U.S. issue, although of course that's what we're focusing on for the purposes of this discussion. But I did think that was interesting to note. When I was thinking about this question, I was thinking of one company in particular that had a really difficult time during the pandemic, and was operating already in an environment that's faced a lot of headwinds in recent years, and that's Macy's (M 1.83%).

It's one of the last vestiges of the very traditional brick-and-mortar retailer that has been increasingly struggling as we see e-commerce take off more than ever. Not surprisingly, the company had a pretty tough time in the early days of the pandemic. In March 2020 it suspended its full-year guidance, it stopped paying out its dividend. Fast-forward to now, the company has definitely made some positive strides. In 2021, it recently restarted its dividends again, it raised its full-year guidance. But the company has a lot of debt.

As of its last earnings report it had about $2.1 billion in cash on its balance sheet, compared to about $6.7 billion in liabilities due within the next year or so. It was interesting as I was considering Macy's, this is the company that's known to obviously hire a lot of seasonal talent and seasonal workers as well. You're reading how companies are having a really tough time even finding temporary workers for seasonal jobs.

Macy's had recently announced that they were looking to hire 76,000 workers for the holiday season and beyond. I believe its stock did a little jump at that because I think a lot of people were excited about that. The company basically said at the end of September that they were trying to hire 60,000 colleagues for the holiday season and beyond; full and part-time job. They're marketing it as competitive benefits, bonus programs.

Current, I believe, employees could receive a $500 referral bonus for bringing onboard friends and family. I think they are really trying to get more people into their seasonal worker pool as well as just hire more people in general, and I think it goes to show, like a lot of these other companies that are trying to offer all these different incentives in this current time to get more workers. You look at a company like Macy's. I think they could have a really difficult time if they don't find the workers that they need for this holiday season.

It's not to say that that would be the end of Macy's. They've obviously been through their fair share of struggles over the years and have still managed to come through. But I think in the rapidly changing retail environment, and then given the current context of the labor environment right now, it's going to be interesting to see if they are able to actually get that many people onboard.

Toby Bordelon: It's interesting you mentioned Macy's, here Rachel. We learned yesterday, I believe, JANA Partners came out and said they had taken a stake in Macy's and they were pushing management to [laughs] spin off the online stuff. People are definitely looking at that as an issue. Labor shortage isn't going to help Macy's make its case that they should continue to do what they are doing without any influence from active investors. We started this question with Domino's. Are there any Domino's up there in Turin? Have you run across any?

Rachel Warren: I haven't run across one yet. I feel like that should be an action item though. [laughs] I feel like there should be a Domino's.

Toby Bordelon: Yeah. I feel like that. Any in Milan at all?

Rachel Warren: Because they're international. I think they're in the UK. I think I may have been to Domino's in London or something but I haven't seen it in Italy.

Toby Bordelon: Not in Italy. Presumably you can get pizza there, right?

Rachel Warren: Well, there's that. Actually pizza's delivered tonight.[laughs]

Toby Bordelon: Nice. All right. Back on the food team again. My company that I'm actually more worried about here. Taco Bell which is Yum Brands (YUM -0.01%), is the company with ticker symbol YUM. Yum Brands owns Taco Bell, KFC, Pizza Hut, you're speaking of pizza. WingStreet, I think it's Yum Brand's. Here is the thing, some of this is anecdotal. Taco Bell is one that's going to struggle with a labor shortage. Because when you go to Taco Bell, you expect to be able to eat for like five bucks or less.

You're not going to be spending a lot of money. They don't necessarily have pricing power. They have limited ability to pay their employees more, to offer incentives to get people. I've been to a few around town where they just close for an entire day. I guess they don't open on Sundays anymore because they can't get people to work.

The whole week it used to be opened at 2:00 AM, it's not happening anymore. No one wants the night shift at Taco Bell. But I don't see those issues at Chipotle. I've not seen to my knowledge the Chipotles I go to around here that have had to decrease their hours or even close entirely uncertain days. They're able to do it, but a higher-price-point. A higher-priced points for their food. Taco Bell, they could have some issues. If they can't keep their stores open, that's a problem. But I think this is a problem for fast food in general, especially your lower tier brands where people are used to fast and to cheap and labor shortage hits both of those.

If I don't have the people working, if I'm now staffing with three people instead of five people as shifts say, the fast part of fast food might go down and might take a while. That's a problem because people are expecting. You can't necessarily pay more to get people because you're hoping it's cheap, cheaper food. They're struggling. I think they're going to struggle in this environment. I don't know how that's going to end up. That is legit a company I'm concerned about as we keep going through this labor shortage. Do they have Taco Bells? Have you seen Taco Bell up there in Italy?

Rachel Warren: I think they do. I actually just did a Google search. Apparently, there's a Domino's not far from where I am. Maybe I should do a little support and go get some Domino's for me. [laughs]

Toby Bordelon: Check it out. [laughs] I'll be curious to see if the coffee is any different than it is here in United States.

Rachel Warren: [laughs] I don't think there is a Taco Bell here, but there is a Domino's.

Toby Bordelon: Not Taco Bell though. I was thinking it will be fun for us to take this show on the road, Trevor and maybe do a trip, do this live from Italy with Rachel.

Rachel Warren: Yes. [laughs]

Toby Bordelon: That would be fun. I was concerned about our food, but now we know there's a Domino's. I'm sure we can find tacos somewhere.

Rachel Warren: [laughs] You'll be fed. You'll be well fed.

Toby Bordelon: Yeah, we'll be all right. Tim Sparks, do we have a travel budget for this show, do you know? [laughs] Our producer behind the scenes. I don't know if Tim knows. I'm not aware of one. I feel like that's something we should look into. We might have to. If you know Tim, let us know. We might have to look at that.

Rachel Warren: Take it on the road.

Toby Bordelon: Yeah, we're going to have to see what we can do.