NEW YORK (BLOOMBERG) – Weather, war, volatile exchange rates – companies have long blamed factors beyond their control for shrinking profits and slowing sales. The hot new scapegoat? Remote workers.
Shake Shack said on Thursday (Aug 4) that the pace of workers returning to offices in cities including New York stalled last quarter, causing the company’s sales growth to trail Wall Street’s forecasts. Its shares briefly fell by the most since the early days of the pandemic.
The upscale burger chain is not alone – a scan of recent earnings calls shows companies of all stripes attributing lacklustre performance to the sluggish rate of workers returning to offices, known as RTO. It is not just landlords bemoaning their fate: Financial, consumer and even insurance companies have called out slow RTO.
Clorox, the maker of disinfecting wipes and bleach whose sales soared during the pandemic, said “low office occupancy rates” hurt demand for its commercial-grade cleaners.
Kimberly-Clark, which makes tissues and toilet paper for office washrooms, also suffered, leading chief executive officer Michael Hsu to say: “I don’t think all that office demand is coming back in a minute.”
Cubicles might not fill up for quite a while. Office occupancy across 10 major metro areas averaged 44 per cent in the week ended July 27, according to data from security company Kastle Systems, and it is consistently below that level in big office hubs like New York and San Francisco.
Stanford University economics professor Nicholas Bloom, who conducts a monthly survey of work-from-home patterns, has found that cities are experiencing a “donut effect”, where central business districts get hollowed out while suburbs get denser.
Average New York City office workers intend to reduce their time at their desks by nearly half and slash annual spending in the city by US$6,730 (S$9,300), Prof Bloom estimates, from an estimated US$12,561 before the pandemic.
Harvard Business School professor Raj Choudhury, who also studies remote work, expects these patterns to continue, which translates into fewer orders of double ShackBurgers, fries and milkshakes.
Shake Shack said lunchtime traffic is still “well below” 2019 levels in cities such as New York, where it is down 40 per cent. Asked when it might rebound, its CEO Randy Garutti essentially shrugged.
“I don’t have the crystal ball to tell you where it is going to land,” he said on Thursday. “I don’t think anybody knows where this is going to go.”
The uncertainty is not limited to burgers. Ms Tricia Griffith, CEO of insurance company Progressive Corp, is eyeballing office occupancy levels, which reflect how many people are driving to work in cars insured by her company.
“I talked to a lot of my peers in other industries and there is a lot less people coming in,” she said on Wednesday. “Could that change after the summer? We don’t know.”