Archive for the ‘Business & Economics’ Category

Staying away in droves

So the crowds were thinner than expected at today’s opening of IKEA in Portland, according to KGW TV. Good. Maybe most Portlanders are too smart to be fooled by the hype. Or maybe they just listened to all the broadcasters telling them how to avoid traffic jams around the store and decided instead to stay away.

I just saw the TV report and don’t have a link directly to it, but I did capture one quote from a local IKEA spokesperson who downplayed the impact the store’s opening would have on other (local) retailers. “Lots of people will be out buying home furnishings more regularly now than they would otherwise,” the gentleman said. And I suppose more electronic gadgets when a Best Buy opens, or more books when a Barnes & Noble opens or more everything when a Wal-Mart opens. As if dollars magically appear in our wallets anytime big-box retailers come to town.

There’s only so much disposable income to go around in any community. A retailer doesn’t add disposable income, except when the money it generates stays in the community and multiplies among other local merchants, producers or suppliers it does business with. That’s what makes independent locally owned businesses part of the fabric of a community and what makes IKEA and others like them part of the fraying edge.

Wednesday, July 25th, 2007
Posted in Business & Economics, Oregon | No Comments »

Someone’s idea of economic development

The Oregonian continues to cover the opening this week of the IKEA store near the Portland airport. Sunday’s article looked at what we might see happen here based on what has occurred in the year since IKEA opened in West Sacramento. Here are a few revealing excerpts:

• Ikea not only has delivered a tidy sales tax boost to West Sacramento…it also has attracted several big-name retailers that have provided further construction and retail jobs. In addition, the store has drawn shoppers from as far as Redding, Calif., and Reno — overnighters staying in local hotels and dining at restaurants serving dishes other than the store’s gravy-soaked meatballs.

• Within the first year, West Sacramento received $1 million in sales-tax revenue from the store, amounting to 7 percent of the city’s overall sales-tax proceeds, said Kay Fenrich, chief executive of the West Sacramento Chamber of Commerce. The figure does not take into account revenue from stores that have since flocked to be near Ikea. “Before Ikea, we had no retail,” Fenrich said. “You had to cross the bridge for furniture, sheets, a dress, anything. Once Ikea made their announcement about opening here, the other big-boxes couldn’t scramble here fast enough.”

• Ikea cites Target and Wal-Mart as competitors, but retail experts say independent discount furniture stores could at least briefly say goodbye to as much as 25 percent of the customer traffic, said George Whalin, a San Diego retail consultant who grew up in Sacramento and followed Ikea’s opening there. “Ikea impacts everybody who serves consumers who want inexpensive furniture,” Whalin said. “There’s not anybody that’s immune.”

• “They’re killing us,” said Haide Critcher, who, with her husband, opened Big Al’s Furniture in the 1960s. The large warehouse store in Sacramento, like Ikea, offers affordable furniture that sometimes comes boxed for customers to assemble.

• “Ikea put West Sacramento on the map,” said Diane Richards, West Sacramento’s economic development coordinator. “Everyone thinks you’re so much more fun and exciting.”

These observations and quotes are revealing in many ways. First, they underscore why municipalities, especially in states with sales taxes, like big boxes — they generate more sales tax receipts. From the first big box, then from the subsequent big boxes that follow magnets like IKEA. But the question is at whose expense? If people are traveling from Reno and Redding, they are not spending their money in those communities and those cities lose tax revenue as a result. Oregon does not have a sales tax, but IKEA will surely pull in shoppers from the region’s smaller communities whose business base will suffer as a result.

Second, what happens to West Sacramento tax receipts when Reno and Redding (or some other nearby city) gains an IKEA or some similar trendy big box to stay competitive in the retail arms race, as they most certainly will?

Third, even though national big box retailers tend to see other national big boxes as their competitors, it’s the independent locally owned stores that take the brunt of the competitive hit, such as Big Al’s in nearby Sacramento. Cities across Americas now share a soul-killing homogeneity as their retail landscapes are littered with the same chains. Meanwhile, the big boxes fight it out over who can extract a larger share of local incomes (and ship it off to who knows where).

Fourth, what does it say about our society when the arrival of a retailer is seen as putting a community “on the map” and making it “much more fun and exciting”? Public officials in towns across America still equate suburban strip-mall retail development with economic development and, in the case of West Sacramento, raising a town’s self-esteem. I can only shake my head.


In comes IKEA, out goes our money

How fitting that the new Portland IKEA store is located near our airport because starting next week hundreds of thousands of dollars from area shoppers will be flying out of here to Europe and elsewhere. IKEA has cultivated a reputation around value for money and business practices that are touted as sustainable and employee-friendly. But when the dust settles on their grand opening, what will remain is nothing more than another big-box chain retailer taking locals’ hard-earned cash for the benefit of absentee management and shareholders totally disconnected from our community.

Undeterred, some 150,000 people from this region are expected to fall all over themselves getting to and through the 280,000 square foot store during its first five days of opening. According to IKEA, also on hand to mark the grand opening will be the Portland mayor and former mayor, a governor’s representative, and the heads of the Port of Portland and Portland Development Commission. The store will employ 400 “coworkers” (IKEA’s term) and is expected to be the magnet that draws many more (out of state) retailers to the long-planned and mostly vacant Cascade Station district. For those and other dubious reasons, you can expect city and state officials will join with IKEA dignitaries in boasting of yet another economic development victory for our region.

Of course, nary a word will be spoken about the effects IKEA will have on the area’s locally owned independent retailers who must now compete with IKEA. How many jobs will be lost among these businesses as a result of IKEA’s arrival? What economic and civic impacts will be felt when IKEA’s profits leave the area (which they will) instead of staying and multiplying across the local community? And what’s sustainable about having another big-box retailer encouraging thousands of us to get into our cars and drive miles to shop? (I know there is a light-rail connection nearby, but let’s be realistic about how many IKEA shoppers will actually use the train.)

For those of you still saying, “But it’s IKEA!”, consider what The Economist magazine found after it investigated IKEA’s absurdly complex financial structure orchestrated by founder Ingvar Kamprad and his family. “Clearly, the Kamprad family pays the same meticulous attention to tax avoidance as IKEA does to low prices in its stores,” the authors concluded.

So before you join the throngs at IKEA next week, imagine a plane with your money headed to Sweden.

Thursday, July 19th, 2007
Posted in Business & Economics, Oregon | No Comments »

The few, the proud, the tycoons

If ever there was an article tailor-made for debate across America, it would be the lead story in The New York Times on Sunday: “The Richest of the Rich, Proud of a New Gilded Age.” Read it and decide for yourself whether this is an era we can look upon with great pride.

Certainly, Sanford I. Weill, retired chairman of Citigroup, does. He tells the Times, “People can look at the last 25 years and say this is an incredibly unique period of time. We didn’t rely on somebody else to build what we built, and we shouldn’t rely on somebody else to provide all the services our society needs.”

Somebody, as you might imagine, is government. I am no expert on political or economic history, but one thing government surely did in the past 25 years is roll back regulations that businesses claimed stood in the way of their ability to generate jobs and wealth for all Americans. Reporter Louis Uchitelle also cites the example of President Clinton, who in 1999 revoked the Glass-Steagall Act of 1933. The Act outlawed having commercial and investment banking and stock brokerages under one corporate roof because 74 years ago government thought this structure created too many conflicts of interest and contributed to the 1929 crash and the Depression. And who might have benefitted from Clinton’s repeal of the Act?

So it rings mighty hollow when Weill claims successful corporations like Citigroup “didn’t rely on somebody else” to reach the heights they have. I suppose he could argue that government simply got out of the way of business and that’s why the wealth of companies like Citigroup is now so great. Any way you look at it, however, big businesses have relied on government to take actions that make it possible for them to grow as fast and large as they have. Meanwhile, for only the third time in the last century (1915-16 and the late 1920s) has “5 percent of the national income gone to families in the one-one-hundredth of a percent of the income distribution,” according to economists cited in the article. Hence, the new Gilded Age is upon us.

I do believe individual leaders can make a huge difference in the fortunes of companies and societies. And they deserve to be recognized and fairly compensated. But the leaders I most admire come from a place of humility about their accomplishments and realize their great accomplishments are not theirs alone. They are quick to credit and thank others for their success (including government), not because they are excessively humble, but because it’s true. They also will tell you when they’ve been lucky, as when living through the great bull markets over the 25 years Weill speaks of.

As Paul Volcker told the Times, “The market did not go up because businessmen got so much smarter.”

I don’t have the answers for addressing the great worldwide income disparity today. But I do know the situation isn’t going to get better if our wealth leaders believe they have only themselves to thank for living among the .01 percent.


Another one bites the dust

My favorite music store is closing, yet another mom-and-pop to shutter or shrink in the face of a drastically altered retail marketplace. Music Millennium is closing its shop in Northwest Portland after 30 years, leaving only its flagship location on the east side to continue operating. Its owner says the Northwest store has lost a bunch of money in the last three year, including $93,000 since last August.

Everyone knows music stores have been extremely hard hit by online competition such as Amazon and the easily consumed digital songs available at iTunes and elsewhere (yes, I am among those who have purchased music online). Music Millennium also happened to be located on one of Portland’s most popular shopping lanes, Northwest 23rd Avenue (or trendy-third, as the locals say), where rents keep escalating. The owner said he wasn’t able to negotiate a lease deal with his landlord that would make it possible for the store to stay open.

But there’s more going on than commercial victimization due to disruptive technology or ruthless landlords. As a representative of a Northwest Portland business association told the Oregonian: “There is an important substory here, that is with regards to the demise, the loss of independent local merchants. Not only in Portland but all around the country.”

In the interest of full disclosure, I am on the board of Sustainable Business Network of Portland. SBNP is a non-profit working to build vibrant neighborhoods and communities by promoting the health and success of independent, locally owned businesses. I could go on and on here about what it means to communities when their local merchants go out of business. Instead, I urge you to head to your locally owned neighborhood bookstore to pick up a copy of “The Big Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses.” As the liner notes say, “Stacy Mitchell illustrates how mega-retailers are fueling many of our most pressing problems, from the shrinking middle class to rising pollution and diminished civic engagement—and she shows how a growing number of communities and independent businesses are fighting back.”

I know my eyes were opened wide after reading Mitchell’s account. The Oregonian report gets to the heart of the matter in a quote from a long-time Music Millennium customer: “You hate to lose somebody like Music Millennium because it’s got so much character. You don’t find that anymore.”

Thursday, July 12th, 2007
Posted in Books, Business & Economics, Music, Oregon | No Comments »

How about a little more love for Oregon’s own

Two surveys featured by Forbes send mixed signals about Oregon and Oregonians. The magazine places Oregon at 28 in its Top States for Business, up from 31 a year ago. Forbes also reports on a study that ranks the Portland metropolitan region 6th among US metro areas in volunteer rates. So this says we’re a below average state for business, but our major urban area is well above average state for community involvement.

That sounds about right, on both accounts. I did some research earlier this year for an Oregon small business assessment I was writing, and found Oregon consistently ranking in the bottom third or half of all states for quality of business climate. You can find some silver linings here and there in the various studies, but overall our business reputation is not great across the country. Coincidentally, I’ve greatly increased my volunteer hours in the past year, after having sold my share of a business I co-founded. I have quickly come to appreciate what an involved group of citizens we have here in Portland.

I love that Portlanders care about this city and each other as much as they do. I just wish there were more being done here and across the state to lift the success rate of businesses that are started and owned by Oregonians. I am convinced business conditions would improve greatly in this state if we were to take better care of own. Among other things, that means putting an end to expenditures of valuable economic development time and dollars on recruiting businesses from out of state, halting tax incentives to corporations (especially retailers) owned outside of Oregon and investing vastly greater amounts of public dollars in higher education, entrepreneurial training and other programs that emphasize support for new and existing Oregon-owned businesses.

I’m not interested in being seen as the number 1 state for business. Most rankings, including Forbes, tip the scales dramatically in favor of state policies that promote the global traded sector. In this energy-constrained world, we need to find and champion local and regional trade at least as much as international trade. Even if we in Oregon were to thumb our collective nose at Forbes, we have much more we can and should do to build vibrant local economies based on healthy, independent and locally owned businesses.

Wednesday, July 11th, 2007
Posted in Business & Economics, Oregon | No Comments »