Posts Tagged ‘Hurvitz’
Tuesday, March 2nd, 2010
Recently, there have been many articles published in The Wall Street Journal reporting on the fourth-quarter earnings of such companies as Lowe’s and Nordstrom, but Smeal’s Fred Hurvitz says that factors other than improved income statements must be taken into consideration before making conclusions about the current state of the economy.
The performance of the retail industry is often viewed as an important indicator as to the future state of the economy. Quite naturally there has been cause for optimism as a result of a general improvement of earnings reported by many of the nations largest retailers such as Macy’s, Sears and Lowe’s. Although there is reason to believe that the economy is getting healthier, we still have to exercise some caution when merely focusing on these improved income statements.
Profitability can improve on the basis of different factors. First, consumer spending could increase substantially resulting in greater demand and increased sales volumes. This of course would be a positive sign that we are emerging from the recession that was brought on in part by a lack of consumer spending. To this point, although many stores are reporting modest increases in sales, this does not seem to be the main reason that we have been seeing these improved earnings. The improved earnings seem to be more the result of better management of inventory and expense practices.
Prior to last year’s economic collapse, many retailers were still optimistic in their forecasting of sales potential. As a result, their inventories were at very high levels and their operating expenses (especially labor) were less than optimal. When the recession hit, they were caught in overstocked conditions. The ensuing rush to dump inventories resulted in an unparalleled wave of discount and bargain pricing that cut drastically into maintained markups. With these lower margins and the higher level of operating expenses, bottom lines were severely impacted.
What we have witnessed this past season is a much better managed industry. Although many retailers have enjoyed modest sales increases, most reported increases are in the range of less than one to two percent. The real improvement has come in the form of more cautious inventory purchasing. Retailers are trying to turn their inventories more often and are taking the approach that it is better to lose an occasional sale than to be overstocked. In addition, many retailers took the opportunity to downsize their labor force. This move has resulted in decreased markup requirements. As a result, many retail operations have improved their bottom line without experiencing substantial increases in sales volumes.
Many experts believe that consumer confidence and spending are slowly improving. However, it is still too early believe that the economy is in a full recovery mode. Although there is cause for some optimism, retail sales projections appear to suggest that substantial sales increases will most likely not occur until sometime in 2011. As a result of improved management practices, many of the largest retailers will be in position to fully take advantage of the improving economy.
Thursday, April 9th, 2009
Are college towns recession proof? Several media outlets have addressed this question lately, and for good reason: “Of the six metropolitan areas with unemployment below 4 percent as of January, three of them are considered college towns,” according to The Wall Street Journal.
“Recession proof” is probably pushing it, says Smeal’s Fred Hurvitz, “But college towns do seem to be somewhat insulated from the devastating effects of recessions and economic downturns, and some are even able to prosper despite what happens to the national economy.” Hurvitz, who spent 20 years operating a number of small businesses in a college town—State College, Pa.—before joining the Smeal faculty full time, says there are two major factors that help contribute to this ability to be recession resistant:
The first and perhaps most important factor is the university as employer. Typically, the largest employers in many of these communities are their universities. Even though many of these colleges have instituted freezes on hiring and pay raises, the threat of massive layoffs is practically nonexistent. As a result, unemployment rates for college towns are typically among the lowest nationally. Although unemployment nationally is approximately 8.5 percent, many college towns are experiencing rates in the range of 4 percent or less. Job security with a minimal threat of massive job loss fosters consumer confidence and continued spending. Local consumers may be a little more cautious with regard to their spending, but they don’t tend to make drastic cutbacks. As a result there is a greater degree of economic stability in these communities.
The second major factor has to do with family dynamics. While many parents will sacrifice as far as their own needs are concerned, they often resist allowing their children to suffer. As a result, many college students come to school with budgets that haven’t been too harshly depleted. Students still need to rent housing, purchase textbooks, buy food, and of course occasionally indulge in some after-hours entertainment and partying. It is not surprising that some of the local bars and restaurants in State College are reporting sales decreases, but these decreases have been minimal. The continued need of students to spend on necessities as well as discretionary items helps stabilize these local economies.
As of now, we haven’t experienced a prolonged recession. If this recession should continue for several years, college towns will eventually feel the pressure. Tuition increases and lack of student financing could start to drain universities of applicants. If that happens, then of course college towns may join the rest of the communities that are being severely effected by the recession. However, as long as universities are able to maintain their enrollment levels, the college towns they reside in will continue to be somewhat recession resistant.
Wednesday, March 25th, 2009
As public outrage grows over bailed-out banks hosting what many perceive to be lavish retreats and business meetings, politicians from the president on down have been condemning such events. In fact, the Senate recently passed a bill limiting spending on luxury travel for firms receiving bailout money.
“There is no arguing with the premise that accountability regarding the use of bailout funds is essential to restoring public confidence,” says Smeal’s Fred Hurvitz. But, he says, the criticism seems to be causing a ripple effect through the entire meeting and event-planning industry. According to Hurvitz, a lot of healthy companies that haven’t received any bailout funds are cutting back on travel out of a fear of being labeled as lavish spenders.
More from Hurvitz:
The business travel industry supports nearly 2.5 million jobs in the United States. It is estimated that approximately 1 million of these jobs are tied directly to meetings and events. The travel industry is already suffering due to the current economic situation. The added focus on, and criticism of, business travel by our politicians is causing additional strain on this economically important industry.
What our politicians fail to realize is that when they make their very public assertions condemning “lavish” business travel, they are also stifling some of the economic spending needed to help re-energize this economy. It has been estimated that business travel accounts for approximately $240 billion in sales revenue, and meetings-related travel generates approximately $16 billion in state and local tax revenue. So, while it may be politically fashionable at moment, condemning business travel as an example of corporate extravagance is not in the best interest of our economy.
Perhaps the most disturbing part of all of this is that the people who our elected officials are harming the most are the service workers—including housekeepers, maintenance workers, reservation agents, wait staff, and other hourly employees—who depend on this form of travel for their modest livelihood. These are the very people who politicians purport to be looking out for when they run for election.
The recovery that we are all hoping to see depends on restoring confidence and stimulating customer spending. Politicians who are adopting populist rhetoric to garner support from an enraged public are working in direct contrast to these goals, and they need to be careful what they wish for. Condemning the travel industry, which accounts for about one out of every eight jobs in the United States, is not a good way to stem our rising unemployment levels. And fueling public anger against an entire industry—one that is a vital element to our nation’s overall economic recovery—can have unintended consequences.