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Business Observer Friday, Oct. 19, 2007 14 years ago

Mixed Signals

The residential real estate downturn is spreading to other industries and appears to be leading a general decline in business activity on the Gulf Coast. But some sectors, such as technology and exports, aren't feeling the pain.

Mixed Signals

economic forecast by Jean Gruss, Mark Gordon and Dave Szmanski | Regional Editors

The residential real estate downturn is spreading to other industries and appears to be leading a general decline in business activity on the Gulf Coast. But some sectors, such as technology and exports, aren't feeling the pain.

If your business is exporting technology components to Asia, finding and placing top executives in firms across the country or providing technology services to health care companies, you should do well in 2008.

But if your business depends on residential real estate, construction or related consumer spending, next year will be tough.

The Review spoke with business owners and top managers from Tampa to Sarasota, Fort Myers and Naples to gauge their outlook for 2008. The results were decidedly mixed, depending on your line of business.

Tellingly, the further south you go the more negative the outlook becomes. Tampa's more optimistic view is likely the result of its more diversified economy. Meanwhile, further south, the residential boom and accompanying commercial development has slowed substantially causing widespread pain that will last through 2008.

Here's a look at what executives are saying, starting with Tampa and traveling down the coast.

Tampa Bay:

Cheaper wine, tech exports

In the Tampa Bay area, CEO Barry Shevlin has his own barometer for predicting the economy: FedEx drivers.

Shevlin's Oldsmar company, Network Liquidators, refurbishes technology and sells it. It also is a big FedEx customer.

The barometer: If FedEx adds routes, the economy will expand. If it drops them, it will tighten. This fall, the drivers have told Shevlin FedEx dropped a couple of routes in the Bay area.

"It recently has taken trucks off of a couple of routes, so we'll probably be a little off for 2008," he says. However, his industry, which saves companies money by selling used switches, routers and phone systems, will continue to grow "pretty significantly" in 2008, perhaps 5% to 10% next year. "Refurbished is becoming more accepted," Shevlin says.

For his business in 2008, he projects 30% growth in revenue. "That's low for us," he says. "We had 200 percent growth over last year, some of that from an acquisition. Twenty percent of our sales are now overseas."

Shevlin's outlook is echoed by a selection of Bay area executives. Next year's results will be more modest, but businesses are adjusting now to cope with it and be well positioned for 2009 and beyond.

CEO Michael Probst of Tampa-based wine retailer Cork & Olive sees a better 2008 as people adjust to the downturn in residential real estate. They will still buy wine from him, but may trade down to lower-priced wines in the $10 to $16 range.

"The housing and mortgage issue started a year ago and most of us were not aware of it," Probst says. "Today we see that adjustment and that makes us nervous. Certainly that has an impact on our spending habits."

But for 2008, wine buyers will be more cost-conscious. Cork & Olive will adjust, offering a variety of wines. It is also drawing up a reward program for loyal shoppers.

CEO Bill Eshenbaugh, who runs his own Tampa-based commercial real estate services firm that specializes in land transactions, sees 2008 as a year when he will have to work harder at getting deals done.

"For the region, I see 2008 as a year of cautious optimism," Eshenbaugh says. "There will be concerns over interest rates and capital markets, the banks will be trying to get their balance sheets right and it will be tougher to finance deals."

Retail development will slow down as housing construction has slowed to a trickle. The election year will cause a little uncertainty. However, many businesses in Florida will benefit in 2008 from preparations this fall and winter. "A lot of Florida companies have done a good job of loading the pipeline," he says.

CEO Peter Anderson, of Tampa-based Bayshore Technologies, an information-technology services firm, is looking at the residential real estate market adjustment as a way for the market to correct itself and get healthier for 2008 and 2009. Bayshore Technologies serves clients in industries such as health care, insurance and financial services.

"In some ways, this region is incredibly vibrant and will continue to be vibrant," Anderson says. "This gets us back to more decent growth."

He adds: "We expect to grow our business 20% and continue hiring in 2008. I know we are supposed to be in a recession and doom and gloom, but we are very positive."

CEO Glen Peak of Tampa-based PeakBiety Branding and Advertising, is also confident in the 2008 economy. "Accepting the fact I'm not an economist, I see no reason why our Tampa Bay economy would not continue to improve over 2007," Peak says. He lists the positives: No hurricanes, a bottom in the housing market, low unemployment, rising personal income and population growth.

Rick Bowen, COO of Agile Communications, a cell phone text services company in the Channelside area of Tampa, says his company plans to open new offices in Spain, Italy and Switzerland in 2008. It already has an office in Paris. Agile sells text-messaging services to businesses.

"For the region, I think Tampa Bay will survive the mess that the real estate market has thrown at this area," Bowen says. "A lot of the economic outlook will be directed by who becomes president. But still, I think the economy will kick back pretty hard in 2008."


Cooling off

Alan Guttridge rode the Gulf Coast housing boom for a surge in annual sales at his printing company, a Sarasota-based family operation he took over from his father in 1975.

The $5-million-per-year business, Coastal Printing, grew to $8 million a year from 2002-2005, the peak years of the boom. And the amount of projects coming in from developers, real estate firms and even single home sellers almost tripled, from mass-producing simple brochures to creating thick and glossy condo portfolios. Clients included Sarasota-based real estate brokerage Michael Saunders & Co. and Bonita Springs-based homebuilder WCI. "It was just there," Guttridge says. "You couldn't resist it."

Still, Guttridge knew the good times would stop rolling sooner or later. That time has come, as in 2007 the company had miniscule growth, a trend Guttridge expects to continue into 2008. Projects related to real estate and development make up less then 10% of the firm's annual revenues now, down from 20% in the boom years. "If we keep up with 2007 [next year] we will consider ourselves fortunate," says Guttridge. "And 2007 was not a great year for us."

Guttridge is not alone. Up and down the Gulf Coast, entrepreneurs, senior executives and business leaders share a similar sentiment. The woes of the housing market have engulfed many other businesses, from manufacturing to tourism.

Bradenton-based Florida Southern Roofing and Sheet Metal is another company projecting a year of flat growth. The company, with a niche in condo roofs, grew its revenues an average of 22% a year from 2004 to 2006, from $6.9 million to $10.2 million. What's more, company president Brian Wallace led an expansion, which included new hires and potentially building a new facility.

This past year though, Wallace says he's struggled to find lucrative jobs. A small group of employees were let go a few months ago, people Wallace says he hopes to bring back when the market picks up.

Like several others in the construction and subcontractor markets, Wallace says there's a lot of talk about projects and there's still a lot of bidding going on. The problem, Wallace says, is few entities, from governments to developers, are going from bids to actually starting a project.

One tactic Wallace is using is to fight the slowdown is to grow geographically. The company has had a small office in St. Petersburg for five years, but Wallace is now looking for work in the bedroom communities north of Tampa and in several Central Florida counties. And, he says: "We are bidding everything we can get our hands on."

Still, not everyone is ready to call 2008 a wash. Joe McElmeel, chairman and CEO of Brooke Chase Associates, Inc. a Sarasota-based executive search firm focusing on placing people in the building and home repair industries, sees good things in 2008 - for both his company and many of his clients.

McElmeel spent the first two weeks of October traveling across the country to check in with the firm's top clients. He met with a multi-family housing developer in Indiana who's projecting 26% revenue growth and a cabinet door manufacturer in Northern California expecting a similarly strong year.

"I'm very optimistic," McElmeel says. "This is the time where aggressive companies build market share."

Back at Coastal Printing, Guttridge, a 64-year-old business veteran of oil embargos, recessions and other financial calamities, isn't sitting around and waiting this one out, either. Only his tack of aggression is defensive.

The company is freezing salaries, restricting all but the most integral capital expenses and negotiating heavily with vendors for price cuts, among other steps. "It's not as severe as survival," says Guttridge, "but it's one step up from that."

Ryan Guttridge, Alan's son and a sales executive with the firm, adds that the company is relying on its trademark quality through the lean times to maintain its customer base. The company, for example, recently won four statewide awards for printing excellence.

And Finally, Alan Guttridge is trying to zero in on where he'll catch the next big revenue wave, a Herculean challenge so far. "I'm still looking for it," he says. "I haven't yet found the Holy Grail of printing in Southwest Florida."


Fewer chalupas

To understand how the residential real estate downturn is spreading to other businesses in Southwest Florida, consider Rick Tromble's chain of 44 Taco Bell restaurants.

Tromble, whose company is based in Port Charlotte, saw double-digit growth during the boom as construction workers feasted on chalupas, gorditas and burritos. In 2007, as the construction business slowed, sales have been "slightly negative," Tromble says.

When he speaks to other fast-food operators in Florida, he hears the same story. Many people in the construction industry have either left the area or aren't eating out as much anymore.

Still, Tromble isn't ready to put away the hot sauce. He's projecting 6% growth in sales next year based on a resurgent tourism season. His restaurants stretch from Tampa to Naples and Palm Beach.

At Platinum Total Fabricare in Naples, a dry cleaning company in Naples and Bonita Springs, owner Joe Waite says he expects discretionary spending to slow next year. Shops and restaurants in Naples have experienced a downturn in business and many business owners are pinning their hopes on returning seasonal residents.

"It's slowed down a little bit," says Waite, who had expected double-digit percentage growth this year. "If we could do an additional 7% in sales, excluding price increases, I would be elated."

One of Waite's biggest challenges is keeping costs under control. For example, Platinum's property insurance rates have jumped 300%. "That puts us at a competitive disadvantage," he says.

Many businesses have been caught off-guard by the downturn, says Heather Christie, CEO of ActionCoach in Fort Myers. She helps small and medium-sized businesses improve profitability.

"We've seen a big shift in the business that are coming to us for help," Christie says. During the boom years, businesses could barely keep up with all the work and many employees became order takers. Now, many of these businesses have to go out and make sales.

"I would really consider planning for the market not coming back [in 2008]," Christie recommends. She says businesses should boost marketing efforts and professional education for employees.

Many business owners are blaming the residential downturn for their own drop in sales, though it's hard to pin down the direct causes. "I can't tell you whether it's reality or mindset," Christie says.

But that mirrors what many businesses believe. According to a business-climate survey conducted Florida Gulf Coast University's Regional Economic Research Institute for the Chamber of Southwest Florida, 67% of business owners and managers said the residential slowdown has hurt their business. "I'm surprised it's not higher than that," says Gary Jackson, director of the institute.

Over the next 12 months, 60% of respondents said they were less optimistic about the overall economy. But Jackson cautions that business owners and managers were polled before the Federal Reserve started cutting interest rates in September. "Timing's important," he says.

Certainly sales have suffered. In Fort Myers, taxable sales were down nearly 12% in July versus the same month in 2006, according to state figures. Building investment sales were down 40%, autos fell 22%, business investment declined 15%, consumer durables dropped 12% and tourism and recreation dipped 1%. Only consumer nondurables (such as sales at food and drug stores) rose by 7%.

Not every business is impacted by the residential downturn. At Fox Electronics, a Fort Myers manufacturer of electronic parts for the computer and mobile phone industry, international exports have been robust. "We're not particularly impacted by local problems," says Gene Trefethen, chief executive officer of Fox Electronics. "We seem to be disconnected and isolated."

Trefethen says he's finding plenty of qualified candidates for new positions. "Surprisingly, I've posted a couple jobs and I'm getting huge response." Recently, the company received 30 applications for two management positions where in the past it would have received three or four. "It shocked the hell out of me."

As the residential downturn impacts other related industries, employers are shedding labor costs, which may be why Trefethen is seeing a jump in applicants. According to the chamber's business-climate survey, 33% of employers expect to trim staff.

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