Business After Sept. 11: How Bad Can It Really Get? Few in the Valley business community would argue that, prior to the attacks of Sept. 11, the economy was on the skids and investor confidence was headed south. The tech wreck of 2000 had already put a dent in corporate earnings, small businesses representing every sector were looking for ways to cut expenses and layoffs were not uncommon, although not as severe here as in other parts of the state. Then, immediately following the attacks, “panic” became the watchword and business leaders who weren’t directly affected began planning for a trickle-down effect, tightening budgets even further, holding off on expansion plans and operating on a “wait and see” basis. At mid-year, the Business Journal asked several Valley business leaders if things got as bleak as they expected after 9-11 and, with the ongoing threat of more terrorist attacks, what their outlook on the economy was moving into the second half of 2002. Fred Gaines Chairman VICA I think that the second half of the year looks to continue to be somewhat sluggish in terms of growth. I don’t see much of a downturn, especially in real estate, as long as interest rates stay low. There certainly has been a downturn in retail occupancy rates, but I think that will level out. So again, I think it’s going to be pretty much status quo. And I think the San Fernando Valley entertainment industry will also regain some strength and remain steady, which is one of the big drivers of the local economy. Walter Prince President Executive Suite Services Inc. I was never negative about the economy after Sept. 11. I don’t think that attack affected the local economy at all, except as it related to the stock market. But so far as the rest of the economy, frankly, I don’t see a connection between Sept. 11 and the business community on the West Coast or in the San Fernando Valley. After the initial period of being stunned was over, people got back to their lives. Steven Nichols President & CEO K-Swiss Inc. I felt after something like Sept. 11, which was really as bad and as shocking as Pearl Harbor, that it would take a long time to recover and it has. I don’t know how anyone can carry on business as usual. It was a direct attack on the heart of our financial markets and the world and how could it not impact everything and everyone? We were already in a downturn and there were signs that the economy was in trouble, but Sept. 11 brought everything down and it’s going to take a while before we see things turn around. We took advantage of the down market to buy back more of our shares like a lot of other companies, but that is really one of the few advantages of this economy. Arthur Sweet President A & E; Development Co. Inc. We’ve got kind of a dichotomy. Retail and manufacturing have had a lot of negative impact since Sept. 11. A lot of them, I think, are in trouble. I see that there are (commercial real estate) vacancies. Some of my tenants have indicated they want adjustments in their leases. One tenant told me, “By Dec. 31 we’ll be out of business. What kind of adjustments can we make?” On the other hand, the reason the Valley residential real estate market is so good is because that’s the only place left where people can park their money for a while instead of the stock market. Real estate prices are so high, residential specifically, and, until people decide that isn’t the place to put their money, commercial real estate is going to continue to hurt. It’s going to all be dependent on having stabilization in the stock market. Until you get back to earnings multiples of 10 to 15, who’s going to make any investments, especially when it’s going to take 40 years to get your money back? Ken Keller President & CEO STAR Business Consulting Inc. My first suspicions on the economy following 9/11 were that the country would first reel, then recover. That happened, but my second suspicion also came true: The small businesses that make up the vast majority of the market here in the San Fernando Valley have suffered greater than I had expected. While interest rates are at historic lows, banks have tightened their credit policies and businesses with less-than-stellar credit can’t borrow to finance growth, even when the opportunities to grow are excellent. It’s a Catch-22. The majority of my clients have laid off people since 9/11. In some instances, just one or two; in other instances, more. Only about 20 percent of my clients are growing and looking for good people. The remainder are holding firm and not hiring or bringing on additional expenses. They have adopted a “wait and see” attitude. They are keeping their ears to the ground and looking for signs of improvement. I think that we are at the bottom of our economic trough, but we may be here for a while. I see the economy staying stable for the next six months. I am hopeful that things will turn for the better after the first of the year. Spending on technology has to kick in. That will take some doing, because the technology people had us all convinced in the mid- to late 1990s that we all had to have the latest version of each gizmo. Dan Blake Director San Fernando Valley Economic Research Center, CSUN We were impacted by the events of Sept. 11, particularly in travel and tourism, but it wasn’t as bleak as many had predicted it would be. A number of things that could have happened didn’t, and consequently there really wasn’t much fallout from this. I don’t expect further fallout unless there is a new attack. The indications I have are that tourism and air traffic are improving, but are doing so in a mild recession and this is a very, very mild recovery. In fact, it’s looking like it’s a stagnant recovery. But overall, we are moving into recovery, albeit very slowly. Bonny Herman President VICA I expected an economic slowdown while the key financial centers destroyed by 9/11 regrouped, but the bigger disaster is corporate America’s fall from grace. That will have a long-lasting negative impact on the market as consumers and smaller investors seek safe, trustworthy havens. The timing is especially bad now, as many baby boomers are seeking reliable investments to fund their future retirements, which is right around the corner. The recent corporate financial debacles have shaken people’s trust. I predict that more money will come out of the market, even mutual funds, and go to real estate, at least in California, for the next year or two. When new rules and regs are in place, the money will flow back to traditional investment institutions. So I think the terrorists that have upset the economy are our own and pose more of a threat than Bin Ladin. Glen Becerra Regional Public Affairs Manager Southern California Edison I feel cautiously optimistic. I think the economy will continue to improve, though not at the pace we’d all hoped for. Productivity has skyrocketed and that’s a positive: the workers are making the most of it. The employment levels have remained fairly steady, but also the people that are working are being very productive and I think that’s an encouraging sign. The corporate scandals will have an effect on the investor, but I think the overall markets will continue to improve and we will get through the rough currents the business cycle is going through. Considering what we went through as a country this last year, we’ve adjusted and we are a resilient people. Carl Wertz CFO Diodes Inc. As everybody knows, it’s probably the worst incident that’s ever happened in this country and everybody has been very pessimistic. The economy was in pretty bad shape in the beginning and it was pretty ugly. It’s hard to be optimistic when something like that happens and everyone has been really nervous and they had the right to be. I didn’t know when things would start to come back, but it looks like it’s starting even with all these accounting problems. The confidence of investors is really shaken and it kind of hurts to know that one of the best accounting firms out there is taking a beating. It’s unfortunate that a handful of people are bringing down thousands of other good people. For us, we’re meeting our goals and we’re starting to see some good signs overall for the economy. Some of that uncertainty has subsided and that’s a lot in itself. Sondra Frohlich Executive Director Sherman Oaks Chamber of Commerce We haven’t had much evidence of any severe slowdowns. The chamber has continued to see rising membership numbers and we see very active participation, which indicates that things have not been as bad as expected. So I have to say, looking forward, that I am optimistic. Jonathan Kevles Deputy Mayor for Economic Development Los Angeles I think that Los Angeles fared better than probably every other part of the country because we have the most diverse economy. We are not as dependent on tourism and high-tech as a city like San Francisco. Certainly, the workers in the hospitality sectors of the economy and those directly tied to travel and the airport, those businesses really took the brunt of what happened on Sept. 11. But a large part of the Mayor’s program for economic recovery dealt with helping those workers. Business taxes remained strong, which shows the broader economy in the city and the region did not suffer as much as people had feared, nor as much as other regions. I see the economy now being bolstered by a continuing strength in the housing market. This is a barometer that is followed nationally. In the absence of putting money in the markets, it finds a place to go to achieve the best return. Phil Lichtenberger Vice President Holl Technologies Sept. 11 was a date for people to crystallize in their mind and react to. But clearly all the decision-making stopped and everything went into autopilot for a good while. All of the sudden, there’s a panic and it’s as if people have woken up and a lot of corporations are now thinking about the future. I thought Sept. 11 would delay people’s decision-making until March or April, but nobody woke up then and everybody was still distracted and nobody was doing business. But now I think people are starting to move forward. In the chemical business, things are now starting to move. Dick Cavdek President CyberFX Inc. I don’t think I’ve ever seen anything like that where the phone literally stopped ringing for what seemed like months. I couldn’t think about how long it would take for things to get back, but when it did, it was nine months later. Everything had stopped, except for the rent, of course. It just seemed like the film business stopped like everything else and no one could figure it out. It was like a trickle of business coming in afterward and it got a little bit better, but it was awful. You can see the economy is getting better now and that the business is finally starting to get back to normal. But I’m still shocked by it. You never think business will just stop. Matt Hunter Hunter Communications On Sept. 11 we were fully booked with business for the remainder for of 2001. We confronted the shock of that day by redoubling our efforts to do a good job on the work that was currently in the shop and didn’t have time to adjust expectations. We did not lose a single piece of business in 2001, mainly because we had no clients in the business categories most affected by September 11. Nine months later, the reality of our situation is that 2002 has been our best year in many years. I credit this to a laser focus on the type of work we do best for the type of client we’re best suited to serve.