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Wednesday, Jun 7, 2023

Companies Trying to Cope in Downturn

By THOM SENZEE Contributing Reporter An industry-by-industry reading of the economic health of the greater Valley area reveals things are still relatively stable despite the grim economic news statewide and nationally. The Business Journal looked at a dozen business sectors to see if their markets may be changing and what companies are doing to adapt. A broad examination of the local economy shows some common themes such as firms adjusting product offerings to give customers more budget-friendly choices but no clearly universal trends. Payroll management companies have a unique vantage point from which to observe trends in compensation, hiring and terminations. “We’re definitely seeing more terminations than hirings now,” said data specialist Alan Castillo of Tom J. Hull & Co.-Countrywide Payroll Services. “It used to be at least even, and more often than not, heavier on the hiring side.” Castillo said his firm is seeing pages of payroll reports from clients that once displayed nine names per page, which are now down to two or three. He said that reflects layoffs at some of the companies for which Tom J. Hull & Co. does payroll. “The economy we’re in now is actually not too bad for us,” he said. “I think that’s because we are a lot cheaper than ADP, and provide most of the same services. Companies are turning to us even more now.” Castillo says Tom J. Hull & Co.-Countrywide Payroll Services is not necessarily seeing added growth in its customer base as a result of the economy. But, he said, the firm is holding steady in spite of the downturn. “We are having to advertise more to get the word out to small companies that we are an alternative to ADP and other, more expensive payroll services,” Castillo said. “We offer a great product at far less the cost.” Staffing agencies also are well-positioned as bellwethers of the economy. “Staffing may be a bit off,” said Carrie Nebens, president and founder of Equis Financial Staffing. ” But not totally off.” Nebens reports that industries such as technology (especially gaming), healthcare, aerospace, and some other specialty sectors, are getting through the economic crisis without much of a slowdown. “Of course mortgage and banking are feeling it,” she said. “But in specialty industries like finance and accounting, people with good skills are still in high demand.” Nebens sees a kind of logic at work in regard to why the industry-specific trends she sees are unfolding as they are. “I’m so close to it, I’m not surprised in terms of who is, and who is not being hit,” she said. “I had a client who said, ‘I should be able to do this without using you, how come I can’t find what I’m looking for in times like this?'” That is an easy question to answer, according to Nebens. She said the reason companies are still using staffing agencies is no different now than in boom times. “Sure, people are placing ads and getting maybe 300 replies, but they still need our services to sift through them.” According to Nebens, another dynamic in play nowadays is concern about job security. “People are not as willing to make changes in a bad economy,” she said. “In a good economy, people are willing to take a chance. Now they are simply saying, ‘I think I’ll just keep the job I have.'” Specializing in the arena of finance and accounting has also been a positive for Neben’s company. “There is still a shortage of qualified people in the finance and accounting industries,” she said. “Although we don’t do healthcare, that is another side of staffing that is still robust.” One major change Equis Financial Staffing has noticed is an increase in its temporary-staffing business. “We are up almost 300 percent in that side of the business,” she said. “At the same time, our permanent-placement business is pretty much flat.” That means year-to-year growth for Equis will actually be higher, 2007 to 2008. Development The arena land developers play in is one where economic dichotomies reign supreme. That is partly because of the built-in lag time of large construction projects, and partly because deflated values also mean big bargains. “My project currently under construction started prior to the events of the last few months,” said Mark Ossola, president of M.W. Ossola and Associates, Inc. “Quite frankly, I would not have been able to get the kind of financing I got for, say, my Moorpark project.” Ossola is the developer of a $50 million-dollar shopping center in Moorpark. He believes future development will be restrained because of a relative lack of financing sources for speculative projects. “That’s not to say there’s no financing,” Ossola said. “It’s just that instead of receiving 75 percent financing, now it’s more like 60 percent financing and 40 percent equity.” According to him, only a few developers are willing to apply 30 or 40 percent of the cost of a construction project out of their own pockets. “The rate of return on investment is also going down these days, because prices have gone down,” he said. “The kind of developers that will be able to do well will be willing to look at lower yields, and will do well because they have a lot of cash on hand.” Ossola believes developers with cash on hand are well suited to the new economy because they will both be able to take advantage of falling sale prices on existing properties, as well as make up for diminished financing percentages being offered by lenders. “While some guys will be sitting on the sidelines, I will save my cash for troubled properties rather than looking at a lot of new projects in the coming months,” Ossola said. Banking Speaking of lenders, a few large business banks have recently put out a flurry of press releases that say, contrary to media reports, they have money to lend. But banking is feeling the impact of the new economy’s arrival in ways other than just the issue of the credit. El Camino Bank is a startup business bank with “a Latino flavor.” It will open its first location in Chatsworth in February, according to a bank official. However, that is months behind the launch date originally announced in a story the Business Journal published last July. “They have slowed down the approval process,” said Cole W. Minnick, proposed president of the still-to-open bank, referring to the California Department of Financial Institutions. Minnick said the problem is that the banking industry is in such a state of upheaval that the government bureaucracies with which banks must coordinate their endeavors are, in a word, “swamped.” “We are proceeding with branch construction, but we are still waiting for approval to raise capital,” Minnick said. “We will probably get the approval at the end of this month.” In the meantime, Minnick and his partners continue working to raise the $30 million in capital they will need prior to opening the bank’s first branch in early 2009. Banks and lenders provide the foundation upon which most businesses are built, and none is more reliant on loans than the real estate business. Commercial Real Estate Commercial real estate brokers are on the front lines of the financial crisis, as they work astride two related businesses lending and investment both of which have been at the center of the national economy’s troubles. “I have a terrible analogy,” said Mike Tingus, president of commercial brokerage leader, Lee and Associates. “A client said it was like a month or so ago two planes hit Wall Street and we were in shock and awe. Except this time we have been domestically attacked.” Tingus makes no bones about his feelings toward the events of the past few weeks. “Now there’s all this smoke,” he said. “People are standing around, reading the situation, watching to see what’s next.” Ironically, despite Tingus’s blunt perspective about the financial markets’ meltdown, he is decidedly bullish about the economy. “Look, it’s definitely having an impact,” he said. “When this all came down, I was about to give a talk at our annual customer appreciation day. The stock market had just fallen 700 points and I had to sit there in my car for 20 minutes and think about what I was going to say.” Tingus said he told the crowd that this is the time to hold steady. That was an important message, he said, because among the listeners he addressed were many of his firm’s 60 brokers, each of who own their own Lee and Associates offices. “There’s no quit in us as a country,” he said. “We’ve got to run our businesses right. It doesn’t pay to shrink to profit. Losing a person here and there is insignificant compared to what it does to your morale and customer service.” Nevertheless, Tingus said there is a slowdown in the commercial real-estate market. “Vacancies are going up,” he said. “Industrials are staying flat, while office vacancies are going up slightly, but, frankly we needed that in the San Fernando Valley.” Tingus said Lee and Associates had its best sales year to date in 2006; 2007 was even better. “This year will not be as good as ’07,” he said. “But it will be better than ’06. We will definitely see a bigger slowdown in 2009.” Tingus predicts choppy waters ahead for the northern Los Angeles County economy as a whole. But, he believes, economic shifts that occurred after a major downsizing of the region’s once-gigantic aerospace industry shifts that brought the advent of more entrepreneurial small businesses will insulate it to some degree. Aerospace Although it has shrunk during the past two decades, aerospace is still here. John Anderson is director of the Aerospace and Defense Group of a not-for-profit consulting organization that studies California industry. “We’re finding people are concerned with what’s going to happen with commercial orders,” said California Manufacturing Technology Consulting’s Anderson. “Will it slow down in the new economy and what will a new administration mean for the defense budget will it tighten; will they be more cautious about expansion?” For now, he said, aerospace in the San Fernando Valley and the surrounding area is holding tight. In fact, Anderson said a strike at Boeing is the only thing really affecting local contractors. “As soon as the strike is over, they will be back to normal.” However, Anderson is advising those in the aerospace industry to look for ways to maximize technological advantages over whatever competition they face, as well as improve delivery times. His organization shows manufacturers how they might do just that. Businesses everywhere are looking for ways to increase efficiencies and reduce expenses. Hospitality According to Tim Wildey, director of sales and marketing at Hyatt Valencia, travel is one of the first areas executives look to for cutting costs. “I think the hospitality industry in L.A. County and nationwide has traditionally been a bellwether industry in terms of how the economy is fairing,” he said. Hotels have been struggling for months now, according to Wildey. “We started to notice a difference at the end of last year,” he said. “We were down 12 to 15 percent.” However, things improved somewhat earlier this year, Wildey said, when there were periods of decidedly strong demand. “Then, during the second half of this year, the product is way down,” he said. “Companies are saying, we can do this transaction without travel and protect our profit.” One thing the hospitality industry will not be doing, according to Wildey, is cutting its room rates to counteract the drop off in demand. “We learned that during the recession that came after 9/11,” he said. “In no way did lowering rates help occupancy. It just doesn’t work.” A little south of Valencia, in Westlake Village (and, arguably a little north of the Hyatt in terms of cachet) high-end boutique hotel Westlake Village Inn is also feeling the pinch. “We are conservatively optimistic,” said Maria Solorzano, senior corporate sales manager at the property. “We have deep roots in the community and a reputation for personalized customer care. We take pride in the longevity and relationships we have nurtured over the years.” Nevertheless, said Solorzano, now more than ever she and the rest of the hotel’s staff must strive to ensure its product is “fresh, competitive and personalized.” Education Even though some say private colleges are insulated from too much diminishment of their cash flow, some in the business of higher education are concerned about the economy. “At this point we are fairly insulated to what’s going on,” said Don St. Clair, vice president of marketing at Woodbury University. “Our first concern regarding the downturn in markets is that our endowment is worth less than it was 30 days ago.” Fortunately for Woodbury, it does not rely on distributions from its $12 million endowment fund, nor does it subsidize tuitions by using it as a reserve. “We’re also watching the CalGrant program,” he said. “If it gets cut, as happened five or six years ago, that would mean we might have to help our students who come from modest-income families.” Currently, students who receive CalGrants have almost $10,000 of their annual tuition covered, a figure that represents 40 percent of total fees. So far, said St. Clair, student aid in the form of federally backed loans has not been threatened by the credit crisis. Most of the university’s students receive some form of financial aid. Technology Simi Valley-based NovaStor, a company that makes computer backup and storage systems, is growing. Company officials believe the new economy presents an opportunity to “fill some empty pockets in the backup market.” “I think I’d be lying if I said we weren’t affected by the economy’s problems,” said Mike Andrews, managing director of NovaStor. “Data protection is like life insurance. In the end, you need it.” Part of the company’s growth model includes a strategy that harkens back to the years of the dot-com boom. “We’re looking at some kind of a free offering of our product as a branding mechanism,” Andrews said. “Of course there are some creative opportunities that come along with a free version.” Originally makers and sellers of local-only data storage, NovaStor now offers the full spectrum of onsite, offsite and even one of the latest types of recovery technology disk-imaging disaster recovery. Andrews said changes in the business environment and the economy, moreover, favor companies such as his. “We are agile,” he said, adding that some companies in NovaStor’s industry have overlooked the small-business side of the market. “We’re redesigning the way we look at the entire product offering,” Andrews said. “Earlier this year we introduced what I like to call a three-flavor product line that offers solutions for every need.” Andrews believes in NovaStor’s timing in launching the line, which ranges in price from just a few bucks to $200, and capabilities ranging from online data storage to full-fledged network protection. “We’re not the multi billion company that says ‘here’s what you get,'” he said. “All of our platforms are designed very modularly so each product can stand alone by itself, or be combined with others.” Modularity and price value, Andrews believes, will help his company to grow in spite of a recession. In fact, he said, the new economy might actually help NovaStor. “All these (software) modules can sit on this engine we have,” he said. “And we can tie it all together with key codes, which also opens opportunities in the OEM market.” Biotech On the biotech front, large companies in the region such as Amgen and Baxter, which had already seen their luster on Wall Street tempered by economic changes, as well as a few high-profile legal challenges regarding the availability of certain drugs, are hunkered down for the long haul. According to a spokesperson at Amgen, the company has taken no special measures in response to recent news about the economy or markets. “Amgen is in a long-cycle business and the company has not made any significant changes to its daily operations or long-term strategy due to the volatility seen recently in the broader markets,” said Sara Rockwell, manager of corporate communications and media relations. With so many companies claiming to be bellwethers of economic trends, it may be wise to consider one more: EBay. Or, more precisely, what is hot on EBay. One of the hottest properties recently put on EBay was a URL, or website address. “ONE OF A KIND & YOU CAN HAVE IT: Be the first and only “go to” web site that the entire world can go to for the latest “after the bailout” information. So read the press release from the person asking for minimum bid of $1 million for the URL afterthebailout.com.

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