Victory At Home Won't Come So EasyKeith H. Hammonds
Back to business.
As suddenly as it began, the gulf war is over. In the coming months, the Mideast will attempt to rebuild. G. I.s will make their way home. And U. S. companies, after seven months of contingency living, will return to the matter of doing business in a recession.
That's plenty worrisome, but the primary emotion in executive suites these days is sweet relief. The actual combat lasted just six weeks--much shorter than most had anticipated. "Thank God the war didn't last 9 or 10 months," says Tom Bewley, director of sales and promotions at the Walt Disney World Dolphin, an Orlando hotel. "It would have been devastating."
The quick U. S. victory, say many executives surveyed by BUSINESS WEEK, will cause a swell of consumer confidence. Americans, the argument goes, are pumped up: Freed from the stigma of Vietnam, they are ready to celebrate as only Americans can--by spending. As Federal Reserve Board Chairman Alan Greenspan noted on Mar. 6: "The successful end to the hostilities in the gulf has removed a troublesome uncertainty and should provide some lift to consumer and business confidence."
The problem is, the party hasn't really gotten rolling yet. In fact, consumer outlays, off sharply in January, haven't bounced back. Americans aren't mobbing department stores. The large-appliance business remains soft, and new-car sales in February were down 13%. True, polls show that consumers' morale is on the rise. But their incomes aren't--and confidence alone won't buy much.
Retailers are making upbeat noises anyway. Fighting ended in the middle of what is normally a slow retailing season. "The day the war ended, did people jump in their cars and head to the shopping mall? I can't say that," says William J. McCarthy, president for marketing at Montgomery Ward & Co. But furniture sales at the chain, boosted by heavy promotions, have been robust in the past three weeks. And McCarthy expects an early Easter will help pull shoppers away from their television sets and back into his stores. Already, traffic--if not sales--at Kenneth G. Meade's three Detroit car dealerships is up by 50% since the last few days of the war.
Certainly, some business is coming back. Airlines are heaving a collective sigh of relief, as companies loosen up on travel restrictions. And moribund deals are getting new life. Constar International Inc., a Chattanooga manufacturer of plastic soft-drink containers, is reopening negotiations--stalled by the conflict--with several potential overseas partners. Ellen B. Richstone, chief financial officer of Bull H. N. Information Systems says her company sold $20 million worth of computers in the past few weeks to two "very conservative" U. S. customers that had delayed their purchases until the war's end was in sight.
Customers with cold feet had chilled many businesses since the invasion. Now, Cabot Corp., like other polymer producers, is hoping that stable oil prices will bring back orders that disappeared in December and January, as wary industrial customers dipped into their hefty stocks to hedge against an oil-driven price spike. Similarly, some wastepaper prices have dropped by as much as 50% since the summer--in part, haulers complain, because the U.S. military diverted ship containers normally used to transport paper to big Asian customers.
For others, of course, the war was a boon. VF Corp.'s Wrangler subsidiary landed a one-year, $17 million contract to supply a million pairs of desert camouflage pants. The pressure to deliver those duds ASAP has eased, but Wrangler expects the Army to stick to its deal. "They assured us that they would buy these fatigues no matter what, so they wouldn't get caught short again," says Bill Koronis, Wrangler's senior merchandise manager. Colt's Manufacturing Co., meanwhile, is still filling firearms orders placed during the war and expects more from Mideast customers.
TREADING GINGERLY. For all the good news, however, much has stayed the same. The recession is still here, and the credit crunch is squeezing companies and their customers. Unemployment is growing, real estate is in the dumps, and the nation's trade deficit is stubbornly high. "These are all difficult problems for which we don't have a Norman Schwarzkopf," says Robert J. Schillman, chief executive at Cognex Corp., a manufacturer of machine vision systems in Needham, Mass.
Even the optimists are treading gingerly. Metafile Information Systems Inc., a small software company in Rochester, Minn., expects to return to its 50% growth rate after a wartime fall-off. But President Allan C. Sprau says that, for now, he's holding off on new hires and keeping a lid on advertising, which he cut by 60% last August.
Pier 1 Imports Inc., although confident that sales at its retail chains will pick up, is still tending to play it safe: It will open just 27 new stores this year, down from 72 in 1990. "Once we're satisfied that it's not a fluke and demand stabilizes, we'll gear up again," says Chief Executive Clark A. Johnson.
DOUR YANKEES. Despite the caution, Pier 1 will accelerate its ad spending. During the war, it had gone to small, black-and-white print ads. Volkswagen of America Inc. says its regional and local dealers are bringing back aggressive, traffic-building ads. Before the shooting ended, the auto marketer had stuck exclusively to its low-key, image-building "Fahrvergnugen" campaign. Explains Marketing Director William A. Gelgota Jr.: "The mood of the consumer wasn't into buying anything major."
That's certainly true for the recreational vehicle industry, where a two-year slump won't end anytime soon. Miami-based Cruise America Inc. cut back after the Iraqi invasion of Kuwait, paring advertising by 20% and cutting staff to 210, 90 fewer than normal. It doesn't expect to bulk up again. And General Electric Co. still forecasts that demand for its big appliances will fall 5% this year.
As you'd expect, New Englanders are still downright pessimistic. The region lost 3.7% of its jobs last year, the most since 1947. And housing permits were off 30%. Except for two major government works contracts, in fact, the region's construction industry has ground to a halt. "We don't see anything coming," worries Joseph Nigro, president of the Boston Building Trade Council, a union umbrella group.
An environment like that dampens enthusiasm fast. Bruce Cohen's company, electronics manufacturer Chipcom Corp., is hot: Sales so far this year, even with the war, are up 80%. But like many executives in the region, Cohen, Chipcom's vice-president for sales and marketing, isn't so bullish. "Most couples I know," he says, "both people are working, not to go out to dinner every night but just to cover costs." Still, Cohen feels better than he did two months ago. He now believes the national economy will bottom out by yearend.
That's a view shared by many executives surveyed. Most are still edgy. But "all of a sudden, there's one less thing to worry about," says Stephen V. Ardia, chief executive of Goulds Pumps Inc., a Seneca Falls (N. Y.) manufacturer. Now, it's time to worry about the economic war at home.