Roundtable Reality Check
Atlanta, GA, November 5, 2008 - In response to the recent turmoil in the economy, SDG hosted a roundtable for key industry leaders to weigh in on some of the most pressing issues of our day. On Tuesday, October 14, a group of 10 executives from a wide range of businesses gathered over lunch for an informal discussion led by SDG Principals, Mark Parker and Stan Breon. The result was a very interesting exchange that while acknowledging the current difficulties, also illustrates new opportunities being pursued as a result of these challenging times.
Key observations
The first question posed revolved around the biggest issues or obstacles that their companies have faced over the previous year, and how they see the credit crunch and current market shock affecting their business. Here are some of the observations that emerged as participants shared from their various industry perspectives:
Adaptation is key for luxury retail: embrace new markets and new methods
Don Guffey, Founder and Owner / Guffey’s of Atlanta
Neil Guffey, General Manager / Guffey’s of Atlanta
As an industry veteran in the high-end luxury retail market, Don said his business is particularly affected by the stock market. Over the past four decades, he has seen a lot of ups and downs and he has learned to be resilient. Guffey’s is one of only two family-owned men’s specialty stores left in Atlanta, and only one of 3,000 left in the U.S. (compared to 13,000 when they started in 1965).
Neil Guffey said a key component to their success has been their focus on niche marketing: “For the past year, we have been studying our customer base and identifying our niches so that we can market to them effectively.” He has observed that a common characteristic of the luxury customer is their entrepreneurial spirit. Neil said that they would focus 40-50% of their marketing budget on their existing customers.
Don reported that business has been good for the first 6-8 months of the year but they are bracing for the downturn. They have plans to go after the younger professional market with some lower price point options but quality is still the key. He observed, “In the past, more was better, today – better, is better. The demand for quality is strong.”
Don also said that one of their greatest challenges is marketing, “The old methods like running a print ad in the AJC don’t work any more.” Neil said they are embracing new avenues of marketing with online promotions having the most potential, as well as rewarding referrals from current customers.
Commercial architecture feels the influence of the Asian market
Bill Reynolds, Founding Partner / Smallwood, Reynolds, Stewart and Stewart
SRSS is one of the South’s largest design firms with offices in Atlanta, Tampa, Singapore, Dubai, Beijing, and Shanghai. So Bill brought an international perspective to the table. He said that business in Atlanta has been good and his Singapore office has been very busy.
But they are starting to see projects put on hold. He noted, “The worldwide economy is affecting us more than we thought due to the Asian markets.” He said they would respond by switching their focus from private sector projects to public sector work, and by focusing on core business strengths.
Law firms must be conservative and responsive
Greg Cinnamon, Partner / Kilpatrick & Stockton
As a partner in Kilpatrick & Stockton’s Corporate Practice Division, Greg focuses on a wide range of international and domestic acquisitions and investments. Greg reported that his firm was right on budget but only because they were very conservative in their planning earlier in the year. He mentioned, “Other firms are off by 10-15% because they were too aggressive.”
Internationally, he is seeing more interest from foreigners and a significant flight to the dollar and the yen. Domestically, they were able to quickly dismantle the machine they had built around securitized mortgages and refocus their efforts
Collateral damage resulting from the fall of the stock market
Jim Ryan, Managing Partner / Griffin Realty Advisors
The current environment has provided many opportunities for value investing in real estate. This has been largely offset by the downturn in stock and corporate debt markets, which have hamstrung institutional investors with respect to allocating additional dollars to real estate assets, given the significant shrinking of their investment portfolios.
It’s back to the basics in banking
Jean Holloway, Exec. VP, Private Banking Market Lender / Bank of N. Georgia
Speaking from one of the most volatile industries right now, Jean’s comments reflected the most direct impact on day-to-day operations, “The crash of the debt markets has led to a complete slowdown in borrowing for individuals. This is in such contrast to one year ago, when there was intense competition to extend loans. This September, it stopped overnight.”
Since the Bank of North Georgia is more conservative than the big national banks, they are favorably poised for the downturn. She said, “Banks will have to come to their senses and get back to the basics. To get a loan, people will actually have to have a down payment, a job, credit – common sense requirements that have been largely ignored.” She also commented that the residential real estate market would be their greatest challenge.
Back down to earth for the stock market
Stan Sharp, VP and Wealth Management Advisor / Merrill Lynch
Also speaking from a hard-hit industry, Stan says, “This year-end will be a difficult 60 days. There is still so much riding on the banking business that will affect us all.” “But as many of the industry problems come to head, he also felt that, “Five more months of volatility will lead to five years of prosperity.”
Stan also noted that the high times we have been experiencing have skewed our perspective, “Deleveraging will be painful and prosperity will have a new definition,” he said.
More headaches for the middleman
David Sikes, Owner / Sikes Paper
As the owner of a traditional brick-and-mortar based business, David offered a unique perspective on current conditions affecting the true costs of goods and services. He has seen a 5% increase in costs because many of his products are petroleum-based. As a true “middle-man,” Sikes can’t easily pass these costs on to the consumer so shrinking margins are his biggest challenge.
Clouds on the horizon
Here are some of the comments regarding negative trends for the future:
“My property taxes in Atlanta tripled last year and it may force me to relocate outside the city.” – David Sikes
“Inflation is a killer. Prices have gone up, especially fabrics from Europe.” – Don Guffey
“The trend for more regulation will hurt everybody and the effects of Sarbanes-Oxley legislation will have repercussions across the board.” – Greg Cinnamon
“Regulation will affect community banks and if we lose them, they won’t come back.”
– Stan Sharpe
But wait, there is a bright side
Mark also asked if the crisis had opened up any new opportunities or enhanced their competitive advantage. Some of the comments included:
“There are lots of good things in our economy that aren’t based on bank stocks.”
– Stan Sharp
“My industry is fragmented so I grow by taking market share. The increased opportunity to acquire other businesses is an upside for me right now.” – David Sikes
“Now’s the time to look for real estate deals before the demand comes back. Traditionally, real estate has performed well; more than double the return compared to stocks.” – Jim Ryan
“Real estate has renewed appeal because it is a hard asset. It’s perceived as a key to wealth preservation. Potential investors are more willing to listen now to opportunities for real estate investment. This unfortunate retrenchment in the financial sector may result in a secular shift in asset allocation for investors-where these so-called “hard assets” make up a larger portion of investment portfolios for both corporate and individual investors.” – Mark Parker/Stan Breon
“Community banks will enjoy renewed interest. People are much more interested in working with regional banks now.” – Jean Holloway
Trends in corporate giving
In conclusion, Mark asked how the economy was affecting corporate charitable giving. Some significant trends emerged:
Companies are still committed to giving but they will be more selective
Jim Ryan commented that his company is still very committed to the cause closest to his heart, autism. They will continue to support the capital campaign for the Believe in Me Foundation that is currently underway to build a secondary school for autistic children in Atlanta. But he said, “On all other fronts, we will be asking, ‘are we getting the most bang for our buck?’”
Companies will focus their giving on the most relevant concerns
Don Guffey mentioned that they will focus their giving on what they consider “essential” charitable services such as causes that help children and the disadvantaged. Jim Ryan and Jean Holloway both agreed that multiple commitments to the similar causes might come under scrutiny.
Jim felt that the competition for charitable dollars might bring about “charitable mergers,” as nonprofits with similar missions collaborate to deliver their services more efficiently and effectively.
The wrap-up
Overall, the spirit of the conversation was positive, reflecting a refreshing departure from the current dooms-day headline news conversations. The overwhelming sentiment was that there is still plenty of business to be done, and things will go on – even though, business in America may look quite different in the years to come.
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