December 21st - Winter Solstice

In This Issue

Migraines for Mixed-use Developers

Economic Notes:

This Weeks Leads:



When social issues become strategic

Executives ignore sociopolitical debates at their own peril. – First of two installments

Executives with lingering doubts about the importance of sociopolitical issues to business will surely be convinced by this year's eye-catching McKinsey Quarterly survey on the topic. It's not just that an overwhelming majority of the respondents acknowledged a wider role for corporations than just maximizing investor returns, though this finding is remarkable in itself. More striking still is the way participants in our online poll saw environmental concerns, the offshoring debate, data protection, and other sensitive matters as potential threats to the creation of value and frankly conceded that their companies handled these issues poorly.

Although lobbying—often behind closed doors—is as old as business itself, high-level and concerted corporate activism in the social and political arena has been conspicuous by its absence. That deficiency, executives tell us, is the result of short- term financial pressures, a lack of familiarity with the issues, and the sense that specialists in the public- affairs and legal departments handle this sort of thing.

Such thinking, we believe, is dangerous and wrong headed. Business leaders must become involved in sociopolitical debate not only because their companies have so much to add but also because they have a strategic interest in doing so. Social and political forces, after all, can alter an industry's strategic landscape fundamentally; they can torpedo the reputations of businesses that have been caught unawares and are seen as being culpable; and they can create valuable market opportunities by highlighting unmet social needs and new consumer preferences.

The challenge is to find a way for companies to incorporate an awareness of sociopolitical issues more systematically into their core strategic decision- making processes. Companies must see the social and political dimensions not just as risks—areas for damage limitation—but also as opportunities. They should scan the horizon for emerging trends and integrate their responses across the organization, so that the resulting initiatives are coherent rather than piecemeal.

The social and managerial challenge

Businesses have never been insulated from social or political expectations. What's different today is the intensifying pressure and the growing complexity of the forces, the speed with which they change, and the ability of activists to mobilize public opinion. Yet even as the social contract evolves, the typical corporate response appears to have become increasingly flat footed.

The changing social contract

Companies have always had a contract with society. The contract embraces not just direct stakeholders (such as consumers, employees, regulators, and shareholders) but also, and increasingly, a broader set of stakeholders (such as the communities where companies operate, the media, academics, and the nonprofit sector).

Part of this contract is formalized in laws and regulations, and violating them has obvious legal ramifications. Part of it is semiformal: the stakeholders' implicit expectations, which if ignored can bring about swift action. Most multinationals in the United States, for example, are expected to maintain at least some labor standards along their global supply chains, even if they aren't legally required to do so. Violations of that semiformal contractual obligation can seriously harm a company's reputation as well as consumer demand for its products. Ask Nike.

This social contract is by nature a fluid one. Often, issues that lead to legislation start out as semiformal expectations about business; likewise, some aspects of the formal contract are "deregulated." Companies in Europe, for example, are still expected to uphold certain employment guarantees with their workers, despite their greater flexibility in deploying labor.

More challenging are the "frontier" issues that have not yet entered the formal or semiformal contracts but could, over time, become social expectations—something that business might not even realize. Take obesity. It had always been widely believed that the responsibility for avoiding it lay with individuals, who choose what they eat, not with the companies that make or sell fattening products. But the blame is shifting, much as the debate around tobacco shifted the responsibility from individuals to an industry perceived to be aggressively marketing addictive products. Food companies may not be forced to modify the fat and sugar content of their products, but the momentum on this issue could already be so great that lawmakers or regulators will step in and formalize social expectations by imposing new legal restraints.

Rising expectations Increasingly, a company's sources of long-term value (for example, its brand, talent, and relationships) are affected by a rising tide of expectations among stakeholders about the social role of business. Two forces are colliding: an emerging set of sociopolitical megatrends (Exhibit 2) that are upending the lives of people, communities, and societies, as well as ever- more-powerful stakeholders wielding wide influence.

Continued Next Week:

Source: McKinsey & Company, 2006


When social issues become strategic - Pt 1

Migraines for Mixed-use Developers

Economic Notes

This Weeks Leads

  • Migraines for Mixed-use Developers
  • Change orders are a headache for any real estate developer. For a mixed-use developer, however, those headaches can become migraines given the juggling act of managing various office, residential and retail contractors and subcontractors. One change order that slips through the cracks can add up to millions of lost dollars.

    The trick with a mixed-use project is to understand how your cash flow works over time, and see the long-term effects of decisions. For instance, do you earmark $1 million for engineering a stormwater system at a mixed-use project? You may be crazy to spend the $1 million now or it may be the best $1 million you ever spent.

    Source: The National Real Estate Investor

  • Economic Notes:
    • Housing Starts
    • According to U.S. Commerce Department data released Dec. 19, housing starts in the U.S. rebounded 6.7 percent in November from the lowest level in more than six years, to 1.588 million units. The data suggests the housing market is stronger than recent expectations. However, the issuing of building permits, a relatively reliable measure of future demand, fell 3.0 percent, to a 1.506 million pace, the lowest since December 1997.
    • More Housing - NAHB Housing Market Index
    • Homebuilder optimism decreased one point to 32 in December. However, the survey index measuring single-family sales for the next six months increased three points.
    • More Housing - New Residential Construction (C20)
    • Housing starts increased 6.7% to 1.588 million units in November. Housing permits decreased 3.0% during the month.
    • Risk of Recession
    • The Moody’s Economy.com probability of recession rose in November to 21%, from October’s upwardly revised 17%. The yield curve went further into inversion in November, and a moderation in consumer confidence and average hours worked supported higher recession risks. Further increases in the S&P 500 index for the month helped put some restraint on recession risks. The chance of the economy being in recession in six months remains modest.
    • Industrial Production
    • Industrial production inched up 0.2% in November, a slightly stronger reading than the market had anticipated. Gains in manufacturing production offset marginal declines in utilities and mining. Total industry capacity utilization held firm at a downwardly revised 81.8%.
    • Chain Store Sales
    • Chain store sales increased 1.6% in the week ending December 16, as sales retained their common volatile pattern during the holiday season, according to the ICSC. Year-over-year growth dropped to 2.4%, the weakest in four weeks as the gain failed to match last year’s gain in the comparable week.
    • Treasury International Capital Flows
    • In October, long-term net capital inflows were $82 billion from $70 billion in September. However, the net overall inflow to the U.S. was $62.2 billion, compared to $57.8 billion in September. This is in line with the market consensus and suggests that foreign flows to U.S. capital markets remain steady for now.
    • More Treasury Budget - Current Account Deficit
    • The U.S. current account deficit widened by 3.9% to $225.6 billion in the third quarter of 2006, from $217.1 billion in the previous quarter. The current account deficit came in narrower than the consensus estimate of $226 billion. The balance on goods and services widened by 3.7% to $200.3 billion in the third quarter of 2006, from $193.1 billion in the previous quarter.
    • Consumer Price Index
    • The seasonally adjusted consumer price index was flat in November, after 0.5% declines in both September and October. A slight decline in energy prices contributed to flat overall prices. The core index, excluding food and energy prices, was flat in November, following a 0.1% increase in October. Over the past year, core CPI inflation has run at a 2.6% pace. Both the overall and core numbers were below consensus. Today’s report brings more good news on inflation.
    • More Prices - PPI
    • Producer prices for finished goods rose by 2.0% in November, exceeding expectations. While there was considerable inflation among finished energy products, core price increases were substantial as well. Excluding food and energy products, core prices for finished goods rose by 1.3%, fully recovering from the sharp decline seen in October. At earlier stages of processing, prices for intermediate (0.7%) and crude (15.7%) producer products both rose sharply due largely to higher energy prices.

  • This Weeks Leads:
    • Godiva Chocolatier
    • Campbell Soup Co. trades as Godiva Chocolatier at 268 locations nationwide and in Canada.
    • The stores, offering an assortment of chocolates and gourmet coffee, occupy spaces of 850 sq.ft. to 1,000 sq.ft. in malls, mixed-use and outlet centers and urban/downtown areas.
    • Plans call for seven to 12 openings nationwide during the coming 18 months. Typical leases run 10 years.
    • A vanilla shell and specific improvements are required.
    • Preferred demographics include a population of 300,000 within five miles earning $65,000 as the average household income.
    • For more information, contact
      • Bart Delaney,
      • Campbell Soup Co.,
      • 595 Westport Avenue, Norwalk, CT 06851.
    • Acorn, Christopher & Banks and C.J. Banks
    • Christopher & Banks Corporation trades as Acorn, Christopher & Banks and C.J. Banks. Acorn operates 37 locations throughout GA, IL, IN, KY, MI, MN, NC, OH, SC and VA.
    • The stores occupy spaces of 2,000 sq.ft. to 2,400 sq.ft. in malls, lifestyle, powers, specialty and tourist centers and in urban/downtown areas.
    • Plans call for 30 openings throughout the Midwest and Southeast during the coming 18 months.
    • Typical leases run 10 years. Preferred cotenants include upscale women’s apparel and home fashion retailers.
    • Preferred demographics include a population of 100,000 within five miles earning $75,000 as the average household income.
    • Christopher & Banks operates 524 locations nationwide. The women’s apparel stores occupy spaces of 3,000 sq.ft. to 3,500 sq.ft. in malls and lifestyle and power centers.
    • Plans call for 75 openings nationwide excluding AL, HI, LA, MS and southern CA during the coming 18 months.
    • Typical leases run 10 years. A vanilla shell and specific improvements are required. Preferred cotenants include mid-priced women’s apparel retailers.
    • Preferred demographics include a population of 100,000 within 10 miles earning $50,000 as the average household income. C.J. Banks operates 218 locations throughout the northern states.
    • The plus-size stores occupy spaces of 3,200 sq.ft. to 3,600 sq.ft. in malls, lifestyle, powers, specialty and tourist centers and in urban/downtown areas.
    • Plans call for 60 openings throughout the existing market during the coming 18 months.
    • Typical leases run 10 years.
    • Preferred cotenants include mid-priced women’s apparel retailers.
    • Preferred demographics include a population of 100,000 within 10 miles earning $50,000 as the average household income.
    • For details, contact:
      • Nancy Scott
      • Christopher & Banks, Corp.
      • 2400 Xenium Lane North
      • Plymouth, MN 55441
      • Email: jtarrant@christopherandbanks.com
      • Web site: www.christopherandbanks.com
    • Brothers Bar and Grill
    • Fortney Cos. trades as Brothers Bar and Grill at 16 locations throughout IA, IL, IN, KS, MN, NE, OH and WI. T
    • he bar/restaurants occupy spaces of 6,000 sq.ft. to 8,000 sq.ft. in freestanding locations, entertainment centers, and urban/downtown areas.
    • Plans call for six openings throughout CO, IA, IL, IN, KS, KY, MI, MN, PA, TN and WI during the coming 18 months, with representation by UrbanSpace.
    • Typical leases run 10 years with two, five-year options.
    • Preferred cotenants include bars and restaurants in entertainment areas of central business districts and college towns.
    • The company will also consider acquiring existing bars and grills and/or real estate.
    • For more information, contact
      • Gary Perel,
      • UrbanSpace,
      • 238 South Meridian Street, Suite 201,
      • Indianapolis, IN 46225;
      • 317-423-1111, vFax 317-423-0527;
      • Email: gperel@urbanspaceusa.com;
      • Web site: www.urbanspaceusa.com.

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