April 2nd Monday Report - College Education - Losing Ground!
April 2nd, 2007

Throwing Seniors into the Mix

Top Ten States - Housing Price Index & Mortgage Delinquency

Economic Notes:



College Education - Losing Ground!

Our Kids Aren’t Doing As Well As We Did!

Lack of Completion

Percent of Utah’s Population, by county, who hold at least a bachelor’s degree
Utah County
AgeMen WomenTotal
25-3430.9%30.4% 30.7%
35-4437.8% 24.7% 31.4%
45-6442.9% 30.0%36.2%
65+35.1%15.6% 24.1%
Davis County
AgeMen WomenTotal
25-3429.0%24.9% 26.9%
35-4436.9% 23.2% 30.1%
45-6440.4% 25.5%32.8%
65+30.0%12.4% 20.3%
Salt Lake County
AgeMen WomenTotal
25-3426.2%26.7% 26.4%
35-4429.9%25.1% 27.5%
45-6436.5% 26.1%31.2%
65+28.6%14.8% 20.6%
Washington County
AgeMen WomenTotal
25-3416.3%18.4% 17.4%
35-4421.3%17.5% 19.4%
45-6431.6% 18.9%24.8%
65+27.5%14.0% 20.4%

Source: U.S. Bureau of the Census, 2000, Utah System of Higher Education, Analysis by Janice Houston, 2006

Western retailers shift their supply chain tasks to China

Impact on Freeport?

Impact on Distribution Centers?

Impact on Multi-Modal Transport?

Impact on DDO?

Retailers and consumer goods companies in the developed world are increasingly shifting logistics operations from their home countries to China.

Goods are sorted, labeled and even placed in displays for direct shipment to individual stores before leaving Chinese ports.

Shipping lines, logistics companies and warehouse operators say costs spur customers to move the sorting process away from consuming countries, continuing the outsourcing trend to lower wage economies that began with manufacturing going to China.

The process is known as "distribution center bypass" because it cuts out distribution centers in the destination country.

Logistics companies and those using the system tend to be wary of publicity but the UK's Next, a fashion retailer, is known to do much of its sorting for delivery at ATL Logistics in Hong Kong, a distribution warehouse owned by Dubai's DP World. Goods are packed into containers in the right quantities and right order to take direct from a UK port to individual shops.

Distribution jobs were once thought least likely to go overseas because it is complex to arrange supplies of goods for stores in the right quantities.

Vera Tang, general manager for corporate development of Hong Kong-based Kerry Logistics, expects growth in the next few years to be "huge" as so many companies still run expensive distribution centers at home.

"You can imagine - in those high-living-standard countries like Scandinavia - if we can replace what they are doing at the destination with a similar operation at origin, the percentage [saving] can be huge."

Among Kerry clients using distribution center bypass are a New Zealand-based lingerie maker and department store chains in the US, Spain and Chile. In Chile's case, she said the company shifted logistics operations abroad not primarily for cost reasons but because Chinese workers were more reliable.

Companies not phasing out distribution centers at home are cutting handling costs by paying for processing in China. Boxes of goods for Tesco's UK supermarkets from NYK Logistics in Shanghai are shrink-wrapped in quantities needed by each store to reduce UK handling.

Source: The Financial Times, London 2007

Building a top consumer goods sales force

(Local governments and public entities are in the “consumer goods” business even though most do not recognize it, and even fewer think about public outreach as “sales”!)

(The following article in another that Mayors and Public Administrators can simply make an appropriate substitute for “companies” and find some good insights.)

Although most of these companies have recently revamped their sales organizations, only a few managed to achieve higher sales and lower costs.

Pressured by a smaller, more sophisticated, and increasingly demanding group of retailers, upward of three-quarters of North American consumer goods manufacturers have reorganized their sales forces since 2002, a survey finds (Exhibit 1). Yet only a handful of these manufacturers have gained market share during this period without incurring higher selling costs. An examination of the sales force winners highlights three ways in which top manufacturers distinguish themselves and suggests that the talent-management approaches many manufacturers use are not sufficient to achieve success.

These insights are among the principal findings of the 2005 McKinsey Customer and Channel Management Survey of 29 leading North American consumer goods makers, which together represent some 30 percent of the industry's sales. This survey, the seventh in a series begun in 1978, was undertaken in partnership with AC Nielsen and the Grocery Manufacturers Association.

We defined sales force winners as companies with top-quartile market share growth, by revenue, relative to their peers in the same category. On average, the eight companies in this group increased their share by more than 4 percent from 2003 to 2004, while the others' share fell by nearly 2 percent. Meanwhile, the winners' selling costs, trade spending, and marketing costs, taken together, were 20 percent lower than those of the other manufacturers.

In helping to achieve these results, three practices stood out. First, the top sales organizations concentrated more resources on a smaller—and more thoughtfully selected—pool of retailers than the typical manufacturer did. They served half as many customers through key-account teams, on average, than other manufacturers—yet appointed almost a third more people to each team (Exhibit 2). That kind of focus is crucial because the top US national and regional retailers (such as Wal-Mart Stores) are growing much faster than their competitors; for manufacturers, this development means that sales are now concentrated in the hands of fewer and fewer customers.4 Indeed, in our experience, the largest US consumer goods makers commonly rely on just 10 to 15 customers for 50 to 80 percent of their sales, depending on their mix of categories.

Another way the winners concentrated their resources was to use third-party sales and merchandising agents more actively than other manufacturers did. Many top sales forces, for example, increased their use of such agents to undertake lower-value back-office activities such as order processing (43 percent for the winners versus 12 percent for the others) or in-store merchandising (71 percent versus 18 percent, respectively).

The second way top consumer goods manufacturers excelled was in organizing their key- account teams along cross-functional lines so that they could better serve the retailers, whose demands on manufacturers, we find, increasingly extend into areas such as customized packaging, shopper marketing (activities, inside and outside stores, undertaken to influence the way consumers shop), and even product development. The sales force winners' teams were more likely than those of other manufacturers to include not only sales personnel but also experts in category management, customer marketing, finance, and supply chain operations. By contrast, more than half of the other manufacturers populated their teams exclusively with salespeople and category managers.

Third, the sales force winners actively customized their services to meet the needs of individual retailers—in part by collaborating more intensively with key accounts than other manufacturers did. The winners not only called on key retailers more often but also said that they had taken greater pains than others to send their most talented sales and customer service employees to work with these clients. Further, the collaboration was more likely to extend to the executive suite: all the best manufacturers held planning meetings between their top executives and those of the retailer, compared with some 70 percent of the others. This point is crucial, we find, because such collaboration dramatically raises the likelihood that teams will succeed in creating the differentiated service offerings retailers increasingly demand. We also discovered that sales force winners were more likely to plan—and carry out—customized in-store research on shoppers, to collaborate on the development of new products, and to create customized packaging for key retailers (Exhibit 3).

These findings support the view—confirmed by our experience—that the level of talent a manufacturer brings to bear on an account will be more and more important. Indeed, we find that the role of key-account managers is shifting. Traditionally, relationship managers focused solely on sales, but now they are becoming true general managers, with more wide- ranging responsibilities.

However, the survey's findings also suggest that many consumer goods executives aren't managing their talent as rigorously as necessary. Sales force winners review their salespeople carefully and regularly—two-thirds hold reviews quarterly or semiannually, and the rest at least annually. The others are far less diligent; in fact, one-third of them conduct no reviews at all. As the relationship between suppliers and retailers continues to evolve, and the demands on manufacturers increase, world-class talent management is one way a top sales force can differentiate itself from the pack.

Source: McKinsey & Company, 2007

This Weeks Leads:

  • Eye Candy, Legends and Sports Fan
  • Sports Fan / Legends, Inc. trades as Eye Candy, Legends and Sports Fan.
  • The 14-unit chain operates locations throughout DE, LA, MD, NC, SC and VA.
  • The sporting goods stores occupy spaces of 1,200 sq.ft. to 4,000 sq.ft. in malls.
  • Growth opportunities are sought throughout MD, NC and VA during the coming 18 months.
  • Typical leases run seven years.
  • Mail site submittals to:
    • Glenn Ferraro,
    • Sports Fan,
    • 11838 Canon Boulevard,
    • Newport News,
    • VA 23606.
  • Hard Rock Café
  • Hard Rock Café International, Inc. trades Hard Rock Café at 125 locations nationwide and internationally.
  • The restaurants occupy spaces of 6,500 sq.ft. to 8,000 sq.ft. in urban / downtown areas as well as resort cities.
  • Plans call for 15 to 20 openings nationwide and internationally during the coming 18 months.
  • Typical leases run 10 years.
  • Send site submittals to:
    • Oliver Munday,
    • Hard Rock Café International, Inc.,
    • 6100 Old Park Lane,
    • Orlando, FL 32835;
    • Web site: www.hardrock.com.


Correction #2 - Thanks to Jerry & Scott! It must be pointed out the misspelling was done and corrected by the 45-64 male generation!

    April 2nd Monday Report - College Education - Losing Ground!

    • Lack of Participation
    • Lack of Completion
    • Our kids aren't doing as well as we did!
    • Are we just kidding ourselves about clean, high tech jobs?

    Blight? Economic Development? Jobs? Developers asking for too much?

    • Interested in what the Utah Legislature did to Eminent Domain?

    Bonneville Research has prepared a short and understandable presentation that can answer these questions!

    • If you are a city wondering how to “turn a problem area around” – give us a call!
    • If you are wondering how to create an effective “a public/private partnership” – give us a call!
    • If you are a city worried that you're “getting gouged” by a developer asking for incentives – give us a call!
    • If you are a developer wondering how to make a marginal project work – give us a call!
    • If you are a city wondering how much TIF and sales tax revenues might be available – give us a call!
    • If you are a city worried that the newly proposed "big box" is going to force your local business to close – give us a call!

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      Bonneville Research


  • Throwing Seniors into the Mix
  • Mixed-age Mixed-use Projects

    With the rising popularity of mixed-use projects, some developers are betting that the aging of the U.S. population will create a demand for senior-themed mixed-use centers.

    One company making a big bet on the concept is Inland Real Estate Development LLC, which is teaming up with HPD Cambridge, LLC to create a series of senior-themed mixed-use complexes valued at $55 million (Inland will be financing the entire undertaking). The two firms have committed to building four vertical mixed-use buildings in Illinois that will target people in their 70s and 80s.

    Called “urbanSenior Living” developments, the properties will feature seniors apartments stacked atop street-level retail and restaurant space that will serve outsiders as well as apartment residents. The idea is to create projects with amenities that will appeal to seniors, but also connect to the surrounding neighborhoods by being located in downtown districts of Chicago suburbs LaGrange, Elmhurst, Clarendon Hills and Lombard, notes Anthony A. Casaccio, president of Inland Real Estate Development.

    This option will be an additional draw for Inland’s developments as the Baby Boomer generation comes of age. Numbering 78.2 million and possessing collective purchasing power of $2.1 trillion annually, according to the MetLife Mature Market Institute, these seniors are expected to maintain an active lifestyle long after their retirement.

    “For a lot of senior housing communities, their focus is on providing the amenities and recreation activities,” Casaccio says. “Our projects are designed to allow [seniors] to leave. They will still get to live with a variety of people their own age, but they won’t feel set aside because they will be in a downtown area and will be able to mingle with people of all different ages.”

    When completed, the complexes will contain a total of 144 apartment units and 32,000 square feet of retail and restaurant space. Besides the minor adjustments in design, all four buildings will feature a full-service restaurant that will be accessible from the residential tower and will give preferential treatment to the seniors living at the development. The first of the four complexes, the 30-unit La Grange Pointe, will break ground this spring. Construction on the other three will start this fall.

    Inland has not yet signed any leases for the retail portion of the development, but according to Casaccio, the firm is not targeting companies that only cater to seniors. Part of the plan is to have tenants that will appeal to both seniors and younger shoppers.

    One idea could be lifestyle retailers like apparel or furniture stores, which are particularly popular with both retirees and younger consumers, according to Lydia Tan, executive vice president with Bridge Housing Corp., a developer of senior housing communities. Bridge is currently working on a bid to create a mixed-use senior housing project in Foster City, Calif. that will include from 400 to 600 independent and assisted living units and up to 90,000 square feet of retail.

    “We have an independent living project nearby and we asked the residents what they wanted in terms of retail and they mostly wanted lifestyle uses,” Tan notes. “The most important thing for us is to encourage seniors to be part of the activity on the street and encourage the folks who will be using the retail to linger and stay and become a part of the community.”

    Most mixed-use projects aimed at seniors will provide some services for their residents, including transportation to and from entertainment events, doctor’s appointments and help with errands. But Inland and HPD are not going into care giving. The venture will stay away from doing assisted living facilities because of the extensive licensing required for such projects. Instead, the company will consider additional opportunities to work on independent living quarters, where the minimal increases in construction cost for things like wider entrances and more opulent common areas are easily offset by the market demand from aging Baby Boomers.

    “I believe that with the trend of people living longer and seniors representing a much higher percentage of the buying population, we will continue to do such developments,” Casaccio says.

    In addition, there are several projects around the country that are creating enclaves for seniors within larger mixed-use developments, including one currently being built in Seattle by locally-based Era Living that will include 143 senior housing units as part of a broader development by Lorig Associates involving a 14-screen movie theater, more than 250 market rate apartments, 109 condominiums, 62,000 square feet of ground floor retail and a water park. The senior community and Lorig’s property will be connected to each other by a series of walking paths. Thornton Place, a retirement living community for people 62 and older, will be the first Era Living development to be a part of a ground-up mixed-use complex.

    “We love the idea of having the mixed-use environment because our residents are very active, so clearly having a life outside of the community is very important,” says Gena L. Owens, vice president of marketing and sales with the company. “We would definitely seek this out again."

    “We used to do that many years ago, but then we began to wonder why we were taking people of that age away from the grocery store and the hair salon and all the conveniences [they were used to],” Sanders says. “These projects have to be pedestrian friendly, that’s ideally suited for seniors because there are so many things you can do without relying on somebody else.”

    Source: Retail Traffic, 2007

  • Top Ten States - Housing Price Index & Mortgage Delinquency
  • Top Ten States by House Price Index

    Qtr 4 2006, annual % change

    1. Utah +17.55%
    2. Wyoming +14.29%
    3. Idaho +13.99%
    4. Washington +13.70%
    5. Oregon +13.49%
    6. New Mexico +13.08%
    7. Louisiana +10.87%
    8. Montana +10.72%
    9. Arizona +9.60%
    10. Mississippi +9.59%

    Top Ten States by Mortgage Delinquency

    % of all loans with installments past due

    1. Mississippi 10.64%
    2. Louisiana 9.10%
    3. Michigan 7.87%
    4. Indiana 7.76%
    5. Georgia 7.49%
    6. West Virginia 7.44%
    7. Texas 7.41%
    8. Tennessee 7.29%
    9. Ohio 7.25%
    10. Alabama 7.14%

    We all know about Hurricane Katrina and Louisiana and Mississippi!

    What does this mean for all of the Intermountain and North West? Source: Financial Times, 2007

  • Economic Notes:
    • International Business Confidence
    • Business confidence has notably improved in recent weeks and is currently as high it has been since early August of last year. Sentiment is now consistent with global growth that is equal to its potential. Expectations regarding the economy’s prospects have improved most significantly, but respondents are more upbeat with regard to all of the survey questions. Businesses are reporting that their fixed investment and hiring has picked up recently and that the modest manufacturing inventory drawdown is largely over. Sentiment is strongest in South America and Asia and among high-tech firms; it is softest in Europe and among vehicle manufacturers.
    • US profits fall
    • Profits at US companies were down in the last three months of 2006, the first quarterly fall since the third quarter of 2005.
    • US economic growth better than expected
    • The US economy grew at faster pace than previously thought last quarter, according to fresh government figures, reaching a rate of 2.5% in the fourth quarter.
    • GDP
    • Annualized real GDP growth in the fourth quarter saw an upward revision, to 2.5%, from the preliminary 2.2% estimate last month. There was an upward revision to inventory investment that increased reported GDP growth, with a smaller offset from a downward revision to investment in equipment and software. Profits from current production fell $4.9 billion from the third quarter to the fourth. The expansion is intact, but growth remains below potential.
    • US Durable goods weak
    • Orders for U.S.-made big-ticket items were weaker-than-expected in February as the world’s richest economy hit hard by troubles in the housing sector set off the year at a slower pace, a government report on Wednesday showed. New orders for U.S.- made durable goods rose a smaller-than-expected 2.5 percent in February and, excluding volatile transportation, orders for these costlier goods meant to last more than three years, were down for the fourth time in the last five months.
    • Existing Home Sales
    • Existing home sales increased again in February, according to the Realtor’s data. Sales of existing homes increased by 3.9%, with the pace of sales up to 6.69 million units in February. House prices are down 1.3% from a year ago, and the months of inventory rose slightly to 6.7 months.
    • New Home Sales (C25)
    • New home sales are well below expectations for February. The pace of sales decreased by about 4% m/m to 848,000 annualized units. Moreover, Census revised downward sales during the previous three months. Months of inventory jumped up to 8.1 months. The median price is down slightly from one year ago.
    • MBA Mortgage Applications Survey
    • Mortgage demand decreased 0.2% in the week ending March 23. Purchase applications increased 0.1% and refinance applications decreased 0.5%. The market is flat and dampening domestic growth. The unadjusted purchase index also remained at last week’s value.
    • Investor Optimism
    • Investor optimism continues to head south. In March, the UBS Index of Investor Optimism chimed in at 78, down from 90 the month prior. Although large month-to-month fluctuations are common, the index has surrendered 25 points since January and is at its lowest level since September 2006. The unraveling in the subprime mortgage market has investors concerned about conditions in residential real estate
    • Chain Store Sales
    • Chain store sales rose a modest 0.2% in the week ending March 24. The latest gain comes on the heels of a 0.4% increase the week prior. Year-over- year growth improved to 4.6%, a two-month high. Warm weather and Easter promotions reportedly supported sales and customer traffic in the latest week.
    • Personal Income
    • Personal income increased by 6.3% in 2006, following a 5.2% increase in 2005, according to preliminary estimates by the U.S. Bureau of Economic Analysis. All eight BEA regions registered solid accelerations in personal income growth over the year. In the fourth quarter of 2006, U.S. personal income grew by 1.2%, the same rate at which it grew in the third quarter.
    • Oil and Gas Inventories
    • Crude oil inventories fell by 0.9 million barrels for the week ending March 23, according to the Energy Information Administration, far below expectations of a 1.6 million barrel build. Gasoline stocks declined by 0.3 million barrels, which contrasts with expectations of a 1.8 million barrel draw. Refinery activity inched higher. Distillate inventories fell 0.7 million barrels, which was not as much as the 1.2 million barrel draw expected. Today's mixed report will not significantly alter the current bullish sentiment on oil.
    • Weekly Natural Gas Storage Report
    • Underground storage of natural gas decreased by 22 billion cubic feet during the week ending March 23. This was slightly more than the expected draw of about 16 Bcf. Inventories are now 21.5% above the five-year average. This report will add some bullish pressure to prices.
    • Durable Goods (Advance)
    • New orders for durable goods rose 2.5% in February, following a 9.3% decline in January. Despite the uptick in the headline number, the report was weak again. Shipments fell 0.8%—the second monthly decline. New orders for core capital goods fell 1.2%—the second consecutive monthly decline.
    • Agricultural Prices
    • The March All Farm Products Index of Prices Received by Farmers increased 3.9% from February and is 18% higher than in March 2006. The Crop Index jumped 4.3% in the past month, while livestock prices rose a similar 4.2%. Producers received higher prices for cattle, lettuce, oranges and broilers, while strawberries, celery, corn and hogs fetched lower prices. Food commodities were up slightly more than the all-farm index, rising 4.7% for the month and 19% over the past year. Prices paid by farmers increased 1.3% in March, with higher prices being paid for feed concentrates, feeder cattle, diesel fuel and complete feeds. Farmers paid less for feed grains, trucks, tractors and autos.

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