Regional Report: Richmond; No longer ‘recession-proof’
- March 27, 2009
Shortly after New Year’s Day, a crew at Richmond International airport began dismantling a sign for LandAmerica Financial Group. The sign on the wall of the airport concourse identified LandAmerica as one of the elite, locally based firms included on Fortune magazine’s list of the 1,000 largest companies in the U.S.
But the Henrico County company is about to lose its place in that pantheon as it winds down its business. With LandAmerica in bankruptcy, most of its assets sold and hundreds of employees out of work, officials at the title insurance and real-estate transaction services company wanted the sign removed.
A few weeks later, another sign came down. This time, it belonged to Circuit City Stores — another local Fortune 1000 company that has fallen on hard times. After failing to find a buyer, the retail electronics giant decided to go out of business, a move that erased 34,000 jobs nationwide, including nearly 2,000 in the Richmond area.
The missing signs on the concourse wall capture the somber mood around the capital city. So much for the region’s economy being “recession proof.” Yet local business leaders say the collapse of two of its largest companies doesn’t spell doom for the area. They have responded to the downturn by taking a series of steps to make sure that the region’s deep pool of scientific, technical and business talent doesn’t leave town.
The recession also seems to have galvanized the region’s business, government and academic communities to help white- and blue-collar workers connect with promising new sectors. This shift in the local economy could even bode well for the long haul, forcing it to assume a new identity relying more on research and technology while capitalizing on the defense buildup going on at nearby Fort Lee.
“As a community we’ve been fundamentally shook to our core,” says Gregory Wingfield, president of the Greater Richmond Partnership, the area’s regional economic development marketing group. “When we look around and see companies like LandAmerica and Circuit City…virtually disappear over a 60-day period, it’s troublesome.”
Even more troubling is the fact that many other major names in the region have been hit hard by the recession:
• Chesapeake Corp., a specialty packaging company, has filed for Chapter 11 bankruptcy protection and has received permission to sell its operations as a going concern to a group of investors for $485 million.
• Genworth Financial Inc., a Fortune 500 insurance and financial-services company, has laid off 1,000 employees, including 630 in Virginia.
• MeadWestvaco Corp., a Fortune 500 packaging business, has cut 2,000 jobs throughout the company, including 75 at its Richmond headquarters.
• Smurfit Stone Container Corp., a Midwestern paperboard manufacturer that employs about 1,200 workers in the region, filed for Chapter 11 bankruptcy protection.
• Qimonda AG, a German computer chip maker, is shuttering its Henrico County plant, eliminating its last 1,500 jobs.
In addition to these private-sector cutbacks, the state government — the region’s largest single employer — has been paring jobs as it seeks to bridge a $3.7 billion shortfall in its $77 billion, two-year budget.
As the layoffs rose, so did the region’s unemployment rate. It stood at 6.9 percent in January, up from 5.6 percent in December and more than three percentage points higher than the 3.8 percent rate recorded in January 2008. The Virginia Employment Commission says the region had a net loss of 5,200 jobs last year. “This is something we’ve never experienced in the Richmond market,” says Wingfield. “The unemployment rate has never been much above 4 percent.”
And there was something else about what Wingfield calls the “unchartered territory” of this recession. “We’ve never had this type of unemployed person — professional, maybe an executive, coming out of a headquarters location.” About 2,500 of the jobs lost in the region last year were considered high-paying positions, jobs with $70,000 or more in annual salaries, nearly double the $36,000 average income for area workers.
Lasting effects of recession
Losing such lucrative jobs could take a deep toll, according to a cross section of leaders in business, academia and government. “We’re not going to hell in a hand basket, but unlike prior recessions … we’ll feel the pinch of this one significantly more than ones in the past,” says business leader Beverley W. “Booty” Armstrong. He is the vice chairman of CCA Industries, a diversified holding company, and chairman of the airport’s governing board and The Community Foundation, a philanthropic organization. “I think the general impact of this recession is going to last at least until the end of next year and well into 2010.”
Richmond can still tout many of the same things it has traditionally trumpeted — a good transportation system; a skilled work force; an affordable, high quality of life; and proximity to Washington. “If I was going to be in one city to attract business,” Armstrong says, “I’d choose Richmond.”
But it’s going to take a new kind of professional to fill the gaps left by the loss of so many white-collar jobs in the insurance, financial and retail sectors. Armstrong says the next-generation of employment opportunities already can be found downtown — at the Virginia BioTechnology Research Park, the Philip Morris USA Center for Research & Technology and New Market Corp.’s petroleum additives research facility. “What you’d like to do is attract many more engineers and scientists to fill the gap,” Armstrong says. “That’s going to be the strategy — not to just attract bodies, but to attract ones that have high levels of compensation.”
In addition to recruiting new professionals, Wingfield says, the Partnership is keeping a close eye on the rich roster of homegrown talent. After so much slashing of corporate payrolls, “to me that is our number one challenge in the Richmond area. How do we keep the talent and brain power here and not lose that?”
One plan of attack is creation of a Web site, RichmondJobNet.com, to give job seekers a place to post résumés, use online job boards and make professional connections. For those with severance money, the Web site offers help for business startups. “We can’t be a case worker for all these people,” Wingfield says, “but we can make it easier to connect with job boards.”
In Henrico County, where recent cutbacks have caused a $7 million dent in government revenue, the Capital Region Workforce Partnership opened a center in early March to help laid-off workers from around the region.
Wingfield says it’s one thing to read about the economic doldrums in the national press, but “then all of a sudden it comes home to roost when your neighbor loses a job with one of those companies. … Our strength has always been that we have a very diversified economy, and we used to beat our chests and say we’re recession-proof because we don’t have all of our eggs in one basket.”
10 Fortune 1000 firms remain
Not all of the region’s economic eggs have been crushed by the recession. The Richmond area still is home to 10 Fortune 1000 companies. The group is led by the parent company of Philip Morris USA, Altria Group, No. 61 of the Fortune list. The company moved its headquarters from New York to Henrico County last year.
In addition to opening the downtown technology center in 2007, Altria is consolidating its cigarette manufacturing at its immense South Richmond plant. By early March, Philip Morris had transferred 530employees from its North Carolina plant.
Exactly how many jobs will be added or subtracted at the company’s production, research and headquarters facilities remains up in the air. Through the end of this year, Altria “will be focused on completing our evolution from a food, beer and cigarette company to a U.S.-based tobacco company,” says Altria spokesman Brendan McCormick.
Part of that transition includes consolidating with UST Inc., the nation’s largest moist-snuff company, and moving some members of its headquarters and sales staff from Greenwich, Conn., to Richmond.
Meanwhile, Philip Morris USA continues to tweak its employment levels to meet fluctuation demands in cigarette production. The company faces a continuing decline in sales in Marlboros and other
cigarette brands — a result, McCormick says, of higher federal and states sales taxes.
In another hopeful sign, MeadWestvaco still plans to move to a new downtown headquarters later this year despite its recent job cuts. The nine-story, riverside building is being constructed by NewMarket, which will lease it to MeadWestvaco. The packaging company has used temporary offices in Henrico since moving to the area from Stamford, Conn., in 2006.
A boost from Fort Lee
William Mezger, chief economist at the Virginia Employment Commission, finds other reasons for optimism. “Richmond has some things going for it, and probably the biggest thing is the expansion of Fort Lee.” The Army base — located south of Richmond near Petersburg — is slated to add up to 5,000 military jobs. These, in turn, should generate about the same number of support jobs in logistics and supply functions.
The defense buildup already has benefited one Richmond company, James River Bus Lines, which is hiring additional drivers. Fort Lee provides a steady stream of requests for troop transport, says Stephen Story, president of the charter bus company. “You can’t go into the airport without seeing travelers in fatigues,” he notes.
Others see new opportunities for the city of Richmond arising from the recession as President Barack Obama crafts a more eco-friendly national economy. “I think it bodes well for our cities, especially with the ‘echo boomers’ [children of baby boomers] rediscovering the attractiveness of living in a thoughtful and well-planned city,” says Charles Macfarlane, a Richmond commercial real estate developer who likes to rehabilitate old properties.
With recent spikes in the cost of commuting — coupled with the brakes the recession has put on home and commercial construction in the outer suburbs — Macfarlane is seeing fewer “McMansions” springing up. This trend should reduce traffic congestion and help localities struggling to keep up with increasing demands for water, sewer, public safety, schools and other public services. In Richmond, meanwhile, Macfarlane sees a growing interest in homes and businesses in the city’s older neighborhoods.
“I think a recession has a way of readjusting, resettling and refocusing agendas,” he says. “Certainly it offers a lot of opportunity, but the downside is that it’s going to take a tremendous amount of resources. Is there enough money for good energy policy, for public transit and higher speed rail?”
David Urban, a marketing professor at Virginia Commonwealth University, also sees some opportunities arising from the downturn. “The region still has significant advantages and can still be extremely attractive to companies wanting to have their headquarters here … The one area challenge is the work-force issue. That’s where investments in improving K-12 education and higher education are important, because a lot of times companies equate work-force quality with education.”
But, Urban argues, progress on many regional issues won’t be made without better cooperation between the city and its surrounding suburban counties. “[Area officials] need to look for ways we can do better. It’s easy to say I’ve lived here for 30 years and I love it … but familiarity breeds inertia.”
Many observers see hope for more cooperation in the recent election of Mayor Dwight C. Jones after the often-stormy tenure of his predecessor, L. Douglas Wilder. Jones met Chesterfield County leaders soon after taking office and vowed to do the same bridge-building with leaders of Henrico and Hanover counties. (See commentary on page 56.)
Interest from abroad
Wingfield represents all four localities in recruiting new businesses. Increasingly, he is finding those prospects overseas. “The domestic side is off dramatically, but the international side is still very strong,” Wingfield says, citing “the multinationals and others that have the deep pockets and long-term strategy” to grow in the U.S. market.
The pitch to foreign companies appears to be paying off. In early March, the Partnership announced that Welsh auto insurance company Admiral Group PLC, plans to establish the U.S. headquarters of its Admiral Americas subsidiary in Henrico County. The company plans to employ up to 50 people by the end of the third quarter and have 200 employees by the end of its second year in the region.
Also ProSeal America Inc., a subsidiary of British-owned ProSeal Holdings Ltd., plans to locate in the region to import and manufacture heat-sealing machinery and tools for the food processing industry. A ProSeal America executive noted the importance of VCU’s School of Engineering in the company’s decision.
These latest recruiting victories are part of a strategy created to meet the recessionary challenges, Wingfield says. The Partnership’s targets include companies in food processing, advanced manufacturing, life sciences, logistics, specialty chemicals, alternative energy, homeland security and technical consulting in creative fields such as advertising and marketing.
In late April, Fortune will release its latest list of the nation’s 1,000 biggest companies, possibly offering some new candidates for the wall at Richmond International Airport. But spokesman Troy Bell says some local financial and health-care firms already have shown interest in other types of promotional displays around the airport. “It gives us a chance to have more companies there,” he says.