Tough Economy Hurting Region’s Big Private Firms

By AMANDA BRONSTAD

Staff Reporter

It was hardly a good year for anyone.

L.A.’s 100 largest privately held companies, typically tight-lipped about their revenues, had even less to say about how they fared during what turned out to be recession-plagued 2001.

While most of L.A.’s private companies surveyed by the Business Journal generated more revenue than in 2000, they saw smaller increases than in previous years.

Average revenue growth was 19 percent, down from 25 percent a year earlier. Average declines rose 8 percent from 2000, to 20 percent.

For most companies, 2001 marked the beginning of an economic downturn that has continued into 2002.

Businesses have been squeezed in recent months by higher wages and the general inability to raise prices, according to Aaron Taylor, spokesman for the National Federation of Independent Businesses.

Chris Noble, chief financial officer of Wherehouse Entertainment Inc., said the music retailer still has not recovered from its 14 percent revenue drop last year, and he is hesitant to predict how 2002 will turn out. “We really want to see how the Christmas period goes,” he said. “It all depends on that, really.”

Southern California mimicked the national trends in 2001.

“That was not a great year,” said William Dunkelberg, NFIB’s chief economist. “That was a year in which near the end we had more firms telling us they were cutting selling prices than raising. Profits looked terrible, and sales growth was anemic.”

Unlike the recession of the early 1990s, declines were spread across all industries, Dunkelberg said. Most hard hit in L.A. were technology firms and staffing companies, which suffered from growth gluts and excess inventory.

Among the companies with largest decreases were Alert Staffing, the African-American owned staffing company whose revenue fell 55 percent following a 27 percent increase in 2000. Alert, in a dispute with minority partner Addeco, filed for Chapter 11 bankruptcy protection this year. ViewSonic Corp. had revenues of $1 billion, down from $1.3 billion a year earlier.

Businesses in the retail and tourism industries also suffered as consumers bought less and traveled little following Sept. 11.

“The year before was probably the best year in history, so they were sitting there having worked like crazy and staffing up and suddenly the bottom fell out,” Dunkelberg said. “They had too much inventory and too many workers.”

Tech & temp firms

Among the hardest hit industries in L.A. were technology and staffing firms. Revenues at the eight technology firms on this year’s list dropped by an average of 21 percent.

ViewSonic Chief Financial Officer James Morlan said the computer monitor maker would have seen a further revenue drop if it hadn’t reorganized its marketing and developed new products during the tail-end of 2000.

Even Compton-based Belkin Corp., the only tech firm to report positive growth, had a difficult year. Belkin reported $460 million in revenue, up 15 percent from 2000. But the growth was slower than in 2000 and 1999, which saw 45 percent and 39.8 percent increases, respectively.

“There was a trend in expanding the number of stores, and that’s not been the trend lately,” said Eric Tong, director of product development at Belkin, which makes computer hardware connectivity products such as battery back-ups and surge protectors. “With the downward economy, tech spending wasn’t growing at the rate it was prior to the last 18 to 24 months.”

Meanwhile, staffing for many of the growing companies slowed, causing L.A.’s employment services firms to lose revenue.

Besides Alert Staffing, AppleOne Employment Services saw revenue fall 7 percent, to $602 million, after jumping 28 percent to $647 million in 2000.

Retail review

Many of the losses among the tech firms and manufacturers originated from slower orders in the retail sector. Belkin, which sells to CompUSA and Best Buy, focused a greater percentage of its 2001 sales on original equipment manufacturers, such as Dell Computer Corp. and Compaq Computer, to offset declining orders from retailers, Tong said.

“It was a channel we weren’t actively involved with over the last few years,” Tong said. “Now, our work over the past few years has started to pay off.”

Meanwhile, L.A. retailers struggled.

Wherehouse, which bought the Blockbuster Music stores in 1998, revenues declined by $101 million, a 14 percent drop, after growing 54 percent in 2000 and 162.4 percent in 1999.

Noble said the company closed 28 of its more than 497 stores in February 2001 because of overlaps related to the Blockbuster Music stores. During the third quarter of 2001, Wherehouse also sold 64 more stores for $20 million.

But economic factors still caused a 6 percent drop in same-store sales. Noble said the company was on track for positive growth until Sept. 11.

“Consumers have become more risk-averse and more conservative, and I think, in our industry, that has reflected itself in a number of ways,” he said.

One retailer, Forever 21 Inc., was the exception to retail slowdowns. The teenage clothing chain generated $307.5 million in revenue in 2001, up 64 percent.

Forever 21 Chief Financial Officer Larry Meyer attributed the increase to 36 new stores opened in 2001, including five new-concept stores labeled “Fashion XXI.” The new-concept stores are more than twice as big as the regular stores and offer a wider selection of shoes and lingerie, Meyer said.

Construction

Most construction-related companies saw their revenues increase, with the highest being C.W. Driver Contractors (38.3 percent), Moorefield Construction (43.5 percent) and Matt Construction Corp. (32.8 percent).

Paul Matt, chief executive of Matt Construction, said the industry lagged behind the economic downturn because many projects initiated before 2001 were still moving toward completion.

“We’re generally behind the normal business cycle because of the lead times involved,” Matt said. “The bigger projects can carry you through some business cycles and still have plenty of backlog on it.”

The company jumped to No. 67 from No. 89, largely because of its work with TrizecHahn’s Hollywood & Highland project last year.

Matt added, however, that new construction and development is down this year and could negatively impact revenues down the line.

“There’s a down trend this year,” he said. “There’s a nervousness on the part of the business world when it comes to making a commitment to move forward with projects. They’re waiting it out.”