As Economy Sputters, Northfield Businesses Tighten Belts and Push Promotions

Myles Radtke myles-doc-sshot

Myles Radtke, a student in Doug McGill’s journalism class at Carleton College, has done a nice piece on downtown retailers in the current economic climate, titled As Economy Sputters, Northfield Businesses Tighten Belts and Push Promotions (PDF – full text below).  In particular, he’s interviewed a wide variety of local experts and allowed them to speak their own thoughts on the subject.  I encourage you to read it.

It’s been a tough few months for many downtown businesses.  First there were high gas prices cutting into families budgets, then there were the street projects complicating access, finally there was the Global Financial Contraction challenging the minds of the best and brightest.

As Radtke found out, local retailers are seeing some impacts on their customers.  Pinched in the present and worried about the future, folks are being more careful about their money.  Radtke reports that store owners have responded by cutting operating costs, working to build other income centers, and trying new promotions to get people into their stores.

Not all businesses are experiencing slowing sales.  Some are holding steady and a few are even up slightly from last year.  However, Radtke notes that even these business owners have contingency plans in place, such as a shift from luxury goods to more practical items.

Many local experts who spoke to Radtke believe that the media coverage of economic set-backs, a steady drumbeat featuring sub-prime mortgages in California, risky commercial loans in Iceland, and a store closing in Northfield can undermine consumer confidence.  Feeding the pessimism, they warn, can extend the recession.

Radtke ends his piece on a positive note.  Entrepreneurs, like the downtown business owners he interviewed, run on optimism.  They’ll continue to make adjustments, and believe that economic conditions, and retail sales, will eventually improve.

Griff had suggested that I close the comments on this post and send them to my previous post on the Deep Economy.  I’ve decided that I disagree.  I hope that the comments on “Digging Deeper into the Local Economy” will focus on ideas for shifting some pieces of the economy from global to local in order to benefit the Northfield community.

For this piece, I’d like to explore the impact of the media on consumer confidence and economic conditions.  Do you think the media’s stories on economic events have an impact on the economy?

Continue for the text of Myles’ article or see the PDF:

As Economy Sputters, Northfield Businesses Tighten Belts and Push Promotions

By Myles Radtke

Last January, April Ripka realized a lifelong dream by opening an art supply store that she now runs, the Sketchy Artist in downtown Northfield.

Her timing was unfortunate, though. After the global financial crisis broke in mid-September, business at the Sketchy Artist dropped dramatically.

“It has been frustrating,” Ripka said. “People take more time deciding between five or six things. Then they usually pick the cheapest thing and buy it. People are scared.”

The Sketchy Artist is not the only Northfield business that’s been hard hit by the financial crisis.  Many retail shops on Northfield’s quiet streets in recent weeks have slashed operating costs and embraced new marketing and promotion schemes to build their clientele as a hedge against the current financial downturn.

“The biggest problem is consumer confidence,” said Jerry Bilek, owner of the Monkey See, Monkey Read Bookstore in downtown Northfield. “You can feel the anxiety.  Most people are making the same salaries [as before].  For the average Northfield resident, most things have not changed.  But it is the anxiety.  People are being more conservative in the short term.”

“Mid-August into September, around the beginning of a new school year, my sales were doing well,” Bilek added. “But in mid-September it began to slow down. When the news broke, Internet orders really dried up.”

The drop in Internet sales has been especially difficult for Bilek, as Internet business represent 25 percent of the store’s revenue.

Bilek figures that strong new marketing ploys are his best chance to counter the drop in both foot-traffic and Internet sales. “The hardest thing is getting customers through the door,” he said. “Most people who come through the doors come away with a positive experience.”

To increase foot-traffic, Bilek last month began a monthly poetry reading at the store.  “It was packed,” he said.  Bilek has also introduced bounce-back coupons, in which December shoppers get special deals if they return in January, his slowest month.

Louis Newman, a Carleton College professor of religion and owner of Sweet Lou’s Waffle Bar and Café, said that an expected bounce in fall sales has not materialized.

“Over the summer, it was really slow, but that was probably because the college students were gone,” Newman said. “I expected that come fall that it would pick up, but it has not picked up as much as I thought.”

The uneasy financial situation could be the reason, Newman said.

“People don’t have the same amount of money in their IRA or dividends,” he said. “People feel less wealthy. It makes people jittery and uneasy about spending money.”

Newman has also been trying new promotional ideas. The Sweet Lou’s shop has permanently lowered the price of a cup of coffee to 50 cents; sold t-shirts at Carleton College; and is looking into high school sports sponsorships.

“Promotions are essential when you are struggling to get people into the door,” said Newman.

Meanwhile, both Bilek and Newman have cut operating costs to the bare necessities. “I have cut everything down to the bone,” Bilek said.

“We have been working on keep operating costs low to weather the recession,” Newman said.

At Grezzo Gallery, a picture-frame shop and art gallery, Stephen Delwiche, the gallery’s owner, told a similar story.

“It hasn’t been as busy, for sure,” Delwiche said. “It’s been hard to get people through the door.”  To keep his business going, Delwiche has been pushing the picture framing part of his business rather than his true passion, which is selling the work of local artists. “Framing pays the bills around here,” Delwiche said. Other than this change, Mr. Delwiche is not planning any major changes.

“I’m kind of new,” Delwiche said with a grin. “I don’t know what else to do so I’m sticking with the plan.”

An apparent exception to Northfield’s gloomy retail picture is Monarch: The Enchanted Garden Shoppe, a downtown gift shop owned by Jan Osterman. Only recently, Osterman actually had a sign soliciting job applications in the window.

Standing in a sea of knick-knacks, Osterman, who has owned Monarch for seven years, said that the current financial turmoil has not slowed her thriving shop.

“I have heard of businesses having problems, but I haven’t had any,” she said. “We actually had a good year. The crisis has not affected us much. We are conservative anyway. We don’t have a lot of credit.”

Krin Finger, the owner of Rare Pair, a Northfield jewelry shop, reports a so-so year for sales, with hopes for strong Christmas sales. “Year-to-date we have been down a little bit, but we can make it up in the last two months,” Finger said.

The wholesale price of jewelry products has recently gone up 15 percent due to increasing transportation costs, Finger said, but she remains hopeful.

“I have the reputation for being the most optimistic retailer in Northfield,” she said with a chuckle.

Finger has been building a savings cushion over the years, just in case a financial downturn hit.  “You can’t be reactive. You have to be proactive,” she said.

Besides the savings cushion she built, Finger also in recent years has increased her inventory of practical items, such as shoes, as opposed to luxury items. In tough financial times, she predicted, people will welcome practical gifts under the Christmas tree.   This year, she’ll get to test the theory.

The First National Bank in Northfield said it was weathering the current period fairly well. “We haven’t done have a lot of subprime loans,” said Rick Estenson, the bank’s Vice President of Business Development.  “We are pretty conservative in loaning.”

Looking ahead, the key thing to watch is consumer confidence, Estenson said.  “The whole marketplace is one big psychological market,” he said. “If the media coverage of this dip in the market creates a decline in consumer activity, we could see a tipping point where many local businesses go under.”

Mike Hemesath, a Carleton economics professor, affirmed this view.

“Two-thirds of the economy is consumer economy,” Hemesath said.  “Pessimism can make any recession worse.”

With their historic buildings and high tuitions, is easy to think of colleges as recession-proof.  Spokesmen for Carleton College and St. Olaf College, which along with a local Malt-O-Meal factory make up the main pillars of the Northfield economy, say the institutions are financially secure for the short term.

“We haven’t had a problem making payroll,” said Linda Thornton, Carleton College’s comptroller for the past four years. “We have not had to take out a line of credit yet.”

Alan Norton, St. Olaf College’s vice president and treasurer, was also firm in his assurances. “In the short run, it has not had any material effect.”

Yet if the financial turmoil rages on, it could mean changes at Carleton and St. Olaf.  If Carleton alums or benefactors become reluctant to give large donations to the Carleton endowment, Thornton said, the college may need to reassess its budget allocations.  Already, Carleton College has decided to delay its timetable for building its new Arts Union, in part because of the financial crisis.

Yet Thornton was quick to point out another reason for the delay. “We haven’t found a construction agreement for the new construction yet,” she said.

At St. Olaf, Norton says he worries most about the credit freeze. “At this point, the bigger concern is whether people are willing to lend,” he said.

Despite the potential recession, neither college is willing to cut back on financial aid.  Thornton said it may be more difficult for students to find loans during the credit freeze, but Carleton will continue to honor its commitment to meeting the financial needs of all students.  Norton, at St. Olaf, similarly emphasized the college’s commitment to its financial aid policy.

“Our fundamental philosophical approach is to meet the financial needs of every student. You can’t just reduce on that,” Norton said. “It would totally be changing course.”

Despite the generally somber demeanor of many business owners and the various business model changes underway on Northfield’s main street, a quiet, resilient strand of optimism clearly dominates.

“I think Northfield will be fine,” said Estenson. “There are some things that are needs and some things that are wants.  When the economy is bad people can go without the wants.  With Malt-O-Meal and the colleges, we have an economy of needs that will get us through these cyclical dips.”

“There is hope,” said Ripka. “I find the negative and work myself up to the optimistic.  It’s best to remain positive.”

“I’m cautiously optimistic,” stated Bilek. “You can’t really get down.”

Delwiche, the artist at Grezzo Gallery, displays a fighting spirit.

“I will do what I can to get by,” he said.

25 thoughts on “As Economy Sputters, Northfield Businesses Tighten Belts and Push Promotions”

  1. Yeah, Ross I DO think the media has a huge effect on how people feel about the economic downturn.
    Most people get their news from less than in-depth sources; Mainstream TV news always tends to focus on the most reactionary items … scare stories about the economy (foreclosure rates in CA and GA) , or the newest snowstorm moving across the Dakotas that MIGHT impact the TC.
    There is no doubt that the economic climate is bad, but how bad for most NF’s? What do we actually know about statistics here in town? What are the number of foreclosed mortgages this year as opposed to an average year?
    I imagine the biggest obvious downturn is in the value of investment and retirement plans, and that is very scary for people. But in all honesty, those who are some years off from retirement will see those funds come back up to ‘normal’; it’s the wait that is frightening.

    But I certainly do think that most people will curtail their discretionary spending to some degree, maybe to a large degree. And this is where it especially hurts our DT, when we have lost businesses that sell essential clothing, shoes, etc., and have a mix of stores which depend on more discretionary spending.
    This is why the National Trust, Institute for Self Reliance , and other organizations that encourage strong DTs in small towns, say a more balanced mix of essentials and discretionary shopping must be maintained to be an economically strong downtown.
    And there’s where the large scale general merchandisers, and franchises on the highway DO hurt the DT, as much as people don’t want to say so. And it is hard to evaluate that when some franchise owners on the highway are also local residents who care very much about the economic health of Northfield.

    It’s especially important now, of all times, to support the downtown over this next year of economic strife, if you want to keep it functioning. Just take a little time and look in the downtown for gifts this holiday season; You’ll find so many unique and original items.
    Again, Ross, the media has a lot of influence on how people feel … but I have to believe if so many people have chose to live in NF, for the quality of Life which it offers, that IF they take the time to really think about it, they will want that environment to continue …and it can’t without the Downtown.

  2. Hey Kiffi –

    Although Myles focused primarily on downtown businesses, many of the local “experts” he consulted took a larger view, putting downtown in the context of Northfield and Northfield in the context of the national and/or global economy. I think it’s a useful perspective.

    Personally, I think that the current financial situation, both real or perceived, probably impacts car dealers, home furnishers, or appliance retailers out on the highway much the same way as gift sellers, burger vendors, and craft suppliers downtown.

    My question, more precisely stated, is regardless of location and product, how much are businesses affected by actual reduction in consumer wealth and how much can be attributed to media sensationalism?

    Thanks much,

    Ross

  3. Ah Yes, Ross … more precisely answered: I think what you term “media sensationalism” does much to fan the flames of fear and fatalism. And that was my point about the snowstorm in the Dakotas that MIGHT affect the Twin Cities. The ‘sound-bite’ media are often just hyperbolic rather than putting things in a more rational perspective.
    We should not create self-fulfilling prophecies.

    Panic should NOT prevail, personal financial assessments/capacities should be made, and we should support our local businesses… and keep our old (paid for) cars as long as possible!

  4. For this piece, I’d like to explore the impact of the media on consumer confidence and economic conditions. Do you think the media’s stories on economic events have an impact on the economy?

    That’s an interesting question. Some people are spending less because their income has fallen, their apparent investment wealth has dwindled, or they are out of work. But what about the rest of us?

    Felicity and I have suffered no significant adverse impact on our wealth or income over the last two years. Our income has increased a fair bit, and our wealth is mostly in the form of debts. Still, we have cut back our spending a fair bit.

    ‘d like to think that our decisions have been made entirely for personal reasons, but they do seem to be remarkably timed to coincide with the general economic pessimism. We decided to cut back on restaurants because we now had time to cook more, and because it’s healthier. We decided not to buy a house when we moved to town because we didn’t find one we loved enough to settle in. However, perhaps in a more optimistic market we would’ve bought a short-term residence with a plan to move later.

    Like so many others, in the past we spent a lot on credit cards, and ran up a balance. Now we’re paying it off. Most of that debt was medical bills, where spending money we didn’t yet have made good sense at the time of those decisions. Would we have made the same decisions in a more pessimistic time? I can’t be sure we would.

    In short – it’s hard to admit that our decisions are determined by what the media says, but their reports do create a general atmosphere of pessimism that can influence decisions that could otherwise go either way. And shopping is often done for reasons other than necessity.

    Perhaps we need a Cheerleader-In-Chief again to get us out of this morass:

    “I encourage you all to go shopping more.”

    “When they struck, they wanted to create an atmosphere of fear. And one of the great goals of this nation’s war is to restore public confidence in the airline industry. It’s to tell the traveling public: Get on board. Do your business around the country. Fly and enjoy America’s great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed.”

    And then it will all be better.

  5. Somehow, the consumer economy – and especially this need for maintaining high spending levels and high “consumer confidence” – has always reminded me of the Monty Python’s Flying Circus sketch featuring The Amazing Mystico, who builds high rise apartment buildings by hypnosis.

    Surprisingly, I can’t find a clip of it on You Tube, so a transcript will have to suffice:

    Narrator: Even more modern building techniques are being used on an expanding new town site near Peterborough; here the Amazing Mystico and Janet can put up a block of flats by hypnosis in under a minute.

    Architect: Well there is a considerable financial advantage in using the services of El Mystico. A block, like Mystico Point here, would normally cost in the region of one-and-a-half million pounds. This was put up for five pounds and thirty bob for Janet.

    Narrator: But the obvious question is: are they safe?

    Architect: Of course they’re safe. There’s absolutely no doubt about that. They are as strong, solid and as safe as any other building method in this country provided of course people believe in them.

    Tenant: Yes, we received a note from the Council saying that if we ceased to believe in this building it would fall down.

    Narrator: You don’t mind living in a figment of another man’s imagination?

    Tenant: No, it’s much better than where we used to live.

    Narrator: Where did you used to live?

    Tenant: We had an eighteen-roomed villa overlooking Nice.

    Narrator: Really, that sounds much better.

    Tenant: Oh yes – yes you’re right.

    Cut to stock shot of block falling down in slow motion.

    Tenant: No, no, no, of course not.

    Cut to stock film again. The building rights itself.

    Tenant: Phew, that was close.

  6. Kiffi, your comments and Patrick’s “cheerleader- in- chief” comment made me google FDR’s First Inaugural. That’s “the only thing we have to fear is fear itself” speech.

    I hadn’t read that speech, I was only aware of the “fear itself” quote. The speech relates well to our current economic conditions. The speech also relates to the LoGro Deep Economy thread:

    “Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.”

    Here’s a link to the speech:

    http://historymatters.gmu.edu/d/5057/

    I understand that Obama is reading Lincoln now. I hope he adds FDR to his reading list as well.

  7. It is easy to blame the media, but the economy is a mess around the world, even where the media has little impact.
    Perhaps we need to take a closer look at the local community and see what’s happening. We started earlier with some discussion of foreclosures, but barely scratched the surface of the numbers. What’s going on at the Community Action Center and the other agencies helping families? My sense is that there are two groups of people in Northfield, people who are just barely hanging on and people who are safe but cautious. Winter could push some of the first group off the ledge.
    As for the media, well, there are different kinds of media. Advertising certainly fueled this crisis. Reality shows helped. There were economists on the news who warned that we couldn’t sustain the gains, but people were too giddy to listen when they opened their credit card bills and saw their limits had been increased.
    And the government did more than its share. We’ve had a cheerleader in chief for the last 8 years. Even his response to war was to ask people to spend more. He spent more, driving us into a deficit. Television shows promoted flipping houses and holding $100,000 weddings and buying big cars and refinancing their houses because there were people making a ton of money on the interest rates for all that debt. When we finally, finally, maxed out every cent of credit available, enthusiasm wasn’t enough. When banks and lenders finally saw that people couldn’t keep up with the payments and never would be able to do so, they shut down the lending and the game collapsed.
    People don’t go into foreclosure because a television newscast bummed them out. We are making a $750 billion bailout to cover the borrowed enthusiasm that got us into this mess and that can’t be paid back. People used a lot of that $750 billion to shop.
    Unemployment is at 7 percent. People’s retirement money is wiped out without enough time left in their lives to rebuild it. Workers haven’t just lost jobs, but have seen their professions wiped out. I recently sat with a man at the Simpson Shelter in Minneapolis who was working on his laptop, the last remnant of the life he lost. This was a man with a master’s degree who has retrained twice, only to have the jobs shipped to India.
    People are leaving their homes in the middle of the night. Unemployed husbands are shooting their entire families to death in despair. A 90-year-old woman shot herself moments before a sheriff’s sale, and when she didn’t die the lender finally forgave the delinquent mortgage.
    We haven’t had that kind of drama here, but this will be a tough winter and we need to focus on the food shelf and heating assistance and warm clothing for kids.
    To equate this crisis with discretionary spending downtown really misses the point — and is rather remarkable in its insensitivity.
    Most people aren’t spending because they can’t spend any more. You notice that Obama isn’t promising to get people spending again. He’s talking about realism and not optimism, about the hard work of rebuilding and not the irrational exuberance of spending. Economists are warning that this is a big, fundamental change in our lives that will last years.

  8. I read this an interview with the CEO of B&N. He said this:
    Riggio predicted that “the decline in retail traffic will affect our business as less people will pass our doors, and competition for the remaining business will become more intense. The result will be a ‘Darwinian’ environment (only the fittest will survive), and the retail species will have to adapt or face extinction. We have and will continue to adapt, and we plan to be around for a long time.”

    I think his take on the economy is pretty accurate. It’s not all doom and gloom. People are spending money, they are buying books. They are just buying fewer from me than in the past. some retailers will close, others will survive. the challenge is to be one of the survivors.

  9. Patrick gave a very thoughtful analysis of their individual situation; I think most people who ARE thoughtful about their own personal economics will do that.

    I fear that what I call ‘sound bite’ media cause an unrealistic level of almost paranoia,( i.e., being worried about the Dakota snowstorm) and the whole key is, as always, to be critical thinkers. We need to sit tight, mitigate what damage we can, and figure out how to rebuild the results of the damage that can’t be mitigated.

    But isn’t that always true? Whether its a 100year hailstorm, or an economic disaster?

  10. Thx for that link to the FDR inaugural, Curt.  The paragraph following the one you quoted is interesting, too:

    Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit.

  11. Perhaps this would be better placed in the “Deep Economy” post.

    In today’s Star Tribune, “A St. Paul-based think tank wants to expand the “buy local” mantra this holiday season to strengthen Minnesota’s economy”:

    http://www.startribune.com/lifestyle/34487384.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUUF

    “The just-released report ‘ “Made in MN 2008: Boosting Minnesota’s Economy in Tough Economic Times” – states that if Minnesotans spent one-fourth of their holiday budgets on items made in Minnesota, more than $2 billion would trickle into the state’s economy, possibly causing small and local businesses to hire more employees.”

  12. Americans sometimes simply lack a global and historical perspective.
    Are we in tough times right now? Of course we are, but it is not nearly as bad as it is in the rest of the world.
    Many of us have been spoiled with almost 20 – 30 years of consistent economic grow, without having to go through a major correction.
    The only major events in the near past were the burst of the NASDAQ bubble and 9-11. Aside form that we had a VERY good run.

    Did anybody here really belief that we would never experience a down turn again? Nobody would be that foolish.

    By all means and measures we are still a lot better off then the rest of the world.

    America get off your pity pot our best days are still ahead.

  13. Rob,

    I hope you are right. If Obama manages to pull this off I’ll be the first to acknowledge it.
    Unfortunately the extreme left within the party won’t let him.

  14. Ross,
    I think the current economic downturn could be cured if we shut down the papers, radio and TV for a month. If people had to judge their economic situation by how they feel, how their employeer is doing, or how their own business is doing, it would be a much different picture than what the media force feeds us.

    I’ve heard recently from people that have secure positions in the state, county and schools complain about the economy—-when absolutely nothing in their paycheck will change, except that their paychecks will get larger next year. Sure, gas and food cost more for them this year, but they have guaranteed jobs. This is the kind of ‘fear mongering’ that the media can develop.

    But, since we most likely will not be closing things down in the media, (except for talk radio if some folks have their way) we will continue to have everyone fretting about the economy.

  15. Ray –

    Thanks for directly answering my question.

    I was at an informal, volunteer gathering of local economic development experts (and they truly deserve that title, having devoted much of their lives to the topic, vocationally and/or avocationally) on Saturday morning and the group members remarked that although we all are affected by rising prices, and some of us are affected by declining, unless you are a retiree dependent on investment income or were laid off from your job, your situation isn’t as dire as the headlines might indicate.

    At the same meeting, we got an update on the results of the Sarah Henson fund-raiser the night before. It was encouraging the hear that people were able to realistically analyze their own situations and find that they had enough to share with someone else in the community.

    Thanks again,

    Ross

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