Providence Airport Winning With Its Geographic Advantages

Image via Wikimedia/Antony-22, CC BY-SA 3.0

I’ve written a number of times before about proximity as a double edged sword for cities like Providence and Milwaukee. They are decent sized metros in their own right, but very close to major global cities. This is typically spun as a gain by those smaller regions, but generally speaking they’ve not been stellar performers in terms of rapid growth.

One way Providence is reaping gains from its nearness to Boston is a pickup in flights at its airport – including several interesting international destinations.

Providence TF Green Airport has long been an alternate for people flying to the Boston region. In fact, in my first trip the area many years ago I was visiting a friend from the Boston suburbs, and he specifically asked me to fly to TF Green because it was easier to get in and out of than Logan.

Now a group of low-cost carriers has moved in. This includes Norwegian Air, which offers ultra-deep discount tickets to select trans-Atlantic destinations. There are now non-stop flights from Providence to cities including Edinburgh, Belfast, and Dublin. (I believe Norwegian is doing a similar thing at Stewart Airport in New York). A number of other low-cost carriers have also moved in. Traffic is up over 20% at the airport.

These routes may not last, but it’s an interesting example of a city that is leveraging a geographic asset to get interesting international air service that few if any similar sized metros would be able to pick up.



from Aaron M. Renn


What Does the Future Hold for Procter and Gamble in Cincinnati?

P&G’s HQ. Image via Flickr/elycefeliz, CC BY-NC-ND 2.0

After a nail biter of a recount in a fiercely contested proxy battle, activist investor Norman Peltz narrowly won a seat on the board of Procter and Gamble, the Cincinnati-based consumer products giant known for classic household brands like Pampers, Tide, and Crest toothpaste.  Everyone agrees that the company has been underperforming. The CEO argues that the turnaround is already in progress, but Peltz wants more aggressive action. (P&G may be challenging, or at least reviewing, the recount).

This immediately raises the question of what Peltz’s victory means for the future of P&G in Cincinnati. You don’t need to rely on my speculation entirely here. P&G CEO David Taylor told the Cincinnati Enquirer that Peltz “suggested moving business units and jobs out of the Cincinnati headquarters and advocated deep cost-cutting.’He said we should be more of a holding company and move businesses out of the headquarters. He called R&D (research & development) a hobby,’ Taylor said. ‘We didn’t ask for this proxy contest, but we think it’s right to stand up for what’s right for P&G.’”

Peltz wants to restructure P&G into three business units, which some suggest is a prelude to breaking up the company. This would seem a real risk. Peltz also earned a seat for an ally on GE’s board, and that company is already looking to sell off many longstanding businesses, including its historic Edison lighting division and locomotive business. In GE’s case, this is being undertaken by a new CEO, but it’s not hard to imagine Peltz making similar pushes here. USA Today reports that Peltz deals have led to 100,000 total job losses. Reports suggest P&G employs 12,000 people in Cincinnati, so corporate job cuts would hit the city hard.

There’s also the possibility that Cincinnati could see a loss of P&G divisions or senior management jobs. When P&G spun off Duracell in 2014, the new company set up shop in Chicago, not Cincinnati. Duracell came via P&G’s Gillette acquisition, so it’s not clear that those jobs were ever in Cincinnati. But clearly other cities are going to be bidding on any future spin-off entities.

Then there’s the risk that comes from needing to change the company’s culture to bring in more experienced hires.  According to the Financial Times:

P&G differs from its peers in its structural ways too. Known for promoting almost solely from within, analysts says the company is more centralized and insular than rivals. “There’s a long history of this company being closed to outside points of view,” says Ali Didadj at Berstein. “And frankly that’s what got them in this mess in the first places.”….As part of Mr. Taylor’s promise to tackle this “culture problem”, the company hired about 200 external people last year, up from just 50 in previous years – although the total workforce numbers 95,000

When I left Indiana University, P&G was considered an absolute premier employer for new grads. I presume it still is because the company is a brand management legend. But it’s another thing entirely to try to recruit globally elite senior level talent to Cincinnati. Let’s be honest, that’s tough for most cities outside the usual suspects. I even hear people in Minneapolis complaining about recruitment challenges.

I would not expect P&G to relocate its headquarters, but I would not be surprised at all if the company followed in the footsteps of Anheuser-Busch and started hiring more senior level people into new/expanded offices in Chicago (most likely) or New York or London.  As with A-B in St. Louis, the bulk of the employees might remain in Cincinnati, which is an excellent corporate back office location where companies like GE are actually opening new service centers, but there could be a loss of top-level firepower.

Nothing may ultimately happen, but P&G realistically has nowhere to go but down in Cincinnati. Midwest cities have remained very reliant, particularly in their downtown employment bases, on legacy employers like P&G, A-B, Eli Lilly in Indianapolis, etc. But in a dynamic economy, it’s only a matter of time till something disrupts them. That’s normal. That’s why these cities need to constantly be creating new companies that hopefully grow to be tomorrow’s P&G over time. That’s the big challenge facing these mid-market cities.

from Aaron M. Renn

St. Louis and the Consequences of Consolidation

Anheuser-Busch’s offices in New York.

Brian Feldman’s piece about how consolidation killed St. Louis got a lot of attention when it came out last year.  He argues that a rollback of anti-trust regulations that allowed industrial consolidation was the silent killer of what were once key regional business capitals like St. Louis.

Interestingly, his focus was on something you may not know ever existed in St. Louis, major advertising agencies.

If there is a living embodiment of the St. Louis advertising industry, it’s Charles Claggett Jr. The former creative director at D’Arcy, long one of the city’s largest agencies, he retired in 2000, two years before the French firm Publicis acquired the agency. One of his many claims to fame is that in 1979, he and his team penned “This Bud’s for You”—the slogan widely credited for helping St. Louis-based brewing staple Anheuser-Busch eclipse Miller during the 1980s beer wars….Another claim to Claggett’s fame is his father, Charles Claggett Sr., who led the city’s oldest and largest agency, Gardner, in the late 1950s and the 1960s. During his tenure, the elder Claggett oversaw accounts such as John Deere, Ralston Purina, and Jack Daniel’s.

And it wasn’t just Gardner and D’Arcy—whose twelve offices now fanned out across North America, as far as Havana—that flourished in mid-century St. Louis. With its ample supply of locally owned businesses as potential clients, the city supported a vibrant start-up ad agency scene. These new firms trained up-and-coming talent, developed cutting-edge campaigns, and often grew to become regional or national in scope, enriching the metro area by bringing in revenue from outside of it.

By the 1960s, St. Louis’s advertising industry had effectively developed into what economists call an “industry cluster.” Though the city’s agencies competed with each other, their sheer number created citywide competitive advantages: a deep bench of talent that moved in and out of agencies, spreading ideas and transferring know-how; a network of experienced, low-cost suppliers (printers, recording studios); and a reputation for quality that attracted national and international clients. All of it was built on the foundation of locally owned companies. These firms provided a steady supply of commissions facilitated by personal connections: account executives at the agencies and the senior executives at the corporations knew each other—from charitable events, from rounds of golf, or from attending the same high school.

D’Arcy followed a similar trajectory. In 1985, it merged with NYC-based Benton & Bowles to become DMB&B, a deal that saw the headquarters and executive decision-making shift to New York. The St. Louis office still handled long-standing accounts like Mars/M&M and Anheuser-Busch, but NYC now made “above-the-rim” decisions. As Claggett put it, “The agency slowly became just a branch office competing for accounts.”

The turning point came one day in 1994, when, unbeknown to the St. Louis office, the agency’s NYC-based media-buying unit signed a $25 million deal with Anheuser-Busch’s archrival, Miller, then lied about it. Anheuser-Busch’s volatile owner, August Busch III, immediately cut ties with D’Arcy, costing the agency $422 million in billings. One D’Arcy copywriter quipped, “When you lose Bud, you’ve lost it all.” Two years later, the office lost its $140 million Blockbuster account to New York. The agency closed its St. Louis doors in 2002.

In the years since the St. Louis advertising cluster disintegrated, the entire industry has taken a major hit as the Internet has disrupted its traditional business model. U.S. ad agencies today have fewer employees than they did in 2000.

One of the companies that got bought out in St. Louis was Anheuser-Busch itself, a company so synonymous with the city that its name might as well be “Anheuser-Busch, St. Louis, Missouri.” The buyer was Belgium-based InBev, which was controlled (and still is I believe) by a group of Brazilian investors. Three years after the 2008 deal, the St. Louis Post-Dispatch looked back at the consequences for the company and the city.

They still make big decisions here, the kind of big-spending, imaginative deals that made this place so envied. But now executives in New York City sometimes sign off on them, too….Three years out, some things are clear. A-B is a diminished but still huge, powerful presence. The worst of the cost-cutting appears over. The brewery and some executive functions have remained in St. Louis. But the corporate culture of the old A-B — tradition-bound, perfectionist, focused more on dominating the beer market than making money — has given way to an aggressive austerity.

The extensive cost-cutting has squeezed more profits out of A-B, but questions remain over whether the company’s new bosses can grow brands and sell more beer.  And St. Louis is no longer the center of the company universe. A-B is now the U.S. subsidiary of A-B InBev. With that, old assumptions — and wistful illusions — about the relationship between the company and the city have changed, too.

This is pretty well known, I believe. What’s less known, perhaps outside of St. Louis, is that in 2014 Anheuser-Busch announced it would be moving brand management and other functions from St. Louis to New York City, opening what it termed its “commercial strategy office.”

Today the A-B commercial strategy office employs about 400 people in a very cool modern office in Chelsea. While the firm is still technically based in St. Louis and employs a lot of people there, including a lot of management people such its supply chain leadership, this represents a significant loss of high talent positions for that city.

Why did A-B open an NYC? Well, InBev was already there. Chicago, the most logical place for a consumer business like A-B, had already landed the Miller-Coors HQ. I don’t have any insights on that, but would speculate it played a role in the choice of New York.

But what’s most troubling for St. Louis and many other similar cities is that A-B’s main reason for staffing up in New York was to be closer to its ad agency partners. In other words, we are seeing knock on effects from previous consolidations and the rise of global cities as key financial and producer services nodes.

First consolidation wiped out St. Louis’ national scale ad agencies. Then the loss of those agencies make it hard to keep ahold of corporate marketing and other functions.

This was one of the key things I honed in on back in 2008 when I first wrote about the trend of HQs moving back to the global city. Saskia Sassen’s work on the revival of the global city noted the growth in specialized financial and producer services (like advertising). The rebirth of the global city was not built on traditional corporate HQ growth.

But then down the road, corporations started to restructure their HQs into what I term “executive headquarters”, with only top executive functions – generally only 500 at most – now part of the HQ. And that the HQ was now being drawn back to the global city in order to take advantage of the services infrastructure there. I noted how Mead-Johnson Nutritionals (makers of Enfamil baby formula) had followed this formula when it moved from Evansville, Indiana to Chicago. Here’s what the media said at the time:

Working in a large city will make it easier to conduct business throughout the world. Mead Johnson makes Enfamil and similar products and about half of its sales come from overseas. Having offices near Chicago, for instance, will place executives in close proximity to global-business consultants, leaders in the field of nutrition and an international airport.

Today we see that proximity to services providers, international airports, and the ability to recruit top global talent are all drivers of this. To date I’ve mostly noticed that the losing locations were clearly subscale cities like Evansville or Peoria. Now with Connecticut losing GE, it’s affecting larger business markets as well.

A-B’s New York office isn’t technically an executive headquarters, but it has some of the same characteristics. This isn’t about anything nefarious. It’s about companies doing what they think they need to do to address market realities. Mass market beer brands like Bud Light are in decline industry-wide. These kinds of moves are part of trying to stay market relevant. (A-B also just changed CEOs in response).

This is definitely a trend to keep an eye on since it will have a big effect on whether or not legacy business cities like St. Louis in the 1-3 million metro area range will be able to continue conducting business as the same level they’ve been used to doing. I think there is a ton of risk here in many cities, especially in the Midwest.

from Aaron M. Renn

How New York Benefits From Out of Town Wealth

One of the things I’ve constantly noticed in New York is how much out of town money goes into boosting the cultural life of the city. I always like looking at the list of sponsors of cultural events and institutions to see who is backing them. Not uncommonly I see out of town names here.

For example, consider all the sums of money that foreign countries spend to market their nation’s culture in New York. Foreign governments are big funders of cultural events such as film festivals here. Now, that’s not totally unique to New York. Consulates around the country routinely do the same. But the scale of what I see here is pretty big.

The government of France has a big cultural mission housed in a Fifth Avenue mansion (see photo above). The government of Korea runs a similar operation. I presume there are many other countries undertaking special purpose cultural marketing in NYC.

It would be interesting research to track down the total amount of foreign government cultural marketing in the US, and what percentage of it is spent in New York City.

A second category is money that was made elsewhere than then gravitated to New York, either because the people who earned it moved there, or because they decided to make a splash in New York.

The Frick Collection museum, for example, is the home and art collection of a guy who made his money in Pittsburgh. (A lot of his art is still there). Sid Richardson Bass, a member of the Texas oil family, moved to NYC and became a major patron of the arts.

Sybil Harrington, a Texas oil heiress, became a huge patron of the Metropolitan Opera. She donated about $30 million to it, I believe mostly in the 70s and 80s, when that was a much bigger deal than it would be today. Similarly, the Met Opera continues to benefit from the largess of the “Gramma Fisher Foundation, Marshalltown Iowa.” Founder Bill Fisher was a Marshalltown industrialist and major patron of American opera companies. He was on the board of the Met for 35 years. These kinds of money flows continue today. Ken Griffin, Illinois’ richest man, gave MoMA $40 million a couple years ago. For the bulk of American art museums that would be their biggest contribution ever.

Another interesting research project would be to find out how much money has and does flow into New York from people who either made their fortune elsewhere then moved to NYC, or from just straight-up out of town donors.

Again, other cities benefit from this to some extent. But I suspect nothing like one the scale of New York.

The fact that so much foreign government and out of town money pours into New York culture is another of the very unique forces that have upheld the city in its preeminent position over the years.

from Aaron M. Renn

Superstar Effect: High Digital Jobs Edition

Brookings has a new study out called “Digitization and the American Workforce” looking at the growth of the digitization of the American economy. They track the dramatically increasing levels of digitization of all jobs, not just specifically high tech ones, and various implications of that. The study is definitely worth checking out.

They also segregate out what they call “high digital jobs” that involve the greatest degrees of digitization. These are disproportionately in usual suspects metro areas:

Not only is there variation in high digital jobs share, there is divergence as well. As they note:

This more high tech-favoring measure exposes a much wider range of 2016 metro digitalization scores, ranging from nearly 38 percent of local employment in highly digital occupations in San Jose to just 14.6 percent in Stockton-Lodi, Calif. The list of the most digitalized metros reads like a gazetteer of the largest, best-established tech hubs in the nation—ranging from Washington, Seattle, San Francisco, and Boston to fast- followers like Austin and Denver and to university towns such as Madison and Raleigh.

Not only do metros’ high-skill digitalization ratings vary sharply; they are also diverging. In this regard, the digital rich are getting richer, a trend that can be seen in the 100-metro scatterplot in Figure 13. The higher a metro area’s 2002 share of highly digital occupations the greater the growth of its share of jobs in such occupations in the years 2002 to 2016. For example, San Jose, Washington, and Austin—with highly digital employment shares in excess of 10 percent in 2002—have all increased their shares by more than 20 percentage points since then. By contrast, metros with low starting presence in highly digital occupations (such as as Stockton; Youngstown, Ohio; and McAllen, Texas), all with high-digital job shares of less than 2 percent in 2002, have seen much slower employment growth in highly digital occupations—more along the lines of 10 percentage points. In short, a high initial digital score predicts faster future digitalization.

This finding is probably more a look at divergence rather than a true superstar effect, but is still very interesting.

Click through to read the whole study.


from Aaron M. Renn

New York’s Transit System Needs More Than Just Money

A new issue brief from my Manhattan Institute and City Journal colleague Nicole Gelinas takes a look at New York’s transit problems. The media focus has been on money, which she agrees is needed. But critical reforms are also required if things are to improve.

The report is called “Not by Money Alone.” Here’s an excerpt:

The answer to the MTA’s current woes, then, is not to cut back on the financial resources that it devotes to capital investment. In fact, under the right conditions, the MTA should increase such investments.

[But] is the MTA investing in the right projects?

The answer to this question, unfortunately, is no. The MTA is investing its money in the wrong projects relative to ridership and population growth. The current five-year capital plan devotes 71% of its expansion budget to the region’s two commuter railroads (Figure 4), 10 times the commuter railroad’s 7% share of MTA ridership (Figure 5). Under this plan, the MTA will invest a further $2.4 billion in the $10.2 billion East Side Access project to connect LIRR trains to Grand Central Terminal rather than to Penn Station, as well as $2 billion in building a third track on the LIRR’s main line, for example.

Click through to read the whole thing.

from Aaron M. Renn

Home Equity Wealth at New High

The latest flow-of-funds data from the Federal Reserve confirmed that home-equity wealth reached a new nominal high this year:  $13.9 trillion at mid-2017, $0.5 trillion above the 2006 peak and more than double the $6.0 trillion amount at the trough of the Great Recession.[1]  While several factors will affect aggregate home equity, it’s clear that much of the recovery in home-equity wealth is due to the rebound in home values: The S&P CoreLogic Case-Shiller Index for the U.S. was up 40 percent (seasonally adjusted) through June from its February 2012 nadir.

Comparing annual home-price growth with the annual change in home equity per homeowner shows a strong correlation (Exhibit 1).  When prices are stagnant of falling, equity typically declines.  Conversely, price growth generally supports equity accumulation, with faster appreciation leading to larger amounts of equity creation.  Home-equity wealth is an important component of family savings, accounting for about 20 percent of homeowners’ net worth, on average.[2]

Home-value growth has also restored net worth to many homeowners who had negative equity.  At the end of 2009, 12.2 million homeowners had negative equity, or 26 percent of all owners with a mortgage.  Price appreciation, along with amortization and loan curtailments, has helped pull ‘underwater’ owners ‘above water.’ (Exhibit 2) For example, if all homes rise in value by 5 percent during the next 12 months, about 500,000 homeowners will regain a positive net housing wealth position.

Of course, price appreciation is not uniform but varies across neighborhoods.  Nationally, 5.4 percent of homeowners with a mortgage had negative equity at mid-year, but that percentage varied from zero to about 20 percent across counties. (Exhibit 3) Among the more populous counties, the negative equity percentage varied from 0.5 percent in San Mateo (California) to 16.8 percent in Osceola (Florida).  Areas where home values have recovered and are above their pre-recession peak tend to have the lowest percentage of negative equity homeowners, and some of the largest home-equity wealth amounts.

If there is a 5 percent rise in the S&P CoreLogic Case-Shiller Index in the coming year, then we should see an additional $1 trillion in home-equity wealth created, setting another new high.

[1] Federal Reserve Statistical Release Z.1, “Financial Accounts of the United States,” Second Quarter 2017, Table B.101, rows 4 and 33.

[2] The ratio of mean home-equity wealth to mean net worth for homeowners was 20.4% in 2013 and 19.1% in 2016; see “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, September 2017 (Vol. 103, No. 3), pp. 13 and 26.

from S&P Dow Jones Indices – HousingViews