Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 15, 1995 TAG: 9501280036
SECTION: HORIZON PAGE: G-1 EDITION: METRO
SOURCE: DWAYNE YANCEY/STAFF WRITER
DATELINE: LENGTH: Long
If you don't believe the Roanoke Valley's economy is humming, drop by the airport some night when the big cargo jets are revving up - and loading up.
It's here that Roanoke's growing role as a staging point for moving goods around the country, and around the world, may be most evident.
The United Parcel Service 757? It started flying here largely because of Home Shopping Network's distribution center in Salem. The FedEx 727? It flies here because of the Orvis warehouse. The Burlington Air Express DC-8? It's probably carrying Elizabeth Arden cosmetics.
Granted, the air freight business is up, up and away all over the country - thanks to the opening of overseas markets and many American companies adopting the Japanese concept of "just-in-time delivery." Pay a little more for faster delivery to get parts just in time, and pay a lot less for inventory space; that's the idea, and it's revolutionized the way companies move goods from suppliers to customers.
But the amount of cargo flying in and out of Roanoke has doubled in the past five years, from 14 million pounds in 1988 to 30.5 million pounds in 1993. In 1994, the volume of air freight nationally was up 9 percent; at Roanoke, it was up 31 percent. Not all of that can be explained by the global marketplace or "just-in-time" delivery, says Mark Courtney, the airport's marketing director. Instead, the growth is being driven by an unusual concentration of distribution companies in the region - from high-profile mail-order houses such as Orvis to lesser-known wholesalers such as Bausch & Lomb, a contact-lens maker with a distribution center in Lynchburg.
Last year, two new air freight carriers have added stops in Roanoke, bringing the airport's total to six, to service these companies. "Next year, we're looking for a 30 to 40 percent increase," Courtney says. No wonder the airport is spending $6 million to build a new ramp for cargo jets.
Still looking for proof that Roanoke's economy is rolling?
Try CTC Distribution Services on Plantation Road, where the conveyor belts sometimes run two shifts a day, and up to 140 people are at work sorting, loading and hauling packages from just one niche of Roanoke's distribution industry - mail-order companies. CTC is what's known as a "freight consolidator," meaning it consolidates packages from different mail-order houses onto a single truckload so they can split the shipping costs. The company sprang up here in 1989; in the past year alone, it's business has nearly doubled. With the growth of mail-order companies in the region, branch manager Mike Smith says, "we're bursting at the seams. We need a bigger building."
Or check out the classifieds, where ads in search of warehouse workers are among the most prominent listings. Business has been so good that, when the valley's distribution companies plot their future, the thing they worry about most isn't running out of customers; it's running out of workers. Much of the distribution business tends to be seasonal and companies such as Orvis and Arden fear the region's supply of temporary workers, be it for 800-number operators or warehouse forklift drivers (both jobs now dominated by women), may be close to exhaustion.
"It's tougher and tougher," says Ann Ward, district manager of Manpower, one of the valley's biggest temporary agencies. College students, retirees, homemakers - the temporary agencies use them all and still can't find enough.
This should be good news. After all, the debate among business and political leaders in Western Virginia has been what kind of economy the region should create for itself in the new century. Usually, that's meant looking at sectors that already have a foothold and asking how much they could be expanded. High-tech? Tourism?
Often overlooked is the one sector of the economy where the Roanoke region has in the past decade established a national reputation for itself - distribution. Yet bring up distribution, and the debate over the region's economic future takes on a different tone.
One faction contends the region should position itself as even more of a distribution center - by building new interstate highways, adding truck-to-train loading terminals, even looking at transforming the New River Valley Airport near Dublin into a gigantic cargo-only hub for the entire East Coast.
"This is our niche," declares Del. Morgan Griffith, R-Salem, who ran much of his 1993 campaign for the state legislature on a plank of promoting Western Virginia as a transportation center.
But distribution has a public relations problem. Distribution firms may create a lot of jobs - more than 6,300 jobs in the region are directly tied to distribution, and that's undoubtedly an incomplete count. But are they good jobs? That depends on where in the industry you look. In air transportation, which accounts for about 500 workers in the Roanoke Valley, the average weekly wage is $569. At the biggest distribution companies, such as Orvis and Elizabeth Arden, which between them hire more than 1,200 people, many jobs are part-time, starting at $5 per hour. Furthermore, the cavernous warehouses of the distribution business eat up a lot of flat land, a commodity that the Roanoke Valley doesn't have an unlimited supply of.
Few business leaders want to say outright that we've got too many distribution companies, but some will talk around the edges of the subject.
"Today, in this region, we have more people working than ever before," says John Stroud, president of the Roanoke Regional Chamber of Commerce. "We have extraordinarily low unemployment. So what's the problem?"
The region's income growth is sluggish, he says. Stroud points to a study the chamber recently commissioned. Of 19 major metro areas between Virginia and South Carolina, Roanoke ranks 17th in income growth during the 1990s. Only Lynchburg and Richmond saw their per capita incomes grow at a slower rate.
"We're creating jobs," Stroud says, "but the question asked of me everyday is where are my kids going to go to work? They can't find anything more than minimum wage. It goes down to the kind of companies we're recruiting."
When it comes to distribution, the Roanoke Valley clearly has a good thing going. But is it possible it's too much of a good thing?
First of all, let's take stock of what's happened here in the past decade.
It's not so much that the distribution business has put Roanoke on the map, as it is the map has put Roanoke in the distribution business.
Take Ed Couvrette, the San Diego entrepreneur who wanted to move his automated-teller machine factory from California to a site closer to his customers - to make his distribution easier. He unfolded a map and jabbed his finger down onto Interstate 81 in Virginia. There, he said, is where his company ought to be.
"Basically, I need a location on the East Coast and didn't want to be on I-95, with its congestion," he says. "I wanted on I-81, the truck route." Couvrette Building Systems and its 85 workers are now in Salem.
Other companies have reached the same conclusion: The Roanoke Valley, in the middle of the East Coast and astride a major interstate, is centrally located to reach much of the nation's population. Roanoke boosters never tire of pointing out how two-thirds of the nation's population is within two days' driving time - and much of it is closer.
"By being in Roanoke, I can give a customer in the Carolinas next-day service in New York City," says Chip Lawrence, president of Lawrence Transportation Systems, which has evolved from a household moving company to a freight-hauling firm. "I can pick up a load of furniture in the afternoon, bring it to Roanoke, put another driver on it, and have it in New York in the morning. That's what makes Roanoke a little unique; it's the right amount of hours to the Northeast."
That's not a quality confined to Roanoke. PHH Fantus, the Chicago-based corporate relocation firm, identifies an oval stretching across the country's mid-section from Fort Worth, Texas, to the Carolinas that is ideal for distribution centers - depending on who and where it is you're distributing to.
But it is a quality that often puts the Roanoke Valley on the short list of companies whose main interest is being in a place that gives them access to East Coast customers. "I get a lot of calls for distribution projects," says Beth Doughty, executive director of the Roanoke Valley Economic Development Partnership, the valley's main economic development recruiting agency. "What people say to me is, 'we looked at our market area, drew a circle and you were in the middle.'"
It's easy to say why the Roanoke Valley is a distribution center.
It's harder to say just how much of one it is.
Distribution is a difficult part of the economy to measure because just about every sector distributes something; there's no single column for statisticians to add up to say, presto, this is how big your region's distribution business is.
Distribution outfits can be as different as ...
Retailers who use the valley as a point from which to warehouse and distribute goods to their own stores on a regional basis.
Examples include Kroger, which distributes groceries from southern Ohio to the Carolinas out of its Glenvar warehouse, and Advance Auto, whose Roanoke warehouse supplies its chain of auto parts stores throughout the Southeast.
Total jobs: 400 at Kroger's distribution center, 200 at Advance Auto's.
Manufacturers who located their plants here because this is close to their customers - wherever they may be.
L'eggs looks north: The Winston-Salem, N.C.-based company makes its pantyhose in South Carolina, but ships them out to three distribution centers where they're packaged, stored, and eventually sent to retailers. The Salem facility, which opened in 1989, services the market from South Carolina to Maine.
Crouse-Hinds looks south: The Syracuse, N.Y.-based electrical products company which in 1993 chose Roanoke as the place for some of its assembly and distribution facilities because this is within easy reach of Gulf Coast customers.
Couvrette looks nationwide: although most of its automatic-teller machine business is east of the Mississippi.
Elizabeth Arden looks around the world: One-fourth of the cosmetics made in the company's Roanoke plant are shipped overseas, and logistics director Roy Drilon says Roanoke is well-positioned - with easy access to the Hampton Roads ports - to serve the global marketplace.
Total jobs: 100 at L'eggs, 255 at Crouse-Hinds, 85 at Couvrette, 180 full-time at Arden, expanding to 600 at peak season.
Then there's the big niche-within-a-niche, of mail-order and other "direct-marketing" companies, such as Home Shopping Network, Orvis, Tweeds and Hanover Direct, which have located in the Roanoke Valley over the past decade.
That concentration of "fulfillment houses" - warehouses where orders are fulfilled and distributed - hasn't come by accident, says Cabell Brand, the Salem businessman who was one of the valley's mail-order pioneers.
He joined his father's firm, the Ortho-Vent Shoe Co., in 1949, and in time turned it into the valley's first mail-order company. Next, the re-named Stuart McGuire Co. began seeking other mail-order companies and offered to be a fulfillment center to distribute products.
At first, Brand says, other mail-order firms, many of which were based in the Northeast, were reluctant to use a distribution center so far away from their headquarters. But a study he commissioned in the 1970s helped persuade them. The study concluded that the best place in the country to locate a mail-order distribution center was along a 200-mile swath of territory between Cincinnati and Charlotte - with the Roanoke Valley almost dead center between the two.
The reasons were simple: Proximity to customers east of the Mississippi, and a low-cost, high work-ethic labor pool to draw from.
Before long, some 20 other companies signed up to use Stuart McGuire as a fulfillment center. "We were shipping $250 million worth of merchandise a year; 45,000 packages a day," Brand says.
Stuart McGuire's success drew other mail-order companies to the Roanoke Valley. "Orvis came to look at us, they needed warehouse space," Brand says. Orvis was so impressed by the region's labor costs that the company built its own distribution center here. And after Orvis, came Tweeds.
In time, Tweeds was bought by Hanover Direct, which was so pleased with the region that last year it decided to move some other catalog operations here. When Home Shopping Network looked at signing up with Stuart McGuire in 1987, it ended up buying the company, turning the Salem business into one of its four national distribution centers.
Other mail-order companies gravitated to the region in the late 1980s and early 1990s - from Joan Cook, which at one time employed 100 people before its financing fell through, to J. Crew, which set up shop in Lynchburg, to Asta Enterprises, another spin-off, this time headed by a former Home Shopping Network executive.
The result: Roanoke is now on the map as a mail-order capital, Brand says. Other cities may have more homegrown mail-order companies. "But we have a disproportionate number of companies that have moved here," Brand says. "Probably 20 mail-order companies in the last 20 years have moved to Virginia," many of them to Western Virginia.
As it has grown, the distribution sector has spun off a web of support services: United Parcel Service has a regional hub for sorting packages here; new trucking companies such as Valley Transport have sprung up and old ones such as Lawrence Transportation have expanded; even paper companies have profited by selling cardboard boxes.
There may be more to come: Drilon, who heads Elizabeth Arden's distribution center, recently was visited by executives of a New York-based corrugated paper company who are looking at setting up operations in the Roanoke Valley.
This may be just the beginning.
"The distribution industry is going to continue to grow," predicts John Gnuschke, director of the Bureau of Business and Economic Research at the University of Memphis and an expert in the field. "It's growing primarily because of the focus on rapid turn-around time and reducing inventory - those are the management techniques that took hold in the 1980s."
What's more, the distribution industry is growing in a way calculated to benefit Western Virginia.
"The trend in distribution right now is moving toward smaller distribution centers, to give quicker turn-around time," says Jim Thomas, managing editor of the Pennsylvania-based Distribution magazine.
Wholesalers must build more distribution centers - which means the traditional distribution hubs such as Chicago and Atlanta won't get them all; some are bound to wind up in medium-sized cities such as Roanoke, Thomas says.
How strongly should the Roanoke region go after these distribution centers? That question stirs debate.
When Griffith championed transportation during his 1993campaign, his opponen ridiculed his plan, contending the region should go after high-tech jobs because they are higher-paying.
Distribution proponents get defensive on the subject of wages.
First of all, says Ward, the Manpower boss, none of the temporary jobs she fills in the industry are at the stereotypical minimum wage of $4.25 per hour. Most range from $5 to $8 per hour.
Furthermore, almost half the jobs of the distribution business in the valley come under the heading of "trucking." Virginia Employment Commission figures show that means 2,400 jobs - with an average weekly wage of $419 - or $21,788 per year.
And then there are the spin-offs: There's the UPS regional hub, where some jobs pay $17 per hour. And because of the UPS hub, "many manufacturers will come to the region because they can get their products out faster now," says Beverly Fitzpatrick Jr., who runs New Century Council, the group plotting a new economic strategy for the Roanoke and New River valleys.
Gnuschke, the Memphis economist, puts another spin on distribution's spin-offs: These are one of the few growth markets left for blue-collar workers. "These companies don't pay at the same level as a high-quality manufacturer," he says, but those "high-quality" manufacturing jobs are getting harder to find these days.
The growth of the distribution industry offers blue-collar workers a new niche, Gnuschke says. "Realistically, developing high-tech in any city is difficult because you don't always have an abundance of high-tech workers. But we have an abundance of people who can work in semi-skilled occupations."
Griffith says the Roanoke region shouldn't apologize for seeking what usually get labeled as "blue-collar" jobs. But he contends the distribution industry is one where the valley can realistically expect to develop a range of jobs, from the warehouse to the executive suite - and do it easily.
Look at the growth of truck traffic on I-81, he says. When the road was designed, trucks were projected to be a minor part of the traffic. Now tractor-trailers make up 21 percent to 31 percent of the traffic on I-81 past the Roanoke Valley - about 7,500 per day in 1987, the last year detailed figures are available.
"Those trucks will go barreling down the highway past us anyway," Griffith says. "We can choose to be either a place for them to get gas and hamburgers, or we can choose to be a headquarters town for them."
At the same time, New Century Council Director Bev Fitzpatrick says, the region shouldn't apologize for creating a lot of seasonal or part-time jobs. He contends the region needs what he calls the "casual jobs" that part-time employment at distribution centers provide.
The region, he says, needs a mix of jobs, and the distribution industry offers supplemental income for many students, retirees and homemakers who only want part-time jobs.
Indeed, the distribution industry has been forced to wrestle with the fact that many of its workers are homemakers who want to work - but only when their kids are in school. Two-thirds of the workers at Elizabeth Arden are women, and the company has found it difficult to find temporary workers who can put in a full eight-hour day. In response, the company has re-organized its work to create four-hour shifts.
That highlights a larger problem distribution companies face here: Does the region have enough workers, period?
"We have a problem in that many of our employers, in low-paying jobs, are having a difficult time finding people to work," says Bud Oakey, vice president of the Roanoke Regional Chamber of Commerce. That's especially true in distribution: The mail-order companies hit their peak in the fall, when Christmas buying is under way. So does Arden.
The result is a bidding war for temporary workers. Elizabeth Arden has had to jack up pay for night-shift workers and forklift operators to compete, Drilon says.When Hanover Direct begins fulfilling orders for its "Domestications" catalog out of its new Roanoke distribution center in 1995, "I don't know what we're going to do," says Manpower's Ward.
These aren't idle questions. Orvis recently mulled building a second distribution center on the West Coast. The company decided instead to direct any further expansion to Roanoke. "One of the key assumptions was that Roanoke will have the work force available, that even with more and more distribution companies coming we'll be able to recruit the people we need," says vice president John Moticha.
University of Memphis economist Gnuschke warns that the real drawback isn't labor, but land. "Warehouses require a lot of space," he says, "so the developers love it and it involves a lot of construction." The Roanoke Valley can see that: Lawrence Transportation is developing a 17-acre site in Botetourt County; CTC now has just under 5 acres but is looking for 15 to 20; UPS occupies 62 acres near the airport.
But Gnuschke wonders if a region hemmed in by mountains such as the Roanoke Valley afford to emphasize distribution.
Sure, counters Lawrence. Roanoke just needs to look farther into the countryside for sites. "We've got a lot of land. We've got land in Botetourt, land in Bedford, land in Franklin, land in Montgomery. Everywhere we look, we've got land. ... Room is not a problem here. There's a lot of backward thinking people, who want the place to stay like it is."
However, the real question the region must consider, Gnuschke says, is what its mix of employers should be. "Distribution is important, but it's only one component," he says. "That's an argument in favor of balancing your growth portfolio. Distribution is not something you can hang your hat on."
by CNB