Tuesday, May 5, 2009

Triple Whammy

I've been trying to figure out a way to explain why I think some Bend small businesses are going to have a particularly hard time in this recession.

Whammy 1. The nationwide whammy was pretty awful.

Whammy 2
. Bend's bubble was bigger than just about anywhere else.

Whammy 3. Underlying conditions in Bend were never what people thought.

The first two whammy's don't need to be argued much.

Whammy 1.

Pretty clear by now to everyone. But a word about recovery. I doubt we've hit bottom, yet. The stock market isn't a reliable indicator, at least of the short run. And recovery, when it comes, will just mean we aren't going down any further.

We could still be far below what will be the new high a year or two or three after the media declares it all over.

Whammy 2.

Again, you'd think this is clear to everyone. But I still find out-of-towners and many in-towners just think we're suffering a similar fate as everyone else, whereas I think we're going to have it much worse.

I use the phrase, "Bend was a bubble within the bubble."

Bend Economy Man posted some points in the comments that cover this very succinctly.

Over the last few years, Bend MSA has been ranked:

* at the top in median home price appreciation
* at the top in "overpriced" residential real estate
* near the top in year-over-year population growth

...and then...* near the top in absolute unemployment
* at the top in year-over-year increase in unemployment
* near the top in median home price depreciation

Bend's growth was extreme so its decline is also going to be extreme.


I'll repeat:

Bend's growth was extreme so its decline is also going to be extreme.

Whammy 3.

The idea that Bend is different, can be argued. And I'm not sure it can be proved. But I firmly believe it, from observation and experience.

I've a couple of guesses. That our demographic is different -- resembling an hour glass, with people on the top and the bottom, but fewer middle class jobs in the middle.

If I had to come up with one point of difference that probably has the most effect, it's the relative isolation. Most metro areas are nowhere near as isolated. I believe we are the biggest metro area the farther away from an Interstate, for instance. The lack of a proper four year college. The lack of good, solid industry.

But whatever the reasons, the real point of the third whammy is to point out that Bend Small Business was always facing tougher conditions than most places.

As I argued a couple of posts ago, that Bend usually provides minimal return for the investment.

Finally, a whammy within a whammy.

When I say Bend's conditions were never what people thought, I mean that people opened businesses with higher expectations here than most places. They always have.

The trouble with the bubble of the last five years was that this was obscured.

I have a theory that:

Mini-whammy 1:

People opened in Bend with out-sized expectations, which because of the boom economy, looked to be fulfilled.

Mini-whammy 2:

This encouraged other small business to open, and existing ones to expand and take on more debt. High end businesses replaced moderate businesses in Downtown Bend.

Mini-whammy 3:

Not only did business's not plan for the worst, they weren't even planning on prevailing conditions. They built into their business plan endless growth. If your business model was built for the boom years, which were never sustainable in any case, you're going to have trouble.

So not only do they have to adjust down the levels they were actually reaching, but they have to ratchet down from there. This is both hard on the spirit and the finances.

I suspect when their sales level finally stabilizes that it isn't enough to cover overhead. And if it is, they may have lost so much money and motivation on the way down, that it is no longer enough to keep them going.

I'm really open to argument and discussion. Almost none of the third whammy can be proved -- unless you consider Lease Signs in all the windows proof.

8 comments:

Wes said...

All true, but...... Bend is an attractive and desirable place to live. There is substantial investment in place that is unlikely to be abandoned. Bend does not have many large employers, but has many small ones. Greater diversity probably means greater strength. The biggest problem I see is the loss of construction and construction related jobs for which there are no real replacements. I think you are experiencing a painful adjustment that will gradually become less painful over time. Since I can pick my own time horizon, sooner or later I'll be right. It's interesting that I haven't had much of a desire to return to Bend, but recently it has begun to seem more attractive. Perhaps it's all the silly negative comments from people who live there but seem unhappy. Like you, Dunc, I think Bend is still a great place with a good future. Prosperity is never an end; it's only a temporary condition that needs to be managed. That's why you've stayed in business so long. Of course, perverse obstinacy and a saintly wife have had something to do with it as well.

Regards,

Wes

Anonymous said...

"perverse obstinacy"

I have to chuckle at that one... sounds like a good name for a blog about living through the recession.

Duncan McGeary said...

"....recently it has begun to seem more attractive."

I think a lot of us longtime Bendites are feeling that way. At least, I am.

It's strange to hear people complaining about what Bend is or isn't.

The weather, for instance, is what the weather is. (Sorry, HBM.) Did people think moving here would change the weather?

The complaints about the lack of fine dining seem especially off to me -- we have more restaurants than I could've ever conceived.

I knew I was in Alice in Wonderland territory with the newcomers, when Trader Joe's got hosanna's.

It's almost like the newcomers, instead of just adapting to the local conditions, tried to reinvent Bend and then they complained about the reinvented Bend not being what they wanted, and they complained about the old Bend not being what they wanted.

So...Bend, is Bend. The parts I personally don't like are the parts that were forcefully grafted on. N.W. Crossing, which so attracted everyone, was to my eyes a travesty. Ditto, most of the West Hills. Hummers, McMansions.

The whole ethos of the West Siders -- and I lived 25 years on the West Side without ever feeling superior -- v.S. the East Side is emblematic of the conceit.

I'm probably going to get tarred and feathered for this.

Yuck.

H. Bruce Miller said...

"The weather, for instance, is what the weather is."

Well, yeah, it is what it is. And what it is is CRAP.

H. Bruce Miller said...

"The whole ethos of the West Siders -- and I lived 25 years on the West Side without ever feeling superior"

25 years ago the West Side (where the mills were) was actually considered the less desirable part of town and the East Side was the more desirable. When we moved here Mountain High was just opening up and was considered the creme de la creme of Bend neighborhoods. We looked at buying a house there but decided against it because there weren't enough kids in the neighborhood for our kid to hang around with.

Jelement said...

I have to agree about the east vs. west nonsense. Having come from a town with the same problem, and living on both sides it just seems silly.

There's a lot of individual areas around Bend with their own reputations, but to somehow split everything east/west at the parkway, or 3rd doesn't make any sense.

Then again I could care less when it comes to finding the house I like. If the neighborhood looks good and the house/lot is right, who cares where it is. I'd much rather be out on a nice piece of land on the east edge of town (20/Ward area) than in a subdivision up on awbrey with a worthless sloped lot and neighbors five feet away.

I guess people who built/bought expensive homes up there just want to feel superior and not much is going to change that until those types either get foreclosed on and/or move away.

H. Bruce Miller said...

"not much is going to change that until those types either get foreclosed on and/or move away."

The media here also feed the East Side / West Side stereotypes. I remember when Wild Oats (now Whole Foods) opened in the Forum, The Bulletin had a story wondering whether a health-food-oriented market could survive on the East Side (where, presumably, everybody subsists on Doritos and corn dogs).

Wild Oats, needless to say, did quite well and Whole Foods also is doing quite well -- at least to judge by how many customers always seem to be there.

Bend Economy Man said...

Big bucks, no whammys.