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Amid the bad earnings, bankruptcies and other bleak financial news from Carolinas companies, executives are increasingly blaming some of the gloom on the Sunshine State.
From Fortune 500 corporations to family-owned businesses, many area companies invested in Florida in recent years to capture a piece of the state's population boom. Now that the housing market has collapsed, growth has stalled, tourism has ebbed and consumer spending is down, a chill has fallen on the state's once-sizzling economy.
“They all rode the wave, and the wave came crashing down,” said economist Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness in Orlando.
In the Carolinas, Charlotte's emergence as a headquarters for national corporations, plus Florida's proximity – attractive to regional companies – have combined to make the state a sore spot with a range of businesses:
In June, the parent company of Boyles Distinctive Furniture, which has stores in Pineville and Hickory, filed for Chapter 11 bankruptcy protection, citing losses related to failed stores in Florida. The parent company, Conover-based Hendricks Furniture Group, had boosted its Florida presence in recent years, opening a dozen stores just as the housing market began to collapse. By early this year, all of its Florida stores were closed.
Also last month, prolific Charlotte-based developer Crescent Resources filed for bankruptcy protection, with its worst losses coming in Florida. The developer has asked for a bankruptcy judge's permission to abandon two Florida real estate projects, with a combined 3,236 acres, as it reorganizes.
In May, the chairman and chief executive of Mooresville-based Lowe's said stores in the South Florida region saw sales drop by double digits in the first quarter from a year earlier. Of its 1,675 home improvement stores, Lowe's has 116 in Florida, second-most among states.
Another local Fortune 500 company, Sonic Automotive, regularly labels Florida a weak spot in earnings calls. The dealership chain has 13 locations in Florida, which accounted for 6.4 percent of its 2008 revenue.
To be sure, other states have punished area companies' profits. Lowe's officials said eight other regions, of 23 total, saw double-digit sales declines in the first quarter. Bank of America has lumped Florida in with the western states of California, Arizona and Nevada as difficult markets in the recession. And as bad as they are for area companies, woes in Florida alone haven't brought the entire Carolinas economy to its knees.
Most economists expect the recession to end nationally this year, with a modest recovery starting in 2010. A recent forecast on Florida, however, said it “faces an even more difficult road to recovery.”
“The Sunshine State went into recession a full nine months ahead of the nation,” Wachovia senior economist Mark Vitner wrote in June, “and excesses in housing and commercial real estate are considerably worse than the nation as a whole.”
Bright times, once
That's a stark contrast from the last half of the 20th century, when Florida was the standard-bearer for residential and retail growth.
Between commercial jet travel and air conditioning, Florida became more accessible and attractive for travelers and homeowners in the 1950s and '60s, said David Denslow, research economist at the University of Florida's Bureau of Economic and Business Research in Gainesville. The expansion of interstate highways in the 1970s and '80s improved access to Florida even more, he said.
By the 21st century, Denslow said, a big chunk of the Florida labor force was in housing construction. From 2000 to 2006, he said, average home prices doubled.
“It just booms then,” he said, “and everybody is making a ton of money.”
Where homes go, retail follows. Lowe's, which opened its first Florida stores in 1993, had 37 stores in 2000. That number doubled by 2005 and tripled by the end of last year, surpassing North Carolina for the No. 2 spot among states, behind only Texas.
By 2008, however, Florida was in a free fall. High prices and a host of new developments led to a housing glut, and the growing number of “halfbacks” – people who moved from the Northeast of Midwest to Florida, then moved halfway back to states such as North Carolina or Tennessee – didn't help. So much of the economy was tied to housing, Denslow said, and “when all that unwinds, then we fall pretty hard.”
Instead of nearly 20,000 housing starts a month at the peak of the boom, Florida had about 2,000 a month earlier this year, Denslow said.
The influx of new residents has dropped off dramatically, Snaith said, with fewer retirees and job seekers moving to Florida. In the Wachovia outlook, Vitner noted that Florida's population grew by 128,800 in 2008, the smallest gain since 1949.
Still, it's no Detroit
Sunshine State economists say blue skies will return eventually. The retirement of more baby boomers will boost Florida's population, they say, and the state still offers nice weather and low taxes. Cheaper housing – a result of the high inventory – also could attract residents.
Annual population growth likely won't hit 2 percent again, Denslow said, but the sheer size of the baby boom – about 78 million people born from 1946 to 1964 – should provide Florida with a steady flow of new arrivals once the housing market starts to recover.
That prospect, as well as Florida's past booms, is why Charlotte-area companies aren't pulling out of the state during the recession.
Of Belk's 305 department stores in 16 states, 30 are in Florida, company spokesman Ralph Pitts said. While sales in Florida have declined more than in other states, Pitts said Belk has no plans to change its strategy or operations there.
Snaith said he would be surprised if the recession makes companies cool on Florida in the years ahead. “Maybe in the margins,” he said, with smaller homebuilders perhaps less likely to invest after being burned in the downturn.
Florida is faring worse than most other states, Snaith said, but the recession hasn't left many greener pastures elsewhere for Charlotte-area companies.
Put another way, he said, “Nobody's loading up the U-Haul and heading to Detroit.”
