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'Recession-proof' area runs wild.

Washington, Benton Counties Escape Recent Hard Times

RELYING ON THE SPIRIT of a contrarian, northwest Arkansas has reaped incredible prosperity since the 1980s.

Consider the following:

* With infrastructure problems seemingly insurmountable, the region has become a mecca for thriving trucking firms.

* From a population of less than 200,000 in Washington and Benton counties in 1980, the world's largest retailing corporation has emerged.

* While almost every city in the state and country begs companies to move in, northwest Arkansas discourages larger firms wanting to relocate here.

* As most of the country slumped through recession in the late '80s and early '90s, northwest Arkansas kept growing as if nothing had changed.

The numbers from the area's "Big Three" shed more light on the region's success.

From 1984 to 1993, Wal-Mart Stores Inc.'s revenues multiplied more than 10 times, from $4.6 billion to $55 billion. Its number of stores tripled, and it now employs 370,000.

Tyson Foods Inc. has had a similar explosion. Sales have grown from $560 million in 1982 to $4.2 billion in 1992.

From 1987 to 1992 at J.B Hunt Transport Services Inc., revenues more than tripled to $912 million.

How were the trucking firms, Wal-Mart and the poultry companies able to prosper as the rest of the country faced layoffs and cutbacks? Much of that can be attributed to the niche the companies have carved which insulates them from economic recession.

"We're sort of recession proof," says Lee Zachary, executive director of the Springdale Chamber of Commerce. "When times get tough, people aren't going to buy red meat at $4 or $5 a pound; they're going to buy chicken. And they're not going to go to Neiman Marcus; they're going to go to Wal-Mart."

But while the last 10 years have brought prosperity to the region, it has also brought the problems associated with growth. These problems have manifested themselves most noticeably in traffic congestion. It's apparent from a quick jaunt to the grocery store or the daily commute to work.

The roads are overcrowded, and this lack of infrastructure also threatens to strangle the economic prosperity of the region. Not only has it impacted the quality of life in the region, it has also been a roadblock to some businesses moving to the area.

"I think northwest Arkansas has developed in spite of its amenities rather than because of them in terms of infrastructure," says Roger McMennamy, president of Cooper Communities Inc. "The transportation in and out of here is absolutely horrible. It's difficult to get out by air and to go anywhere by road is a disaster."

Indeed, the U.S. Highway 71 bypass was not completed from Bella Vista to Fayetteville until 1990. Extending it four lanes to Fort Smith, a project that has been in the works for 20 years to replace the tedious two-lane highway over the mountains, is not expected to be completed until nearly the turn of the century.

And despite having nearly 250,000 airplane passengers a year flying out of the area, there is yet to be a regional airport offering scheduled commercial jet service.

Traffic is not only a problem in leaving the area, it is also a problem in getting around the area.

"The biggest problem we have here is that our traffic is now backing up," says Raymond Burns, executive director of the Rogers Chamber of Commerce. "We now have a rush hour in Rogers. It's something the residents don't quite understand.

"Where it used to take five minutes to run down to the grocery store, it now takes 15 minutes. Our retail business district is almost strangled on West Walnut."

Even getting from town to town is a problem.

Arkansas Highway 102, one of the major routes between Rogers and Bentonville, is a virtual parking lot during the day. One of Wal-Mart's largest distribution centers lies on the route, a two-lane highway where traffic creeps along at a petty pace of 20 miles an hour.

The same is true of Highway 71B (West Walnut), another major thoroughfare connecting Rogers and Bentonville. Everywhere up and down the corridor between Bentonville and Fayetteville the story is the same. It threatens to strangle the growth the area has experienced.

The '90s have also been good to the area in terms of recruiting new industries.

In the past four years alone, Rogers was chosen as the site of rapid new expansion by manufacturing plants resulting in $337 million in investments and 2,700 new jobs. Bekaert Corp. spent $200 million on its new steel cord plant in the new Rogers Industrial Park, one of the largest single investments for a new facility in the state.

Controlling Growth

But because of the problems associated with the lack of sufficient infrastructure, the area has not grown as fast as it could. In some instances, the cities actively discourage certain industries from moving to the area because of the strain it would put on the already insufficient infrastructure.

"What we don't want to see is the plant that would bring in 2,000 jobs at $6 an hour," Burns says. "That would be disastrous for northwest Arkansas. Our infrastructure couldn't handle it, and I think most people understand that."

Roads are not the only area where the infrastructure is lagging behind the growth. All the municipalities are dealing with shortages of adequate sewer systems, clean water and adequate landfill space.

Fortunately, because of the extensive growth the area has experienced at a time when other parts of the country are retracting, northwest Arkansas is in the enviable position of being able to be more selective about growth, trying to control it.

Unbelievably, unemployment is too low in Washington and Benton counties.

Unemployment for the two-county area has hovered around 3 percent for years, even when the national average was at more than 8 percent. In August of this year, it was as low as 2.5 percent in Benton County and 2.6 in Washington County.

While this has been good for the area, it has also caused its own share of problems -- particularly for growing companies that are unable to find enough workers. That, in turn, has put inflationary pressures on wages, and that could stifle the growth.

"The problem right now is that we don't need a lot of big industry that's going to hire a lot of people because the only way they're going to get workers is to steal them from someone else," Zachary says.

James T. "Red" Hudson, chairman of Hudson Foods Inc., and Don Tyson, chairman of Tyson Foods, agree.

"I don't see northwest Arkansas growing by getting a lot of production facilities here," Hudson says. "Unemployment is a real problem. Everyone is looking for someone to work, and I don't see another company seeing that as attractive."

Tyson says his company would be reluctant to put a new operation in the area.

"Because all the way from Harrison, through Carroll County and Benton and Washington counties, there is just a low unemployment rate which makes it hard to find workers," Tyson says.

Many area employers, especially those in the poultry industry, have turned to job fairs, such as the recent one at the Tyson Employment Center, and other gimmicks to attract workers. Some even offer "on-time bonuses" and "attendance raises" to lure in employees.

A more disturbing trend is one followed by Tyson Foods, moving some facilities out of the region to areas where the labor supply is not so taxed.

This lack of an adequate supply of workers has led to another area problem: a substantial increase in the migration of Hispanics to the area. This, in turn, has put a strain on the area's social services, as well as the real estate market, which has had a hard time coping with the growth as it is.

"It's always a problem when you have a 150 people in the school systems that don't speak English, and that's something we have to address," Zachary says.

Interestingly, when the heady days of the bullish '80s began to wane, becoming a full-fledged recession after the Gulf War in 1991, the situation in northwest Arkansas remained pretty much the same.

In 1991, the worst year of the recession, Wal-Mart sales increased 26 percent. In 1992, the company's sales increased 35 percent, the largest in seven years.

At Tyson Foods, while the numbers were not as impressive, they were still on the positive side. Sales increased 2.5 percent in 1991 and 6.3 percent in 1992. Tyson's payroll swelled to 45,000 people while bluechip companies across the country were laying off employees.

Not Everyone Was Insulated

Although the '80s were good to the Big Three, proving their near invulnerability to market forces, there were other area companies that were not as insulated from the downturn -- especially those whose business was from outside the region.


Cooper Communities Inc. was one of those companies. Relying almost entirely on emigres from other parts of the United States, Cooper was greatly affected by the recession.

"The national recession is a significant factor when you're in the business that we're in," Cooper's McMennamy says.

McMennamy explains that while the area was prospering, other parts of the country were not, making it difficult for people wanting to retire to sell their houses or sell them for enough to retire.

Because of the effects of the recession, the early '90s were a time of reorganization at Cooper.

"We've been in a different mode than most of the businesses in northwest Arkansas since 1990," McMennamy says. "We've maintained our profitability, which was pretty unusual for a real estate developer during those times. We started this recession with about $55 million in debt. While that wasn't an unusual amount of debt for our size and industry ... we were able to generate enough cash to do away with our debt by November 1992."

National Home Centers Goes Public

While new home starts lagged in the rest of the country during the first two years of the decade, northwest Arkansas was experiencing a construction boom, spurred on by the growth in the Big Three and the lower interest rates to combat the recession.

The increased construction activity helped encourage National Home Centers Inc. to go public in May, marking its emergence as one of the nation's up-and-coming retailers/suppliers.

Between 1990 and 1992, every National store that had been open for more than five years increased sales by at least 10 percent. During that time, the company added just one store to its roster.

A second, 200,000-SF super store is being constructed at a site south of the Northwest Arkansas Mall. The company plans to add another five super stores between now and 1994.

Dwain Newman, president and chief executive officer of National, humbly attributes much of his company's growth to luck and being in the right place at the right time.

"The low interest rates have sure made a lot of people like us look like we knew something," Newman says. "Six percent prime rate makes a lot of people look real smart. Eighteen percent makes business people look real dumb.

"Our company has worked very hard, but we've also been in the right place, in an area with a huge construction boom, at the right time, with interest rates at a 20-year low."

Financial Network Grows

One area where infrastructure hasn't lagged is in finance.

It began with the creation of Arvest Bank Group Inc. in the '80s as Sam Walton's family acquired one bank after another until they had created a regional banking system. Soon after, seeing the potential in the northwest Arkansas market, other large bank holding companies such as Worthen Banking Corp. and Simmons First National Corp. began moving into the area.

The creation of The Llama Co., an investment banking firm, by Alice Walton in 1986 marked a milestone in the area's development. It complemented the other area financial service companies such as A.G. Edwards & Sons Inc. and Merrill Lynch Inc.

This was the final piece of the pie for the financial infrastructure. Not only had the area developed its own professional infrastructure in terms of lawyers and accountants, but now it had its own home-grown financial communities. Others took notice, such as Stephens Inc. of Little Rock, which recently opened an office in Fayetteville.

"There has been a concentration of wealth and banking in Little Rock, but I see that changing," says Don Walker of The Bank of Bentonville. "Stephens now has an office up here. They have recognized the need and the potential up here. At one time Little Rock was our only option. Now there are other options in northwest Arkansas. The Llama Co., for example, is getting a good share of the market in northwest Arkansas. There has been a transition over the last three decades."

Walker says most Little Rock businesses stayed out of northwest Arkansas because they didn't believe there was much potential. The situation has changed dramatically.

"They are making really aggressive moves in northwest Arkansas," Walker says. "They want to control some of that wealth that's up here, and they realize that they need to be involved in it if they want to be a successful statewide institution."

Maturity Process Continues

Despite the growth in the area, it has still not fully matured.

It is a telling fact that Springdale Memorial Hospital went to Stephens in Little Rock to handle its recent $25 million bond issue for an expansion program.

Despite having developed its own financial infrastructure, the area still plays second chair to Little Rock -- the professional, financial and political capital of the state.

The area is still somewhat provincial in its attitudes and customs -- doing business with a backslap and a handshake. It is as though the area is coming of age but has not quite come of age.

Change, however, is on the way as evidenced by some of the cultural and aesthetic advances, such as the Walton Arts Center in Fayetteville and Champions Golf and Country Club in Rogers.

Probably the best examples of the drastic change that has occurred and will continue as the area grows are the anecdotes people relate.

One area resident recently noted an uncommon juxtaposition on the square in Bentonville, which is the epitome of the northwest Arkansas' past.

As the statue of the Confederate soldier in the center of the square watched, two Japanese businessmen walked out of the old Walton five-and-dime store, the birthplace of the Wal-Mart empire and now the Wal-Mart Visitors Center.
COPYRIGHT 1993 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Arkansas companies
Author:Tobler, Christopher
Publication:Arkansas Business
Date:Oct 18, 1993
Previous Article:Fiscal fatality.
Next Article:NW Arkansas Council unifies regional efforts.

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