Robb Long

Surdyk's Owner Jim Surdyk said business didn't slow down during the 1970s-era recession, and he doesn't expect it to slow down today.

Signs of the times 1 Comment UPDATED November 10, 2008, 9:38am

By Cristof Traudes, Dylan Thomas, Michelle Bruch & Brian Voerding

A look at the local impact of the turbulent economy

How much fear do people have about the state of the economy in Minneapolis?

Depends who you ask.

Whereas nationally fear is high over the economy and talk of a U.S. recession is fairly frequent, the Twin Cities are feeling relatively safe.

Two-thirds of the nation’s metropolitan areas are in a recession, but we are not one of them, according to Moody’s Economy.com. Midwestern cities in recession include Indianapolis, St. Louis, Milwaukee and Chicago. Moody’s says the Twin Cities are only “at risk for recession,” good news by comparison.

The city reports job growth in the health-care, hospital, manufacturing, management and education industries. The city lost 121 jobs in 2007, although job losses in other years have been worse for Minneapolis. At the end of 2002, for example, the city lost 11,043 jobs.

Meanwhile, the city’s commercial population is growing. Architectural firms, advertising agencies and accountants are relocating here from the ‘burbs. Coloplast Corp., a Danish medical company, is about to open a 500-employee campus on West River Parkway. Virchow Krause relocated all of its 235 employees into Downtown from Bloomington. And the architectural firm DLR Group is moving here from Eden Prairie, touting that at least half of its staff members plan to bike or take mass transit to work.

“They want to be in a vibrant Downtown, where they think they can attract more employees,” said Mayor R.T. Rybak at an October briefing on the economy.
Minneapolis reports that Downtown’s office vacancy rate is 12.7 percent, down from 14.1 percent last year and 21.4 percent in 2004.

Rybak noted that industry wisdom states that when vacancy rates drop below 15 percent, new office construction becomes likely.
“We imagine that’s going to be a new tower,” Rybak said. “We imagine that’s going to be complicated by the current economic factors, but there are more and more people who are moving into the Downtown to work, and the more that happens, the more it gets a life of its own.”

The troubles of such industry giants as American Industry Group (AIG) and Lehman Brothers were seen as the tipping point of the recent economic crisis. But Minneapolis is home to Wells Fargo — which is growing with the purchase of Wachovia — and U.S. Bank, the seventh-largest bank in the country.

Of course, there are problems here. Housing values are down and foreclosures are up across the city. The number of vacant and boarded buildings increased 77 percent this year. Unemployment is rising, and family homelessness is 26 percent more prominent than it was a year ago. With people’s discretionary spending down, some restaurants and stores have been negatively impacted and forced to close.

But the city sees itself as fairly well prepared, putting an emphasis on green jobs, something Rybak foresees as one of the next big growth points in the economy.

“We don’t know — and I don’t think anybody knows — exactly where the economy is going to go over the next year or two or five,” said Rybak. “But we do know that this region, and especially the city of Minneapolis, is doing as well as could be expected.”

One retailer’s perspective

Wine shops are said to be recession proof, and so far that’s the report from Surdyk’s on 303 E. Hennepin Ave.

During the middle of the day on a recent Thursday, drivers were waiting for openings in the full parking lot, at least four cashiers were busy ringing people through checkout lanes, and several groups of people stopped at a table to sample wine.

Owner Jim Surdyk, the grandson of Surdyk’s founder, said business didn’t slow down during the recession of the 1970s and he doesn’t expect it to slow down today. He pointed to an old framed Surdyk’s ad on the wall that showed a picture of a corkscrew and said: “The inflationary spiral stops here.”

“I don’t see a lot of gloom and doom here,” Surdyk said. “A lot of businesses are off 25–30 percent, but we’re up.”

The company sells $25 million in goods each year, and that kind of buying power allows the store to compete with corporate shops like Trader Joe’s. Two semi trucks often pull up to Surdyk’s each day, and the basement is filled wall-to-wall with cases. The store opens 40–50 bottles for wine tastings each weekend.

Business might be booming, but Surdyk has noticed a few changes in spending habits. His customers are taking their time in the aisles these days.

“People are more cautious about what they’re buying,” Surdyk said. “Maybe they’re not buying as many things.”

In past recessions, however, customers switched to lower-priced vodka brands. Today the high-end vodka brands are five times the price, and people continue to buy them anyway.

Surdyk said his dad taught him that it’s important to advertise in a down economy. For many businesses that’s the first thing to go, but not at Surdyk’s — they print 30,000 magazines and a wine catalog that goes out quarterly to regular customers. Surdyk’s dad also told him that you don’t cut the janitor position when times get tough. Some employees have worked at Surdyk’s for 30 years.

“I realize that jobs are tough,” Surdyk said.

Surdyk has actually noticed a small plus side to the downturn in the economy — people have stopped acting flighty and calling in sick when they don’t feel like working.

“We went through this back in the ‘70s,” he said. “We survived that. There wasn’t a big change in business. People still drank.”

Thoughts from a community banker

The top executive at the North Loop’s community bank says he has money to lend.

“It’s not that it’s business as usual — we’re watching the events of the world with a close eye,” said Franklin Bank’s interim President David Reiling, who is also CEO of Franklin’s parent company, Sunrise Community Banks. “But basically from a Franklin standpoint, we’re in a good position [and] we’re still looking for business.”

Reiling said Franklin is enjoying a trend seen across the country, in which community banks tied to local dollars are weathering recent economic swings better than some larger institutions. Franklin Bank didn’t lend into the subprime market, it didn’t have any securities tied to subprime mortgages, and it didn’t have any stock in FannieMae or Freddie Mac.

“That local economy ... is really where the steadiness and consistency have been and will remain during this time of crisis,” Reiling said.

Minneapolis still has its share in the national turbulence, however. Franklin Bank is fielding a few bad loans from residential projects in North Minneapolis, although most bad loans can’t be blamed on the mortgage foreclosure crisis. Real estate values have declined significantly in North Minneapolis, making it more difficult to sell homes there.

The economy could also hurt Franklin Bank’s mission to improve city neighborhoods.

Franklin provides capital for community development projects in North Minneapolis. Some of those projects receive funding from nonprofit foundations, and whether those foundations can continue to give at the same level remains to be seen.

“It’s been steady so far, but it’s really too early to tell,” Reiling said. “In the past months, their investment portfolios have taken a significant hit, and they’re taking steps to really assess what the issues are. The last thing they want to do is impact their giving, but they have to be realistic in terms of having enough money for their own internal operations.”

Reiling is anticipating stricter government oversight, so the bank is taking more time to look at its deals and go “back to the basics” in its underwriting.
“We certainly just need to be very diligent [so] that we don’t make any dumb mistakes in a time like this,” he said.

A bit of help from the city

Business and individuals challenged by the current economic climate can find help with the city. Here are a few options:
— Dislocated Worker Program: The city offers help to qualified individual workers who lose their jobs due to layoffs and need help finding or transitioning to a new job. Services include career counseling, updating skills, and job-search assistance. Call Catherine Christian, 673-6230. For more information, go to www.ci.minneapolis.mn.us/cped/metp.asp.
— Library workshops: Several Minneapolis libraries also offer workshops on searching for jobs, writing resumes and other related topics. Search “employment” at www.hclib.org/pub/events/AllEventsAction.cfm.
— Minneapolis business assistance: For Minneapolis businesses, the city offers a list of local agencies and associations that provide financial assistance, networking opportunities and business advice. Go to www.ci.minneapolis.mn.us/cped/docs/loans_and_grants.pdf. For information about city finance programs for businesses, go to www.ci.minneapolis.mn.us/cped/business-finance.asp, or call Bob Lind, 673-5068.

(Source: City of Minneapolis)