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Renee James: It hurts to watch economy worsen

Renee A. James

October 3, 2008

Pretend you're the chairman of a large public company. What's your next move if you close out your company's books on the first quarter and find that revenue has dropped 46 percent from just one year ago and you have operating costs of about $45 million?

Or how about this. Your stock closed at just below $9.50 earlier this week, which is a cool 78 percent lower than the 52-week high of $43.20. And that shockingly low $9.45 is actually up 11 percent from the day before so it doesn't even represent your true lowest of the low. In fact, once all the adjustments and splits are accounted for, your stock is currently sitting at its lowest price since Dwight Eisenhower occupied The White House.

Maybe you work in the grocery industry. People have to eat, right? That industry certainly has to be solvent in these difficult times. Well, yes, people don't give up eating but the fact is that The Food Retailers and Grocers Index has fallen by nearly 22 percent over the past year.

In the first example, the company experiencing this 46 percent decline in revenue is Scholastic Book Group. According to Publisher's Weekly, that drop is the almost inevitable year-on-year comp that will emerge after a quarterly contribution of $240 million in fiscal year 2007 from just one book: ''Harry Potter and the Deathly Hallows.'' That title alone made up for nearly half the revenue Scholastic earned last year. Half!

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Last year, Scholastic earned more than $3 million during their first quarter. This year, the first quarter ended with a net loss of almost $50 million. Scholastic is reportedly trying to cut costs and reduce their workforce as painlessly as possible through a hiring freeze and a voluntary retirement program. I'm certain those decisions by management are hard on the workforce of more than 10,000 employees worldwide but so is having your revenue drop by 46 percent.

The second example is the story of General Motors, the "world's largest automaker," employing more than 250,000 people worldwide with more than half of them in the United States. An economist who looks for the silver lining will tell you that buying GM stock now, provided you believe in the company enough to feel certain it will evade bankruptcy and stage a comeback in the hearts and driveways of Americans, is a brilliant move. When you invest in a company at what is basically a fifty-year low, the question you need to answer is whether or not it has bottomed out. Could it drop even more before starting to climb back into double digits and beyond? The ultimate fate of a company like GM is certainly debatable.

And what about that grocery index? It's down about 22 percent in the past year, which means stock prices of traditional grocery stores are dropping, too. The only segments of the food industry that experienced any growth were wholesalers or convenience stores. One of the more successful in this group, Sysco Corp., employs about 50,000 people across the country. On the other hand, the Great Atlantic & Pacific Tea Company experienced a drop of more than 53 percent in the index. (A&P employs more than 62,000 people.)

I needn't remind anyone that automobile manufacturers and grocery stores historically spend a lot of ad dollars supporting newspapers. When the ad revenue at a newspaper drops, the editorial product will inevitably suffer. The ad downturn resulted in Gannett newspapers cutting about 1,000 jobs and McClatchy cutting more than 1,100.

"So other than that, Mrs. LincolnÂ."

I know. It sounds like nothing but bad news piled on top of worse news and I haven't even touched the financial sector, which gets ALL the headlines these days. I don't know much but I do know that every single one of the industries and companies I mentioned borrows money to remain solvent, to invest in their own growth and infrastructure, to meet the needs of the changing marketplace. The most successful among them use these loans wisely to generate revenue and profit.

I hope the orchestra of fiddlers on Capitol Hill has finally gotten it that hundreds of thousands of people at thousands of companies are about to catch fire.

Renée A. James lives in Allentown. Her e-mail address is raaj3@msn.com and her blog is http:// reneeaj.blogspot.com