Capital Business Staff Writer
Monday, December 27, 2010; 6
Navigating the rough terrain of the recession has been a formidable challenge for leaders at many of the companies in The Post 200, but charting the course for recovery may prove just as difficult.
While deep cost-cutting measures, such as layoffs and pay freezes, may no longer be necessary, does that mean it's time to start hiring? Dislocation in the market has created a stream of opportunities, but which ones are worth the risk? And given the temperamental nature of this recovery, does it even make sense at this point to move out of survival mode?
For some local leaders, the answers to these and other questions posed by the current market transition can be found in lessons learned from the downturn.
Take Michael D. Barnello, president and chief executive of LaSalle Hotel Properties in Bethesda.
When he took the helm at the lodging real estate investment trust in September 2009, the company had not bought a hotel since 2006. But suddenly acquisition opportunities began to materialize in force, just as the company was struggling, with funds from operations -- a key operating measure -- down 22 percent from the prior year.
Yet Barnello kept an eye out for deals, all the while forging ahead with cost-containment measures -- much like the company continues to do.
"We had to make sure we managed the balance sheet appropriately," Barnello said.
The right time to buy turned out to be before the close of 2009, when LaSalle announced the pending acquisition of the 237-key Sofitel Washington, DC Lafayette Square in the District for $95 million. LaSalle was among the first in its peer group of hotel firms to start buying. Since then, hotels have had a resurgence in room revenue and rates, underscoring a rebound in sales volume that stands to rival pre-recessionary levels.
"We believe we are going to see dramatic revenue growth over the next three to five years . . . so we've been fairly active," he said, adding that the company has tucked six hotels into its portfolio this year. "We are feeling bullish and we are more likely to buy, if we find things that make sense."
Recent surveys have found that business leaders in the Washington area are generally optimistic about revenue expectations, the economy and intentions to spend in 2011. Yet analysts anticipate decision-makers will be conservative in their growth strategies, with memories of paltry sales and fickle financing fresh in their minds.
Respondents to the Greater Washington Board of Trade's Business Outlook 2011 survey in November, for instance, were more hesitant to take a risk on a new idea than those surveyed back in April.
Anirban Basu, chairman and chief executive of Sage Policy Group, an economic and policy consulting firm in Baltimore, suspects many local leaders will shy away from bold moves until the fog of market uncertainty clears further.
Still, "cautious optimism is far different from unfettered pessimism, which will be reflected in corporate budgets in 2011," he said. "Many businesses will attempt to gain market share and, in some instances, take advantage of the fact that one or more of their competitors have faltered."
Carving out market share from crippled firms is a key part of Ritz & Wolf Camera & Image's strategy going forward, according to the company's president, Stephen M. LaMastra. After emerging from bankruptcy protection in 2009, the Beltsville company, formerly known as Ritz Camera, has put more resources into capturing more photo-imaging business, such as camera, calendar and DVD sales, from mom-and-pop shops.
LaMastra, who was hired during the reorganization, said the imaging portion of the company's operations was up more than 10 percent in December over the previous 12 months. He declined to divulge the private company's exact revenue figures.
Some industry observers have questioned whether selling phones, TVs and laptops, as Ritz began doing, fits the company's discipline. Coming up against the likes of Wal-Mart and Best Buy may be too risky a proposition in a fledgling recovery.
LaMastra said the move was an important way to offer customers all of the platforms to access images. "Everything in our store and in our online presence is designed to add to our expertise as a specialty imaging retailer," he said.
Expanding product offerings as a growth strategy may gain traction as conditions continue to improve. Intentions to start hiring again have certainly improved as local business leaders' gained confidence in the economic outlook.
The number of companies expecting to add jobs in the near future has incrementally increased since the start of 2010, with 39 percent expressing such interest in the most recent Board of Trade survey in November. That number is still low. And while some 43,700 jobs have been added in the Washington area in the past 12 months, tens of thousands of workers remain unemployed.
Employers are still fairly skittish about upping their head count as they try to control expenses. Cost-cutting measures adopted in the past 24 months, in some cases, exposed inefficiencies in operations.
"Not every person you hire is a good hire," said James J. Angel, associate professor of finance at Georgetown University's McDonough School of Business. "The recession can be used an opportunity to make changes that might be harder to do in a tight labor market."
Pruning staff, he stressed, offered companies a chance to streamline.
"We've been able to do more with less," said Barnello, noting that LaSalle cut 15 percent of its property-level staff. "Our occupancy has come back, and we didn't have to add significant staffing. That doesn't mean there won't be a person here or there, but it's not going to be a wholesale return to where we were."
Productivity has trended up at many firms with fewer employees on deck. Yet closing the ranks has to be weighed against a long-term focus to remaining competitive, which often means attracting or retaining top talent. As economic conditions improve, these workers could jump ship or be poached.
Just look at the Carlyle Group's former chief financial officer, Peter H. Nachtwey, who was lured over to Legg Mason at the start of December. Basu of Sage Policy expects to see many more such moves in the coming months, and advises companies to keep a watchful eye on their most valued employees.
"You will see a lot of movement among top-level executives in the year to come because many executives have been waiting for an opportunity to move into a more fruitful position," he said. "When the economy is in rough shape, often the best job is the one [someone] currently has. But as executives gain confidence in 2011, there will be many corporate departures."
Matthew J. Desch, chief executive of Iridium Communications in McLean, bucked the layoff trend at the height of the downturn and added a handful of employees to the mobile satellite company's staff. With 180 people on board, he is pretty comfortable with the size of operations, but remains open to additional hires down the road.
Iridium struggled through a rough patch that got underway prior to the downturn, having revamped its business model after coming out of bankruptcy in 2001. In many respects, that process of reorganizing prepared the company to weather the downturn. Desch, who is widely credited with turning the company around since signing on four years ago, monitored expenses, but continued to deliver new products to the market.
"We felt that because we were confident in our business model, we needed to invest," he said. "We may have months or quarters of a slowdown, but overall we were confident that we would continue to grow."
Desch boasts that the company grew "19 percent to the bottom line" in 2009 and is on track to replicate that performance this year.
A critical component to Iridium's ability to thrive, Desch said, is its client relationships. One such relationship proved fruitful back in October, when Iridium was able to secure a credit facility for up to $1.8 billion from Coface, a French export credit agency that it worked with in the past.
Nurturing relationships with capital partners, whether they be alternative sources of funding or banks, will prove crucial for any growth strategy in the coming year, Basu said. He anticipates that some firms will head overseas to broaden their reach and expand their product lines in the face of renewed consumer demand.