2008 Survey & Results

Executive Summary

This report highlights the findings of the 2008 First Business Economic Survey of Milwaukee &Waukesha Counties, which was conducted by the University of Wisconsin's A.C. Nielsen Center for Marketing Research in October 2008. This survey has been conducted in Dane County for six years, and this is the first year that it has been extended to include a separate analysis of Milwaukee & Waukesha Counties. The survey was sent to 7,500 businesses in the two counties that were reported to have one or more employees. It was addressed to the CEO, CFO, President, and/or business owner. The survey asked questions regarding eight key economic indicators in each of the following areas: Sales Revenue, Profitability, Total Operating Costs as a Percentage of Revenue, Capital Expenditures, Number of Employees, Overall Wage Change, Change in Pricing, and Operating Capacity. In addition, the survey also asked questions pertaining to changes in expenses, and the impact of the slowdown in the housing market.

While this is the first year we've conducted the economic survey of this market, we can draw some inferences from the data we've received from the firms in the two counties. Overall, there was a great deal of dispersion among different businesses regarding sales revenue. The retail sector seemed to report challenges, while manufacturing managed to do well on the whole. For the most part, a significant number of businesses reported an increase in total costs as a percentage of income. The businesses in these two markets also reported widely dispersed results in terms of capital expenditures. Most reported no change in this variable. This dispersion was prevalent in the reporting of profitability as well. Overall, retail businesses faced profitability challenges, while firms serving a national/international market exhibited unique success. Businesses reported very little change in the number of employees across categories. Wages increased, but in small percentages across all business types. Changes in pricing were similar, as they increased in small amounts for most businesses. While a number of businesses reported less than optimal results for 2008, the survey revealed an overall sense of optimism. More businesses expect to see a slight increase in sales revenue and profitability in 2009. In addition, businesses expected total operating costs as a percentage of income to be slightly lower than what was indicated for 2008. Businesses expect a number of other metrics to be more stable from 2008 to 2009. On the whole, most businesses expect to keep capital expenditures the same. They also expect pricing to stabilize overall. Wages and the number of employees also look to remain fairly constant. Overall, businesses seem to project middling expectations for the year ahead. Almost 47% of the Businesses in the Milwaukee & Waukesha Counties reported that they performed below expectations this year. The top three reasons cited for this lower performance were rising gas prices, higher operating costs and a domestic sales shortfall. Also, the businesses in these two counties expected their expenses to increase by 3.65% on average and expected to pass on 47.5% of this change in expense to their consumers.

First Business Economic Forum Highlights

The bad news:

The retail sector has been hit harder due to a plethora of issues related to gas prices, higher operating costs, and a need to pass on price increases
Firms in the Waukesha-Milwaukee geographical market are underperforming the state and national-international marketplaces
The stress on revenue and profits from high operating costs including wages and raw materials

The good news:

Percent of firms expecting to improve in 2009 exceed actual 2008 performance
Fuel and raw material costs, a top reason for poor performance, have decreased dramatically
The technology sector appears to be positioning for a positive move in 2009
The manufacturing sector shows strength in the survey

What lies ahead:

Continued challenge with possible turnaround given post-survey improvements in commodity prices and fuel costs

Survey Background

Survey sent to all Waukesha-Milwaukee County businesses with one or more employees; 7,500 surveys sent
Those targeted: Owner, President, CEO, CFO
495 returned; approx. 6.6% response rate
147 completed online and 348 returned via traditional mail/fax
90% of respondents were represented by small businesses (<100 employees)
Segmented by geographical market served, business type, and business classification
Questions on eight economic indicators
Margin of error .05 with 95% confidence level

Segmentation

Business Type Business Classification

Number of Employees Geographic Location

Survey Example

Click here to see survey

Things to remember about the results

Broad sample of business community; not cherry picked
Self assessment by historically optimistic groups
Essentially two surveys in one: Actuals for 2008 Projections for 2009
First survey in this region, so comparison within the region is not possible this year.
Survey was done prior to the most recent economic, commodity and market fluctuations

Overall Performance vs. Expectations

A negative or mixed story at best for Waukesha-Milwaukee:
- Nearly half (47%) - didn't meet expectations

Still though, over ½ of respondents met or exceeded expectations

35.2% met expectations; 17.7% exceeded expectations

Reasons cited for lower performance:
- Higher fuel prices, raw materials and operating costs; sales shortfalls; and the housing slowdown

Reasons

Sales Revenue - Actuals

Waukesha-Milwaukee Nearly 39% decrease in revenue overall firms with expected improvement
Firms identifying as National-International were less impacted than Waukesha-Milwaukee and Wisconsin (based on self-classification)
Retail sector has been hit hard with nearly 60% seeing a decline in revenue in 2008 while manufacturing has fared much better with 2/3 seeing an increase

Sales Rev1

Sales Rev2

Profitability - Actuals

Distribution

Approximately half of respondents had little change (-3 to +3%)
About one-fifth exhibited a large decline exceeding 7%
48% experienced a decline; 15% unchanged; and 37% an increase

Profitability

Compare by geography:

The more geographically constrained, the more challenging the business environment in 2008

Compare by business type:

The retail environment saw a heavy decline in 2008

Profitability

Operating Costs - Actuals

Waukesha-Milwaukee - 2008

20.90% experiencing a decline; 12.70% unchanged; 66.39% increase
No real difference by geographical market

Comparison by Business Type

Manufacturing shows a larger cost increase anomaly relative to other types

Operating Costs

Possible Drivers:

Commodity prices as evidenced by the CRB index below and cited by respondents
Fuel prices (cited by respondents) and wage levels (in a moment)
Bit of “good news” is the economic downturn has driven down commodity and fuel prices

Number of Employees- Actuals

Overall

23% of firms increasing headcount and 24% decreasing

Geographical and business type comparisons

The locally focused firms seeing more constrained growth in headcount though reductions are similar
Nearly 3X rate in manufacturing and technology firms for increases relative to retail business

Employees

Other Indicators

Wages

Geographical: 66% of firms saw increase in wages with a higher increase (73%) in national-international firms than local (63%)
Business Sector: Retail and technology sectors saw more muted increases of 46% and 59% respectively

Pricing

Geographical: Local (73%) increased pricing relative to national-international (64%)
Business Sector: Pricing higher in the business-to-consumer segment (75%) than business-to-business (63%)

Capital Expenditures

Geographical: Waukesha-Milwaukee (23%) market had larger percentage decrease capital expenditures than national-international firms (14%)
Business Sector: Manufacturing sector (13%) was less likely to decrease capital expenditures than the retail sector (34%)

Operating Capacity

3 of 5 firms are operating at or above 80% capacity with over one-third above 90% capacity

Capacity

Current Events – Housing Slowdown

How has the housing slowdown affected your business?

47% indicate negative impact and only 3% indicated a positive impact
Consistent with belief that wealth in housing has been fueling consumer spending in the U.S.

Housing

Looking Forward: Expectations for 2009

What about 2009?

Slowing economy, maybe reaching bottom
Tough housing market
Consumer / Wholesale spending expected to decrease
Increasing unemployment
Freefall of commodity and oil prices
Global business pressures
Consumer debt levels

Performance

Sales Revenue - Projections

Comparison of 2008 Actual to 2009 Projections

Businesses are optimistic and anticipate slight improvement
Nearly one-third are still expecting a worsening environment
Local and state (50% and 48% respectively) firms expect revenue increase, but lag in the national-international marketplace (64%)
Two-thirds of manufactures expect increasing revenues while nearly 60% of retailers forecast a decline

Sales Revenue

Profitability - Projections

Outlook is better than this year (44% expect increase in profits vs. 37% actual in 2008)
National-international firms expect to be the least impacted (60% increase) with approximately 40% of local and state firms expecting an increase
Nearly 60% of the technology sector anticipates an increase in profits
Businesses operating in the business-to-business classification expect profits to increase more so than firms operating in the business-to-consumer classification

Capital Expenditures - Projections

Reduction is forecast to continue (22% to reduce vs 21% actual in 2008)
Retail (31% to reduce) and Manufacturing (30% to reduce) sectors are slowing expenditures while technology is expanding expenditures (43%)
Business-to-business and business-to-consumer classifications equally impacted
Indicator that a turnaround may not be imminent, but that investments in new technologies could be a signal that we are close

Number of Employees - Projections

Waukesha-Milwaukee