The
Future and Promise
of
“The Middles”
Donald R. Libey
Libey Incorporated
Advisors and Intermediaries for the Direct Marketing
Industry
There is a season for all things.
We all know this ancient wisdom to be true and timeless. Applied
to the future, however, I am convinced that “The Middles” are
the place of opportunity. This is a futurist’s discussion of
the philosophy, constructs and applications of “The Middles.”
What are “The Middles?” “The Middles” is my term for a place
at the center. In observing our industry over the past twenty-five
years, and having foreseen the influences of the convergences
of the catalog and on-line worlds, and having then offered perspectives
equally about caution and opportunities, I am fully persuaded
that, ultimately and unfailingly, we all seek a place at the
center. Those who lead at the outer edge of change seldom maintain
their position; those who follow at the bitter end of grudging
change seldom remain immobile for long without a heroic spurt
into the present century. Ultimately, all endeavors and initiatives
seek the benefits and security of the center. We need the center.
It is a safe place and it is where the Great Bell Curve of All
tells us to be if we want to succeed and survive. Observing
many corporations as I do, I can fairly report that most are
operating at the centers of the primary realms of operations:
markets, marketing, management, money. The bulk of these businesses
are neither leaders nor losers; they are, indeed, centered and
middled in their niches. Only a few are perched at the edge
of ruin; only a few are perched at the edge of genius; most
are solid businesses operating quietly and respectedly at “The
Middles.”
For
almost two years, I have been receiving increasing wafts of
the future carried in the scent of the prevailing westerly winds.
There is a Renaissance brewing; the Hundred Year Revival is
beginning. I smell it, I know it, and I am acting on the opportunity
of “The Middles.”
Look
at the activity in the markets. Securities, bonds, commodities,
currencies all are seeking the middle ground. The S&P 500, a
far better measure of the corporate world than the Dow, has
returned to its middles, a place where value and reality begin
to achieve parity and, consequently, economic survival and continuance
for the future. Look at work attitudes. The “lifetime employment
at the same company” model was replaced by the “dot.com weekly
job hopping” model, only to be revised to the “job security
for the intermediate future” model we are seeing today. Look
at infrastructure. The infrastructure of the east coast is old
and worn-out and too expensive to replace. The infrastructure
of the west coast is new and too expensive to maintain. Only
in the middle of the U.S., in the heartland, is the infrastructure
solid and affordable. Look at family migration. The suburban
family is fed up with traffic, fear, and taxes. Many are beginning
a long migration back to the rural areas, back to “The Middles.”
Look at business valuations. The high flying multiples of the
90s are over. Business valuations are returning to the middle
where they have, actually, always been for real companies. A
valuation of 5 to 6 times EBITDA is a fair, middle-ground for
valuation. Any seller who can achieve a 6 time or better yield
on a company sale today is an absolute fool for not taking the
money and running given the socio-political and economic climate
being driven by the national and, likely, global unrest and
surge to “The Middles.”
Perhaps
you can begin to see what I have been scenting on the breezes.
There is a move towards a consolidating, centrist position in
nearly all realms of American life. Personal finances are returning
to a centrist position because the 401Ks are only 101Ks now.
Spending will return to a “middle” position. Big, honking SUVs
will shrink to be, once again, nice 4-door sedans with “middle”
attributes and 40 miles to the gallon. Wine with dinner at the
restaurant will be $18 a bottle, not $64. A serviceable shirt
will return to the middle at $28, down from the ludicrous $48
we are offered now. The “Wal-Martization of America” I have
recently spoken and written about is having even deeper influences
in these emerging trends than first thought. It’s not only price,
it’s a whole new way of life and a changing cultural norm. The
Middle is the new America.
The
Geographic Middle
Close
readers will have noticed something important over the past
several years. The Midwest has been, by and large, quite stable
in my economic evaluations and extrapolations. The economic
conditions in most Midwestern states have more promise than
in many eastern, northeastern, western and southern states.
A
closer examination of the core Midwestern region reveals reasonable
property values, reasonable costs of living, reasonable insurance
costs, reasonable health care costs, reasonable wage levels,
and reasonable taxation (even though all taxation is onerous).
The Midwest is, as you might expect, firmly positioned in “The
Middles.”
A
local examination of towns and cities in the Midwest reveals
even more interesting perspectives. Much of the infrastructure
has been quietly enhanced. Much of the urban landscape has been
improved in places like Des Moines, Iowa, Fort Wayne, Indiana
and Elgin, Illinois. There is a freshness and newness, as well
as a well-tended look, to much of the Midwest. It’s as if Paul
Bunyon and Babe The Blue Ox came through with a huge broom and
swept it clean and made it all neat. Compared to the decay and
squalor of the Northeast Corridor on the Amtrak route between
Washington, D.C. and Boston, the Midwest is absolutely pristine.
Even the corn fields seem more orderly now than in years past.
When
one observes these hundreds and hundreds of small details, one
is left with a sense that this place in the middle of this country
is well-positioned for something to come. The Midwest has retained
a strong work ethic. People want to work and do a good job and
they want to participate in the success of the larger organization,
not in just their own success. To that end, there exists a caring
and compassion for people that may be muted elsewhere. And,
with only one or two notable exceptions, there is an integrity
of doing business and transactions among the owners of direct
marketing companies whose word is still their bond in the Midwest.
The
agricultural aspects of the region lend themselves to a conservative
financial base. There may be nothing more enduring than a local,
well-managed bank in central Iowa. Risk is defined differently
in the Midwest than on the east or west coasts. It has less
downside and more of a “middle-ground” approach. And there seems
to be a whole lot less of it in evidence.
The
Rise
My
conclusion is that the Midwest will rise in a great Hundred
Year Revival. The turn of the nineteenth century saw a rush
to the cities; the turn of the twentieth century will see a
rush to the country. The long wave change cycle of the nation
is undulating once again and quality of life concerns and costs
of living concerns will precipitate an exodus to the vast, empty
middle of the country. The young as well as the aging population
will seek a place in the middle where it is better, cheaper,
safer and where life at least appears more simple.
Plus,
my conclusions lead me to believe that future costs on the east
coast and west coast are unsustainable. A small, two-bedroom
home in a retirement community in New Jersey is over $200,000
and the taxes are over $5,000 a year. And they are not going
to go down. The same house in Nebraska is $90,000 to $110,000
and the taxes are $1,200. And with all the 401Ks depleted by
rampant greed, it’s becoming clear that few people will be able
to sustain the base costs of these infrastructural-challenged
eastern communities. People will seek the middle. People will
go where their money buys more.
During
my lifetime, the population of the U.S. has more than doubled,
from 110 million to 260 million. Most of that doubling was shoehorned
into the east and west coasts where it was already crowded and
land values were high. The population is expanding and the only
place where there is land that is affordable is in the middle
of the country, top to bottom. Nobody will ever live in northern
Maine and it’s all owned by paper companies anyway. It’s the
heartland that is available and where expansion is cheap. That
should tell you something. And, in case you haven’t noticed,
we are in the midst of one of the largest expansions of immigrant
population the nation has ever experienced. Even the immigrants
are avoiding New York, New Jersey and the east; they are going
to North Carolina, Kansas, Iowa and “The Middles.”
The
Opportunities
Almost
twenty years ago, I moved to the east coast from the Midwest
because that was where I saw the opportunities. And now, I am
moving back to the Midwest because that is where the opportunities
will be found in the next twenty years. And I am not returning
to the Mecca of the Midwest, Chicago, but am going further west
to Des Moines, at the real “middle” of the nation geographically,
philosophically, economically, and opportunistically. There
will be more growth and more expansion of catalog and direct
marketing companies in the Midwest than anywhere else over the
next twenty years. And that means opportunity.
For
those catalog companies looking for centralized distribution,
the Midwest is clearly better. For qualified employees and reasonable
wage levels, the Midwest is clearly better. For quality of life
and living, the Midwest offers attractive alternatives. For
value, the Midwest is superior. Catalog companies will, inevitably,
migrate to “The Middles,” and I will be there waiting.
A
definable phenomenon exists in American business that is not
found elsewhere in the world. We grow companies fast, turning
little seedlings into great oak trees quickly. And when those
great oak trees drop acorns around the base of the tree, we
nourish the new seedlings and encourage them to flourish. Then,
we do the uniquely American thing: we chop down the great oak
tree and turn it into mulch and nutrients for the best of the
little seedlings. American business is a repetitive cycle of
creation, destruction, creation, destruction, creation. It’s
not like that anywhere else in the world. There are glass companies
in Italy that have been making the same goblets and bowls for
900 years.
Another
conclusion from observation is that many new catalog and direct
marketing companies will be started or will be grown from old,
mature companies most of which are now located in the east.
These new entities will migrate to the economic sun, the rich
soil of efficiency, and the safety of a middle environment,
economically and socially. They will seek the Midwest. They
have to. It is less costly to grow a business there than it
is on the east or west coast.
I
also believe that this opportunistic migration will not occur
in cities like Chicago, Milwaukee, Cleveland, Indianapolis,
St. Louis or Minneapolis. Rather, they will occur in fresh,
ready-to-be-discovered cities like Des Moines, Cedar Rapids,
Fort Wayne, Dayton, Omaha, and others that are attractive second
and third tier cities able to respond faster and more effectively
to the changing economy than the beleaguered, over-taxed and
faltering Big Cities. These are opportunity-laden communities
where all the right mix of nutrients is available for future
success and growth at a cost that can be sustained.
Goodbye
Maine . . . Hello Iowa
And
so, I will be following my own conclusions and seeking new opportunities
for our firm in the Midwest. By October, I will be relocated
to Des Moines and will have bid farewell to the stern and rock-bound
coast of Maine. My partners, Ken Evans and Geoff Walker, in
Philadelphia, will continue in our offices there, but I will
take on the developmental aspects of new business opportunities
from Des Moines. As many of you know, I am a Midwesterner, raised
from a long line of Indiana farmers, was educated and lived
for years in Illinois where I first entered the catalog world
in rural Sycamore and DeKalb. I am no stranger to corn and soybeans
or hogs and cattle, having been a grain and livestock broker
at one time for one of the major grain companies. For me, this
is a return home and to my roots. It is also where the future
of the catalog industry resides.
Please
note the address and telephone number changes listed in this
issue. Of course, my e-mail will remain: libey@libey.com. My
toll-free direct number will always find me: 877-903-9448.
