VOL. 6 | NO. 1 | Saturday, December 29, 2012
Turning the Page
By Andy Meek
Photo collage: Emily Morrow
It’s that time of year again. It’s that time when journalists across the fruited plain collectively try and make God laugh – with our prognostications, of course, about the year ahead and of what might be.
Rather than engage in the fruitless exercise of making specific predictions, though, here’s a little context around some of what were the most important and closely watched people, places and things in Memphis this year. That context will not only hopefully bring you, the reader, quickly up to speed, but give a general indication about what the next directions will be.
(We’ll leave the detailed forecasting to higher powers.)
First, the company brand most widely associated with Memphis. FedEx Corp., which employs some 30,000 people in Memphis, is at a pivotal moment in the history of the package delivery giant.
Earlier this month, the company reported a second quarter profit of $438 million, down 12 percent from $497 million during the same period last year. With the economy still tough and other factors like Amazon.com corralling a growing share of the e-commerce market, FedEx’s overnight unit hasn’t grown nearly as fast as its ground and freight businesses.
The Amazon factor is particularly acute. The Seattle-based Internet retailer makes it especially lucrative for customers to accept slower delivery times for their packages, with a subscription to the company’s Amazon Prime service, for example, including a two-day shipping option that the customer gets for free.
That has helped people get used to the notion of “deferred shipping.” Not that it’s a new trend – it’s one that’s been on more of a slow boil.
Company founder Fred Smith told analysts earlier this month that “over the last couple of years, customers have opted to trade a bit of speed for a lower price.”
And that’s one of many reasons why, in the words of a Wall Street Journal article earlier this month, FedEx has conceded that it needs to clip its wings.
Fuel costs remain high, and the global economy is still lackluster. FedEx is attacking part of the problem through supply chain efficiencies. At an investor meeting in October in Memphis, Smith touted technological advances linked to cloud computing that he says will improve productivity as the company’s head count is reduced in a voluntary buyout program.
What’s still to come: The company sent buyout package terms to some employees earlier this month. Employees in the corporate, Express, Services and TechConnect divisions of FedEx in the U.S. with at least five years of continuous service at FedEx as of Nov. 30 will get buyout packets in February.
FedEx executives said in October that the buyout will cost the company approximately $600 million, which will be split over two fiscal years. That also was when Smith told investors that the company has set a goal of increasing its profitability by $1.7 billion a year.
Most of that will come from reductions in FedEx Express.
Even with the headwinds, though, investment research firm Morningstar Inc. expects FedEx to grow revenue 7 percent per year on average through fiscal 2015.
If you use as a starting point the Memphis City Council’s decision in 2008 to cut funding to Memphis City Schools, it’s apparent a student could have finished an entire high school career while educators, administrators and political leaders are still haggling over the direction of local public education.
2012 was a busy year for the coming merger of Shelby County’s two public school systems. At year’s end, there were a lot of decisions left to be made in 2013, with city and county schools set for an August merger date at the start of the 2013-2014 school year.
A Memphis federal court ruling that voided all of the 2012 moves toward establishing suburban municipal school districts meant that the six suburban towns and cities in Shelby County will be part of the consolidated school district in August.
For supporters of the suburban school districts, 2012 was a surprising and busy year. The suburban mayors had hoped to hold referendums on forming their school districts in March. But a Tennessee Attorney General’s legal opinion held that nothing could happen on that front until after the merger in August 2013.
The Tennessee Legislature passed an amendment to state law that permitted them to start before the merger date. With that, ballot questions on forming municipal school districts were approved in the August elections and school boards for each of the six suburban cities and towns were elected in the November elections.
Those two sets of decisions were all voided with a late November court decision by Memphis federal judge Hardy Mays.
Still to come in 2013 is another ruling from Mays on two other state laws that set the process for forming the suburban school districts. Mays’ decision will determine whether those laws allow for the municipal school districts at any point after the merger.
At year’s end, all sides in the lawsuit had met privately to see if there could be a settlement short of another ruling from Mays.
The countywide school board is pared down from its current 23 members to seven members with the schools merger in August. And the board has approved a process for selecting a merger superintendent that would have the single superintendent going to work in mid-February.
That’s later than the schools consolidation planning commission recommended when it sent its report to the school board this past summer for action. The school board, so far, has not acted on any of the most controversial parts of the planning commission report.
It has approved some recommendations for purposes of considering those as they assemble a budget for the fiscal year that begins July 1, a month before the merger takes effect. And the board is scheduled to vote in March on a set of five school closings, far less than the 21 schools the planning commission recommended with a savings to the new school system of $20 million.
At the Dec. 19 game between the Grizz and the Milwaukee Bucks, former Memphis Mayor Willie Herenton was in the crowd, a few rows back from courtside. Munching on popcorn and silently pumping his fist in the air whenever there was occasion for fans all around him to cheer and clap, he was, now, just a fan. And he was enjoying the performance of a team that looks a lot different than it did when the franchise relocated to Memphis under his watch.
There are still some outstanding questions about the direction of the team – whether new owner Robert Pera, for example, is done making changes to the leadership ranks, and things like the salary cap question. Pera, the founder of San Jose, Calif.-based communications technology company Ubiquiti Networks Inc., has been traveling as part of his company business, but new Grizzlies CEO Jason Levien said he and Pera talk every day and that Pera follows every game on either his iPad or laptop.
From the get-go, they knew what they were getting into.
“I knew what this town was like before the Grizzlies got here, and after,” said Levien, whose first visit to Memphis was actually in 1996 to help his old law school buddy Harold Ford Jr. run for his father’s Memphis congressional seat. “I’d seen it both ways. I knew what a basketball city it was and what a great community it was.
“We really dug in on it and studied the opportunity and whether we could run a successful team and a successful business. And we decided we could.”
Part of running the business side successfully involves talent, and one of the most recent examples of fresh blood includes ESPN’s John Hollinger, brought on in recent days as the Grizzlies’ new vice president of basketball operations.
Adding Hollinger, the analytics guru, to the front office fulfills the hinting that Pera did at a press conference in November when he introduced himself to the city. Essentially, Pera said at the time he thought the Grizzlies could do with a “Moneyball” approach to player evaluation.
“Big win thanks to amazing D (80 pts. on ~100 trips),” Hollinger tweeted after the Dec. 19 game. “If world ends Friday, will finish front office career undefeated. #mayans”
Perhaps the most important story of this year. It’s also going to rank high up there in 2013, and it’s one that almost no one – not local government officials or private business leaders, families or ordinary consumers – can plan for with any degree of certainty.
The area’s jobless rate has come off its recent highs. The housing market is showing signs of life. Companies are making capital investments in the area. To be sure, an argument could be made for optimism if a person wanted to do that.
But there’s more than an insignificant probability that a recession of political leadership will lead to a broader economic recession in 2013. And, of course, other than mid-term elections less than two years away, the fate of the national economy is out of our hands.
A pair of investment professionals recently met for lunch with the author of this article. After venting their frustrations about various aspects of the economy, they perked up when asked whether they’re worried much.
“No, not really,” they shot back. “At some point, you’ve just got to live your life, right?”