For those asleep during the summer, it is time to wake up and take notice that another business is closing its doors in Klamath Falls. If JELD-WEN officially moving its headquarters to Charlotte, NC for a more business friendly environment wasn’t enough, now Haggen is closing its two stores in town. What? Haggen, when did they come to Klamath Falls?
Earlier this year Safeway and Albertsons merged into one company. The merger was approved by the FTC only if they would sell off 146 of their combined stores. Haggen won that bid to purchase those stores and went from an 18 chain grocery store to 164 overnight. Talk about a growth spurt. In Klamath Falls both Safeway locations were converted into Haggen stores. However, within months of Haggen’s acquisition, Haggen was losing money — and a lot of it. Haggen needed to borrow $25 million to weather their cash flow problems, which increased their total debt to $270 million. Did Haggen bite off more than it could chew?
What Went Wrong
After Haggen took control of their new stores, Haggen immediately incurred losses in several of those stores. Local customers either did not know the brand Haggen or thought it was too pricey compared to the previous occupant. There was an error assuming business would continue as usual. Clearly this was not the case everywhere. An outside consulting firm was brought in to do some analysis. They found stores fell into two groups: core and non-core. Core stores were profitable. Non-core stores were losing money. The non-core store loses occurred because of either a lack of traffic (revenue) or they were too costly to support. Some non-core stores were also in remote locations where Haggen did not have efficient distribution. The Klamath Falls stores most likely fell into both categories and easily made it to the Haggen chopping block.
While a sad part of this entire saga is the local jobs that will be lost, the bigger picture begs whether the real economic lesson will be learned by our local leaders. That lesson is that Klamath Falls is a remote location. Klamath Falls lies very far away from major metropolitans. While most in leadership like to think otherwise, the fact is cities such as Bend, Redding and Medford are either on the I-5 corridor or much closer to major city. In comparison, Klamath Falls is off the beaten path — far, far away. That means distribution of goods to Klamath Falls is costlier to support when compared those other cities. What’s worse is that Klamath Falls residents are not disposable-income rich. Often a remote location can counter higher costs because their residents can afford to pay more. That certainly is not the case with the local populous.
Klamath Falls is remote. New businesses will not come our way unless they have an economic incentive — a sustainable way that they can make more profit to offset the extra cost. That incentive should not be government officials doing one-off deals by offering 5-year and 10-year special tax breaks. All special deals do is make current Klamath businesses bear the burden for the new comer — who may be a competitor. However politicians love this game as they get their name in the headlines as the ones who influenced XYZ Corp. to come to Klamath Falls. In turn these glory seekers then run for re-election on the basis that they can bring another business to Klamath Falls. When instead a better policy would not bring just one business at a time to Klamath Falls but many.
A Better Policy
What should happen is that the political class should decrease the burden of doing business in the City and County by lowering taxes and associated fees. By doing this outside businesses will take notice and will see profit opportunities in our far away place. We don’t need one off deals. Instead we need a lowering of taxes, fees and regulations across the board so that current local businesses can expand and grow here while new businesses are attracted to the opportunity of profit in Klamath County.
Maybe if taxes, fees and regulations were lower the two Klamath Falls Haggen stores could have afforded to stay open. In practice this means standing against ballot measures that increase property taxes for school buildings, museums, libraries 4-H and so on. These new taxes are great if you are the direct recipient (contractors, real estate agents, school officials, museum curators and OSU employees) but the economic reality is that higher taxes increase the cost side of the ledger for businesses like Haggen. If you want to keep and attract more good paying jobs to Klamath Falls, then we need to attract businesses that pay such wages. The only way that will happen is to make Klamath County so inexpensive to do business that enterprises can not help but come.
The lesson: Remember Haggen’s closure the next time someone wants to increase your taxes — for whatever reason. We are remote. To do business here is more expensive than elsewhere. We must offset those higher costs by creating a business climate that ensures costs are lower than the surrounding cities.