The primary purpose of The Great American Recession Tour was to see, up front and personal, the shape of the recession – the faces the buildings, the towns and cities – and to do something a bit different than the blow dried punditry many investors rely on to create the next position, the next trade. (See another recent Great American Recession Tour story here).

For investors, the company I re-discovered during this visit – at least on paper, I hope to visit the factory very soon – was Knoll International (KNL), a quiet, billion dollar outfit that is arguably the leading or “edgiest” designer of office systems and office furniture in the world. More on Knoll after I briefly discuss Muskegon.

My first stop for those sentimental and analytical reasons was Muskegon, Michigan. Yes, sentimental – I am from Brooklyn, no I was not born there. My first ever visit to a factory was in Muskegon, in 1984. That factory was already a century old and is now gone – the Shaw Walker furniture factory, the company being a maker of office furniture. The decline of Shaw Walker and Muskegon is a near perfect metaphor for the hollowing out of American industry over the past two generations. The factory is now being converted – at least that was the plan – into a mixed use condominium complex. What is left of the company is now part of the aforementioned Knoll International (KNL), based in East Greenville, Pennsylvania.

Shaw Walker’s legacy can still be found not just in the Knoll Museum but also at Bloomberg.com. Say what?

In the 1920s, Shaw Walker invented a new, much more efficient kind of accounting ledger that was an instant hit with customers. To guide customers in bow to best use the new ledger the company created a newsletter service and it became so successful this information service evolved into what became the premier business publication in the United States for three generations, BusinessWeek. That publications was pretty much wrecked by the Internet and is now owned, and in the process of being resuscitated, by Bloomberg.

Back to Muskegon – the city’s economy was built on the surrounding timberland that in turn was the raw material for the production of products using wood and paper. Over time, timber was harvested and not replaced and mass manufacturing techniques, in the US and abroad, overtook the town, including Shaw-Walker. My hotel, a Holiday Inn, was located in the renovated heart of town. I dined and slept there on Sunday September 5, the day before Labor Day. You could go bowling in the lobby, there were three tables in use at the restaurant (it did have very good service and pretty good food) and the forlorn carriage driver standing outside the hotel – no kidding, a horse drawn carriage – looked truly forlorn. A tour of the “tourist” area showed too many empty stores and offices, a clean and spruced up veneer over very old wood. If Muskegon really is a tourist hub, and it is Labor Day weekend, I expected a lot of tourists, ones I planned to talk to in the bar. No talking there. To add insult to wasted time, the ferry I planned to take to Milwaukee was cancelled – called on my cell by a robo call at 11:30 PM – due to high winds. Was it weather or lack of passengers?

I asked myself, as I looked at the empty streets, did the city fathers forget they tried this once before, building a massive (for Muskegon) mall in the central downtown area in the 1970s, one that failed in the 1990s and was razed?

Muskegon’s downtown reminded me of what I had seen on an earlier set of visits to New England, in Lewiston, Maine. A renovated “downtown” built for service businesses and tourists with too many empty storefronts and signs “office for lease.” The city fathers in Muskegon, and Lewiston, have done what they could – use tax dollars and some private dollars to build an arena, renovate the inner harbor – ignoring or forgetting a service and tourist economy needs to be built on a solid base of economic activity, a base that is anything but solid.

Muskegon, as is Shaw-Walker – a near perfect metaphor for the decline of manufacturing in that part of the country and the US in general. If you read what the city fathers and local Chamber of Commerce put out as signs of Muskegon’s vitality and potential, you read about renewable energy centers, not factories, Lake Michigan environmental centers, not plants turning out environmental control equipment, and museums and cultural centers and anything else that can be built with tax dollars. Michigan is an important swing state with 16 electoral votes, 5.8% of what one needs to become President.

If I sound critical, I wonder what would have happened if all the energy and all the money spent to “revitalize” the city since the mid-1970s had been spent on figuring out a way to generate some self-sustaining industry of some sort.

Back to investors. Knoll International (KNL), the eventual home of Shaw Walker, is not small potatoes, it is a publicly held billion dollar outfit that is profitable – and growing these profits. The stock sports a three percent dividend and a fairly clean balance sheet. Sales were savaged during the first Great Recession but the company navigated through the crisis quite well. The company has succeeded through decentralized management – it gets close to customers when designing new products but emphasizes, everywhere, leading edge design. Knoll is recognized as an industry leader in product design – they even have a small residential product line reflecting this cutting edge approach – and the company has design and production facilities in the US and in Europe.

Financially, I consider Knoll a “Buffett” type company – steady business, a company that throws off cash and as soon as business rebounded it boosted the dividend, which now yields 2.8%. The company will not duplicate the double digit growth it saw in the first half of this year as the next stage of the Great Recession sets in but it’s focus on design and the track record of management tells me it will do well compared to others in the business to business space. It is also an ideal candidate to be acquired as the next leg of the recession may prompt more consolidation in the industry.

 

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