Although California has a reputation as the place to strike it rich, the Golden State's business profile has lost some of its luster since speculators first rushed West. The slowdown has been blamed on burdensome tax rates — the Tax Foundation estimates the state's 2006 corporate income tax rate was 8.84 percent, the highest in the region — onerous environmental regulations, restrictive labor policies, high workers' compensation costs and unresponsive politicians.
However, Gov. Arnold Schwarzenegger, who was ushered into office with support from the retail, apparel and beauty industries, has made some headway, such as hammering out the 2004 workers' compensation reform package. During his tenure, the state's economy has chugged along. This year, the California State University Long Beach Office of Economic Research is projecting slow but respectable growth.
Seeking to assess the mood of the state's retail, apparel and beauty leaders, WWD asked them to discuss the top economic issues affecting their companies. The responses ranged from environmental concerns to the minimum wage
increase to construction costs to the housing market. If there was anything the executives agreed upon, it's that the state's diversity, strong labor pool and trendsetting consumer base make it a worthwhile place to do business.
Designer, chairman and chief executive officer, BCBG Max Azria Group
"Los Angeles is perceived globally as a world city as opposed to strictly an American city. In fact, the energy and influence of Hollywood on fashion has never been stronger. However, the main challenge to being a California-based company is the difficulty related to speed to market."
John Paul DeJoria
Ceo, John Paul Mitchell Systems
"The number-one issue we face as a California-based company that also affects our families, neighbors and customers is pollution — whether it be in the air, our waterways or natural resources. Gov. Schwarzenegger has done a good job in addressing the issue in California, but it is now critical to have all politicians follow through to remedy it."
Founder, Rock & Republic
"A recent development I feel has made an impact on the economy is the increase in minimum wage. I strongly support the issue and feel it's the right thing to do."Ingrid Jackel
Ceo, Physicians Formula
"The main challenges in California's economy that affect our business are labor force related: 1) minimum wage being raised, and 2) tight job market, especially when it comes to specific skills associated with the cosmetics industry."
Ceo, Hot Kiss Inc.
"We're not feeling it's a slowdown in the economy. The junior customer is a price-conscious customer, but we're giving them more value. They're looking for better value for the price. They're not looking for the cheapest thing. That teenager is the impulse buyer. Workers' compensation insurance is still within reach of the businesses [in California]."
Ceo, Jerry Leigh Inc.
"The overall infrastructure is not as strong as it once was, considering a lot of companies have moved their manufacturing out of California. General know-how is not as vibrant from a manufacturing standpoint as it once was. That being said, I believe there is continuous amazing creativity coming out of Los Angeles. It's a hub of music, of movies, of entertainment. I think fashion is more and more closely related to those aspects than ever before."
Founder and ceo, American Apparel
"Fashion has at times defied economic times. Sometimes people dress up when they're feeling down. Sometimes people dress up when they can't get a new car. The economy is not going to turn down so badly that people are going to stop buying $20 T-shirts."
Ceo, American International Industries
"We are very challenged by the cost of labor in California. At American International Industries we have over 700 employees. With the increase in the minimum wage — and all wages going sky high — it is a tough time for an employer."
Founder, Ron Herman
"What you experience in living in Southern California affects the way that you respond to buying clothing. My [stores are] all part of the world of pleasure and entertainment. It isn't so much economic. The business of L.A. has a lot to do with how it feels to be living here."Fraser Ross
"The weather impacts us more than anything. We try to get the earliest spring and summer deliveries companies offer because we know we'll sell it first. Then you have some heavier items [left over] from the winter and it's like 'Oh my God!' It suddenly becomes harder to sell hoodies."
Chairman and ceo
Global Brand Marketing Inc.
"Retail consolidation is something that's continuing to happen. [It's important] for retailers also to set themselves apart from others so it's not all sameness."
Co-founder, Fred Segal Beauty
"California employment laws are way too lenient toward employees, almost to a fault. There are numerous accounts in which any reasonable person would say that the employer was acting reasonably. However, California law and, more importantly, the Employment Development Department's administrative process so heavily favors the employee that they almost always rule in their favor, de facto. This must
be changed in order to provide a more even field between employers and
President, Lunada Bay
"The negative perception of the California government toward the apparel industry is unfortunate. It is preventing the kind of business that can be done here. AB 633 is a law unique to California, and it makes every manufacturer a wage guarantor for any entity with whom they contract: cutters, embroiderers, screen printers and sewers. Because of that, we have lost tens of millions of dollars of private label opportunities from people outside of California who don't feel they need to take on that unrealistic responsibility."
President, The Westfield Group, U.S. Operations
"It's true that the cost of construction is increasing — it has been for four or five years now. But the rate of increase is less."
"The green movement in California is exploding, and we believe it will continue to do so throughout the U.S. This is a core belief of PureOlogy, and we have seen this as an increasingly important issue for our consumers, especially in the California markets."Randy Brant
Senior vice president of development and leasing, Macerich
"The [economic issue] at the forefront is the cost of construction."
President, Blue Water Design Group, Apparel Ventures, Inc.
"The number-one issue in the California economy affecting our business is minimum wage increases. Although this is a necessary development for the California worker, it does impact our labor rates and forces us to evaluate our labor costs as it affects our margins."
Jean and Jane Ford
Co-founders, Benefit Cosmetics
Jean Ford: "For Benefit, it's the growing ethnic diversity and keeping the brand always engaged and appealing to all. We are constantly pushing to create new textures and formulas that embrace a broader range of ethnicities. "
Jane Ford: "The cost of living in California is more expensive than other places. Our challenge is keeping our products sweetly priced so that it's an affordable luxury for all of our customers around the country and the world."
Ceo, Stila Cosmetics
"Generally, because we are based in L.A., we are up against high-paying media industries. I think we are generous payers, but I also think we are up against industries in a fairly small environment where we quite often are approaching similar people, so that is probably a tough part of it."
Co-owner, Lemon Twist
"I'm nervous about all the housing foreclosures and five-year 'interest-only' loans coming due, both of which mean less disposable income for something like clothing."
Owner and founder, Anastasia Beverly Hills
"California has recently raised workers' comp and liability insurance, which are the number-one issues directly affecting my business this year due to increasing costs. The current [workers' comp] rates are up 10 percent from last year, and we are constantly monitoring costs and adjusting our budget to fit these new rates."
Heidi OberschmidtPresident, Blue Platypus
"The number-one economic factor that affects us — driving our production prices up — is the difference in labor costs between here and abroad. Since we are produced domestically, our sewing, dyeing and printing cost is much higher than overseas."
"The cost of living in Orange County and California taxes are high, and the availability of qualified workers [is] much lower than what we need to keep up with our hiring demands. This contributes to a large number of new and potential employees commuting from adjacent locations, which reduces their quality of life. The commute also then brings the price of gas in California into the equation, making the situation even more difficult."
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