The "Unthinkable Move?" Not Any Longer.

Major Headquarter Relocations from Outside the Region Finally Found the American South in 2003

By Lee Burlett

From 1975 to 2002, only three Fortune 500 companies relocated their headquarters to markets in the American South. From Jan. 1, 2003 to Dec. 1, 2003, or in just 11 months, three Fortune 500 companies and a host of other large corporations announced they would relocate their headquarters to the American South from other U.S. regions. So, why did three Fortune 500 companies relocate their headquarters to the South this year when only three did in the previous 27 years? Before we attempt to answer that question, let's take a quick history lesson first.

In 1994, Southern Business & Development published a feature article that more than anything merely encouraged large corporations from outside the region to consider relocating their headquarters to the South. We cited labor and real estate costs, high taxes, road congestion and the resulting long commutes found in specific large markets in the Northeast, Midwest and West as reasons for our argument that the South was ready for Fortune 500 and 1000 headquarter relocations. Do you know how much response we received from that article? We received absolutely zero response. At the time, we thought our theory was a good one. Yet, it was obvious we were a few years ahead of the times.

In 1997, we put the issue of big corporate HQ's moving to the South on our cover for a second time. In the publisher's Southbound column he wrote that "during good times like these, it would be prudent for large headquarter operations located in high cost states such as New York, Connecticut, New Jersey, Massachusetts, Illinois, and California to use a small portion of their current profits to pick up and move their headquarters to lower cost areas of the U.S., namely major markets in the American South. It's our opinion that this positively good-drunk economy will be followed at some point by a bad hangover and relocating headquarter operations to the South now would certainly be a proactive financial move as opposed to one that would be viewed as reactionary during tough economic times."

The title of that 1997 cover story, which ran in the Winter 1996/1997 edition was, "The Unthinkable Move?" The subtitle was, "You've moved many of your operations to the American South -- Why not your headquarters?"

While there were no Fortune 500 CEOs quoted in that 1997 story (because no Fortune 500 company relocated their HQ to the South that year or any year around it), we did ask several notable Southern economic developers what they thought about the prospects of major headquarter relocations to the region in the mid-to-late 1990s. Here are a few of those quotes from that winter of 1997 story:

"I don't think we're going to see an awful lot of major companies just up and move, primarily because of the expense involved." Fred Harris, vice president, Nashville Area Chamber of Commerce (Fred has since retired).

"If it were purely a business decision, more of those companies would already be in the South." And in the same story, "The South will attract major corporate headquarters, whether you're talking about Fortune 500s or others." Greg Wingfield, president of the Greater Richmond Partnership, then and now.

"Convincing Fortune 500s to move (their HQs) is a fine idea, if you have the time and excess resources to concentrate on that." Bill Lax, at the time senior vice president of the Greater Tampa Chamber of Commerce.

"Most of the South's major cities are still one step away from the big boys." Chris Steinocher, marketing director of the Tampa Bay Partnership, then and now.

"In our experience to this point, most major corporate headquarter relocations are cost-driven." Bill Crane, at the time the Metro Atlanta Chamber of Commerce marketing director.

And finally, "You can see it happening." Mark Heath, former senior vice president of the Charlotte Regional Partnership. Heath is now the executive director of the Lake Norman Economic Development Corp., which is located in the Charlotte MSA.

When compared to our first story, we received plenty of response after publishing our second cover story on the prospects of major corporate headquarter relocations to the South. Unfortunately for us, all of the responses came from economic developers in the South.

While the quotes published above from our 1997 story were both positive and negative regarding the prospects of notable corporations moving their headquarters to the South, many Southern economic developers who were not quoted in the piece claimed we were barking up the wrong tree. Their points centered on the executive branches of those major corporations located in the Northeast, Midwest and West. They claimed that CEOs and others in the administrations of Fortune 500 and 1000 companies won't leave there friends, families or country clubs in Connecticut, New Jersey, Illinois, California, New York or Massachusetts. For 27 years they were right.

In 2003 the "Unthinkable Move" Became Reality

As we have predicted, even though our first prediction was about 10 years premature, a significant number of major corporate headquarters finally relocated to the South. And in 2003, the total number of headquarter relocations were enough for us to give you the old, "we told you so."

As written, since January of 2003 three Fortune 500 companies and numerous other large corporations have relocated their headquarters to the South. The three Fortune 500s that bit the bullet and moved South this year from costlier regions are Fidelity National (from Santa Barbara, Calif. to Jacksonville, Fla.), Philip Morris (from New York City to Richmond, Va.) and Newell Rubbermaid (from Freeport, Ill., to Atlanta, Ga.) Therefore, in just one year as many Fortune 500 companies relocated their headquarters to the South as did in the the previous 27 years.

But three Fortune 500s relocating their headquarters to the South, even in one year, does not give us enough ammunition to say, "we told you so." In addition to Fidelity, PM USA and Newell Rubbermaid, marque corporate names such as Louisiana-Pacific (Portland, Ore. to Nashville, Tenn.), R.R. Donnelley (Chicago, Ill. to Raleigh-Durham, N.C.), DHL, (Seattle, Wash. to South Florida) and Asurion (San Mateo, Calif. to Nashville, Tenn.) relocated their HQs to the South this year. There were more.

Fortune 500s in Southern States

Texas 65
Virginia 25
Florida 22
Georgia 19
Missouri 18
North Carolina 16
Maryland 13
Alabama 12
Tennessee 10
Louisiana 7
Kentucky 6
Oklahoma 6
Arkansas 5
Kansas 5
South Carolina 4
Mississippi 2
West Virginia 1

So Why Such a Rush to the South?

In this year's Forbes 500 issue (published April 14, 2003), there were 802 companies that made up the nation's 500 largest corporations in four categories: sales, profits, assets and market value. Of those 802, 242 were located in the South, 165 were located in the West, 173 in the Midwest and 216 in the Northeast. Six are located in Puerto Rico. Because of the events to date this year, add three more to the South's total and deduct one each from the West, Northeast and Midwest.

In 1975, when Exxon shocked the corporate world and relocated its headquarters from New Jersey to the Dallas/Fort Worth metro, the South did not lead the Fortune 500 and Fortune 1000 regional standings. Back then, the South was third in the number of Fortune 500 headquarter companies it could call home, behind the Midwest and Northeast and ahead of only the West.

As the South has grown, its notable corporate roster has as well. Yet, almost all of those are home grown. Some that come to mind first include Wal-Mart, Home Depot, Dell, BellSouth, Anheuser-Busch, Coca-Cola, Wachovia, Southern Company, FedEx, Lowe's and Aflac.

But 2003 saw the first-ever significant migration of corporate headquarters to the South from the other three U.S. regions. Never in the South's economic history have companies such as Philip Morris, Rubbermaid, Fidelity or Louisiana-Pacific picked up and moved their primary operations to the region, all in one year. So, why the change in attitude among the nation's corporate elite?

Fidelity chairman Bill Foley said one of the reasons he moved his company's headquarters from Southern California to Northern Florida was that, "the people we wanted to work at our headquarters in Santa Barbara couldn't afford to live there."

In Newell Rubbermaid's case, CEO Joseph Galli said it was simply a move to get closer to its largest customers such as Lowe's, Home Depot and Wal-Mart, three of the nation's largest retailers and all with their headquarters in the South.

Could Operating Costs Be the Central Moving Theme?

Operating costs, however, are most likely the prime mover in large corporate headquarter relocations. Furthermore, those savings look very attractive to large corporations after a three-year run this domestic economy has gone through. Michael Szymanczyk, Philip Morris USA Chairman and CEO, admitted earlier this year that moving the company's headquarters from Park Avenue in Manhattan to Richmond would cost about $120 million on the front end, but would save the company about $60 million a year. Simple math concludes that in just two years Philip Morris will get its money back from the move and that doesn't count incentives, which in PM USA's case total about $40 million.

Today, the South offers much more to relocating industry than cost savings. Initially, reports indicated Philip Morris' move to Richmond centered on cost-cutting. While operational costs were a central issue in the relocation decision, Greg Wingfield, president of the Greater Richmond Partnership, who was quoted in our 1997 story on major corporate headquarter relocations to the South, said Philip Morris had a tough time recruiting the right personnel in New York. It didn't help, he said, that the city increased taxes on cigarettes -- the company's primary product -- time and time again.

The Greater Richmond Partnership actively recruited Philip Morris' headquarters relocation to Virginia. "Part of our relocation incentive package was to send a team to New York and put together a Richmond room for employees working at the New York office," Wingfield said. "We provided 75 cartons of material on Richmond, including maps, quality of life books, photos and other publications set up like a gallery. We created a CD for each of them that outlined housing options, quality of life, schools, fine arts, museums and just about everything they would need to know about Richmond as they made their decisions to move with the company or not," said Wingfield.

Now it looks as if 250 of Philip Morris' 400 New York-based headquarter employees will make the move to Richmond. A USA Today story published this summer cited several employees' responses to the move. One said he is selling his two-bedroom cooperative apartment in New York City for $1.6 million. He can buy an eight-bedroom, 12,000-square-foot home for that kind of money in Richmond. Another employee making the move with PM USA simply responded "well, I guess I'm going to have to buy a car."

Even Szymanczyk had to make a housing decision in the relocation. His home in Connecticut is worth about $6.5 million. What will $6.5 million buy in Richmond's housing market? The answer is about 20 four-bedroom homes, all with yards, quiet streets and 15-minute commutes compared to hour-and-a-half commutes found in the New York City region.

Major corporate headquarter relocations to the South "will be a continuing trend," said Jerry Mallot, executive vice president of the Jacksonville, Fla. Regional Chamber of Commerce and one of the point men in the Fidelity move. "We are seeing more and more potential headquarter moves and many of those are from outside the South. Landstar Corp. moved its headquarters to Jacksonville from Connecticut five years ago and last year, Old Dominion, an insurance company, moved their headquarters here from New Hampshire."

According to Mallot, the critical issues motivating these companies in their headquarter relocations to Southern climes center on a variety of things. "Operating costs, costs involved in employee commutes, taxation, unpredictable or tight business regulations, they are all motivating factors (for companies considering relocating headquarter operations). In the case of Fidelity, California continued to raise taxes. It is an incredibly expensive state in which to operate a business. And business regulations in California are inconsistent at best," Mallot said.

The soft issues are also paramount for companies looking to relocate their headquarters Mallot said. "For these large corporations, quality of life is particularly important. Santa Barbara (Calif., where Fidelity had its headquarters), is a wonderful place to live. We had to match at least a large amount of that livability here in Jacksonville for the administration and the employees who have relocated from California."

Kenny McDonald, vice president of economic development with the Charlotte Regional Partnership, claims that because so many companies with headquarters outside the South have their primary manufacturing and distribution facilities in the South is a major factor behind the relocations to the region. "They're (large corporations with headquarters outside the region) wanting to move to where they can be close to their significant interests, such as their manufacturing facilities. They want to be able to drive to those facilities and the ease of transportation that provides. General Dynamics moved here from Vermont and ease of transportation drove that deal. It helps to have an airport like we have here in Charlotte," McDonald said.

Nashville did not land one of the three Fortune 500s that relocated to the South this year, but the Music City got its share. Asurion moved its headquarters to Nashville from Northern California and Louisiana-Pacific picked Nashville as well. There's no question that Nashville is one of the South's hottest markets for relocating headquarters right now. Markets in the South and elsewhere that are the size of Nashville may represent the future of corporate headquarter locations.

Future is Shifting to Second-Tier Cities

In a story published this fall in the Washington Post, Joel Kotkin wrote, "many are willing to exchange the bright lights of the global centers for affordable housing, a sense of community and economic opportunity." His story was titled, "The New Urban Hierarchy: Future is Shifting to Second-Tier Cities."

Kotkin cited cities such as New York, San Francisco, Los Angeles, Chicago and even some overseas like London and Tokyo as markets that will lose industry and residents in droves to smaller markets elsewhere in coming years. Certainly, technology advances have enabled Atlanta, Dallas/Fort Worth, Houston, South Florida, Charlotte and Tampa Bay, for example, to compete with any global market today for headquarter operations. But that's old news. Those same technology advances also exist equally in Starkville, Miss., Macon, Ga., Corpus Christi, Tex., Shreveport, La. and Florence, S.C.

The aforementioned major Southern markets such as Atlanta, Dallas/Fort Worth and Tampa Bay, in our view, cannot be viewed as "second-tier," even though they may be second-tier to writers in the Northeast like Kotkin. No, those Southern metros have already achieved "global market" status. And fortunately for them, they remain viewed as second-tier to the uninformed, which will insulate many of the South's largest markets against what Kotkin predicted is in store for New York, Chicago, San Francisco and other "Gothams."

Not unlike what we predicted 10 years ago that major corporate headquarters will relocate from New York, Illinois, California and other high-cost states to the South, mega-markets in the South will go through the same thing in time. It is a given that when high density collides with high cost, folks and companies are going to move. One economic developer from Tennessee put it this way a few years ago: "Have you noticed the personalities of two gerbils in a cage? Usually they get along pretty well. But have you ever put six in that same small cage? Their personalities transform into something totally different."

The basis of Kotkin's recent article predicts that markets such as Atlanta, Tampa Bay, Dallas/Fort Worth and Houston -- second-tier markets to him -- will pluck more headquarter operations from Gothams like New York, Los Angeles and Chicago in the near future. We agree, but we think the relocation of major industry from markets like New York will also find the true second-tier markets in the South. A few that fit that description include Oklahoma City, Memphis, Birmingham, Orlando, Louisville, San Antonio and of course Jacksonville, Richmond and Nashville, three markets that have already secured new headquarter relocations from bigger markets outside the South just this year.

One factor Kotkin cited that we have refused to use to our advantage in our writings over the last two years is the effect of 9/11 on corporate relocation from "Gothams" in the U.S. He wrote in the Washington Post story that the events of 9/11 have "accelerated" the de-clustering trends of high-end industry. As an example, he noted how many security firms have relocated from Manhattan since the attacks to more secure, smaller cities. We have never even mentioned 9/11 as a reason for companies to consider relocating to the South and never will because we find it inappropriate to do so. But Kotkin did, and it's a valid argument.

Conclusion

This year clearly indicates that major corporations from outside the South have finally squashed the "Unthinkable Move" theory. More than a dozen high profile corporate name plates decided to pick up and move to the South from outside the region in 2003. We predict this rash of headquarter relocations to the South is just the beginning. Look for more in 2004 and beyond and look for some of those to land in what are truly second-tier markets in the American South.

lee@sb-d.com