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Unfortunately, Perigee began to get caught up in the economic tumult in 2008.  The landscape lighting deal with Home Depot is tied to minimum sales volumes, and as consumers began to cut back on their home improvement spending, unnecessary luxuries like landscape lighting were among the first to go.  Perigee’s steadiest revenue stream was suddenly shrinking and in peril.

For a time, it looked as if the crisis might be a good thing for Perigee.  The skyrocketing cost of oil and gasoline created a bright spot for alternative energy, especially solar.  Although the company is in the business of solar-powered consumer products, its core competency is in solar technology.  So Naismith and Nakamura made a bold move and decided to begin planning for an Energy Division, which would manufacture and sell photovoltaic solar panels and large scale arrays right in the Carver Park facility.  (Ellie, the SVP of Operations to whom you report, let it slip in talking to you – perhaps intentionally? – that someone was going to need to head up that division.) 

Of course, it takes a while to tool-up manufacturing lines and to open stores.  So even as the nation began to slide deeper and deeper into recession, Perigee Products was still committed to moving forward with plans it had set in place.


Then, in the summer of 2008, the bottom fell out of the oil market, and prices slid from $150 a barrel to $40 a barrel. 

Barack Obama talked a lot about “green energy” solutions during his Presidential campaign, and the subsequent TARP program did create some incentives for the solar industry; but consumer demand just wasn’t there yet.  So at least for the time being, the outlook for the solar energy industry remains unclear.  It could be the savior for Perigee, but it also could go away entirely.

Meanwhile, Las Vegas was hit hard by falling home values, which presented a double-whammy to you. 

First, homeowners began cutting corners left and right.  With disposable income shrinking at an alarming rate, and consumers beginning to panic a little, retail sales plummeted.  The Solar Flair store in Henderson saw sales drop by 15% in the first quarter; the San Diego store, which had only been open for a few months, never really caught on and was lagging behind sales forecasts by a third. 

Second, the real estate implosion hit home for you – literally.  With Zillow.com telling you that your $650,000 home was now worth only $440,000, you were darn close to being upside down on your loan – that is, owing more than it is worth.  Two houses down the cul de sac from you have already been abandoned by their owners in an effort to stave off foreclosure proceedings.  Now you go down there to walk your dog in their front yards, as the weeds grow ever higher.

Your spouse has given up on the idea of landing another job in real estate, but isn’t sure of where to turn next.  Your daughter, blissfully oblivious to it all, is thriving in school.  Your in-laws called and asked whether you needed any financial assistance, and you just wanted to crawl in a hole and die.  Thankfully, Perigee had managed to squeak out a profit in 2008, so you got your bonus and a small profit sharing check.

In 2009, by the time Q1 results were finalized in mid-April, it became obvious that Perigee’s sales were hurting.  The company was going to have to pull off a revenue miracle, or significantly cut back on costs, to remain profitable for the year.  Three months later, right through the heart of the spring season which was usually the company’s best, the picture appeared bleaker still.  Sales were projecting to an annualized $107.5 million, down 29% from 2007’s record numbers.  That would leave the company right on the cusp of break-even, back where it was in 2006. 

But because the second quarter was particularly weak, Naismith, Nakamura and the Board did not have much confidence in the $107.5 million number, either.  In late July, they held a series of long meetings behind closed doors in the main conference room in the office.  You passed by a couple of times, and everyone in the office was talking in hushed tones about what might be coming.  Closing down the stores?  Layoffs?  A shakeup at the top?  A merger or sale of the company?  Rumors were flying everywhere, and all of a sudden no one could be productive in the office.

Ellie, your boss, has always been very honest and forthcoming with you.  And sure enough, on the day after the closed door meetings end, she calls you from her cell phone on the way home from work and asks if you can meet at Starbucks.  She arrives there looking totally spent.  You find a quiet table in the corner, and she tells you that the Board and senior management have decided that the best way to respond to the crisis is through a workforce reduction.  Nothing has been decided yet, she tells you, because they wanted to seek the input of the VPs first, since you know your personnel best.  On the revenue side, they are still debating whether to move forward with the Energy Division.  But Ellie tells you that the Retail Division was a prime focus of the discussions, because it represents about 10% of the company’s entire labor yet only about 6% of its revenues, and none of its profitability.  They talked about closing a store – though apparently the covenants on the San Diego lease require a $90K annual penalty for early termination until the space is re-leased, and no one is looking for leases – or reneging on the LA leases, or even more radical moves.

But first things first: they have crunched the numbers and determined that a 17% workforce reduction companywide, impacting approximately 44 people, would generate about $2.57 million in savings with a relatively negligible impact on revenues.  That could be enough to keep the company in the black.  They want your recommendations, with a strong suggestion that they would like to see labor savings of at least $575,000 coming from the Retail Division, which would be about 40% of your payroll.

Your pulse is racing as you listen to this, taking in all of the implications that your brain can process at once and juggling all of the numbers – profitability, head count, viability, revenue projections.  But for some reason the one calculation that you make clearly, immediately and without hesitation is this: profitability =  a $25,000 bonus for you, plus the prospect (admittedly uncertain under these conditions) of another revenue sharing check, like last year.  And, though you are looking at Ellie, you realize that you are thinking about your daughter.

Ready?  Go.


9/09 Las Vegas Real Estate Report

"Las Vegas home sales for August 2009 were down for July by 13.6%. This is primarily due to the lack of new inventory entering the market while we are experiencing a substantial increase in the number of Buyers in the Las Vegas home market. Although the MLS showed 20,999 listings in the market only 8,579 units were not under contract and waiting to close. Approximately 68% of the total Las Vegas home sales were foreclosures called banks (REO’s). The median price of a Las Vegas home has held some what steady for the last 5 months. The total Las Vegas single family home listings for August fell -2.8% from July 2009. We believe that the foreclosure inventory has yet to increase due to the Banks slowing of final auctions. It has become apparent that the completion of foreclosures through the Sherrif's auction is much slower as the Mortgage holders are flooded with mediation and other internal problems in completing the reposessions. According to Realtytrac we will be seeing increased inventory levels."

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