Neighborhood small business recovery: three years after Katrina.

Lacho, Kenneth J. ; Eness, Dana

INTRODUCTION

On August 29, 2005, the most destructive hurricane (Katrina) in the history of the United States struck the City of New Orleans, surrounding parishes and the Mississippi Gulf Coast. Katrina claimed over 1800 lives (Bevan et. al. 2006) and caused an estimated $81.2 billion in damage (Wikipedia, 2006). Major breeches in the New Orleans levee system left some 80% of the city flooded (Murphy, 2005).

The impact of Katrina and subsequent flooding and wind damage was felt in many ways. Entire neighborhoods were depopulated resulting in a reduced customer base, lost markets, and closed businesses (Lacho, Bradley & Cusack, 2006). Some neighborhoods experienced severe flooding, others did not. During the past three years some neighborhoods became revitalized, others have not. This study examines the status of small businesses in the Oak Street neighborhood in New Orleans three years after Katrina.

PURPOSE

The purpose of this study is to examine the recovery of small neighborhood businesses as they move from a major disaster to weak economic conditions. Specific issues to be addressed include:

1 What is the impact of Hurricane Katrina three years later? What actions did the owners take to recover from Katrina? Where did they go for assistance?

2 What are their current business problems? Where have they gone for help?

3 How have current economic conditions affected their business? What have they done about it?

4 What is their view of the outlook of the economy in the future?

5 How much help has the Stay Local! organization been to these businesses?

6 How much help has the Oak Street Association been to these respondents? What could the association do to help in the future?

BACKGROUND

The Urban Conservancy is a New Orleans based nonprofit dedicated to research, education and advocacy that promotes the wise stewardship of the urban environment and local economies. Stay Local! is a program of The Urban Conservancy and is a city-wide initiative for creating a strong economy based on locally-owned and operated businesses in New Orleans. Stay Local! raises the visibility of locally owned businesses while encouraging consumers to patronize independent businesses, especially in one's own neighborhood, whenever possible.

On January 12-13, 2007, Stay Local! hosted a Business Recovery Summit in collaboration with various partner organizations. The purpose of the summit was to bring together local business and advocacy organizations to open a dialogue and develop a foundation for new partnerships.

The basic approach to the summit was to meet in neighborhood business districts and hear the stories, successes and frustrations as voiced by the business owners themselves. Advocates representing grassroots, citywide, regional and national entities visited three key neighborhood commercial districts. Locally-owned businesses and organizations that work with them reported on business recovery efforts and discussed long-term strategy issues for overcoming common problems.

The three neighborhood districts selected were Oak Street, Mid City and Bayou Road, off N. Broad St. The districts were selected to give participants a broad view of neighborhoods that differed both in terms of racial and socioeconomic composition, as well as in the amount of flood damage sustained. Oak Street suffered only wind damage, while Mid-City and Bayou Road were submerged in several feet of water.

RESEARCH METHODOLOGY

Five businesses which were members of both Stay Local and the Oak Street Association were chosen. A questionnaire was designed by the researchers and reviewed with the manager of the Oak Street Association. The questionnaire was made up of open-ended questions which allowed for probing by the interviewer. Questions centered around the problem areas described above. Demographic data about each business were gathered. The answers to the open-ended questions were subjected to content analysis. Interviews were conducted with the business owner and lasted one to 1.5 hours. This research should be considered as an exploratory case study. It offers opportunities for future research. For example, how can local government be of greater assistance to small business owners, especially after a major disaster or during difficult economic times? How would this differ between urban versus rural communities? How can nonprofit groups such as Stay Local! or neighborhood associations such as the Oak Street Association be of assistance to small businesses?

FINDINGS

The Oak Street businesses surveyed were the Italian Restaurant, Speed Graphics, Creative Antiques, Smith's Shoes, and King of the Realm. Actual names have been disguised.

In the fall of 2006, Oak Street was awarded a Main Street grant from the National Trust for Historic Preservation, disbursed through Louisiana's Department of Culture, Recreation and Tourism. This designation has provided technical, organizational, and financial assistance, enabling merchants to hire a "Main Street manager" and develop the Oak Street Association, a highly structured business and residents' association. Its mission is to improve, protect, and preserve Oak Street and the surrounding neighborhood as a way of maintaining its historic and cultural heritage.

The Italian Restaurant was founded in 2004 and until Katrina, was located in the food court of the Riverwalk Shopping Center in downtown New Orleans. When Katrina hit in 2005, the business was victimized by looting. The owners foresaw a long, slow return of the healthy tourist market that its location marketed to and moved to its present Oak Street location. It has three part-time employees and four family members who work full time. Yearly sales are about $250,000. Its target market is college students from nearby Tulane and Loyola universities. Promotion methods include fliers, brochures, sales promotions, and listing in fraternity directories of local universities. The restaurant has received assistance from the U.S. Small Business Administration, Louisiana Department of Economic Development, Idea Village (local nonprofit), and the Oak Street Association. No assistance was received from the City of New Orleans. Current problems include getting capital, cash flow, and current economic conditions. Because the owner was still paying off his initial loan to open his original business (opened in 2004) when Katrina hit, and then had to start over from scratch, he now finds himself paying off two loans but having only one restaurant to show for it. The firm is not waiting for recovery assistance. All insurance claims have been paid.

The business is a member of the Oak Street Association, the Louisiana Restaurant Association, and Stay Local!. Affiliation with Stay Local! has increased the firm's visibility. On the other hand, customers show little interest in knowing that the business is locally-owned. The owner would like to have Stay Local! help him get financing. He is interested in working with the community to finance a parking lot and grow the street's commerce.

Speed Graphics creates signs and banners. It has been in business since 1982. Sales per year were not disclosed. The company targets small business in the Metro New Orleans area. Promotion efforts include signs, brochures, the New Orleans Yellow Pages, and word-of-mouth. It is owned and operated by a husband and wife, and has no additional employees.

The company received minimal damage from Hurricane Katrina. It received assistance from the U.S. Small Business Administration, none from the City of New Orleans or any nonprofit organization. The owners' home in Broadmoor was completely flooded. Like many resident-business owners in New Orleans, after Katrina, they opted to pour their limited insurance and other finances into re-opening their business and delay their home rehabilitation. The owners have resided at their business since Katrina.

Current problems include finding capital to operate the business, increased business expenses, and cost conscious customers. The owners would like a business recovery loan or grant. They applied for a second recovery loan from the SBA but never received a return call. The owners are not optimistic about the present business climate in New Orleans.

Speed Graphics belongs to Stay Local!. Affiliation with Stay Local! has not increased its business visibility. The owner would like Stay Local! to get merchants to do cooperative advertising and to do public service announcements for Oak Street.

Creative Antiques was founded in 1987. It sells and restores antiques. Sales are estimated to be $2.5 million dollars. Creative Antiques received some wind damage from Hurricane Katrina. In the post-Katrina era it has a 5 year waiting list. Sales are up. Since Katrina, in addition to the antique restoration, the husband-and-wife owners also operate an online hot tub sales business.

Creative Antiques does not have a specific target market. Promotion includes direct mail and word-of-mouth. It received assistance from the Small Business Administration but none from local government. Insurance claims filed were paid in part. The primary current problem is the rise in business expenses such as utilities, insurance, and property taxes. The owners are not optimistic about the business climate in New Orleans.

The firm is a member of the Oak Street Association and joined Stay Local! in 2007. The owner would like to see Stay Local! offer business seminars to educate businesses on how to deal with the current economic situation. How to save money on taxes would be helpful.

Smith's Shoes is a family business dating back to 1921. It sells footwear for men, women, and children as well as clothing and accessories. The store targets customers in the local area and Metro New Orleans. Hurricane Katrina brought some roof damage; however, the store was back in business three weeks after the storm. None of the employees returned and the husband and wife, who own the store, and occasionally the husband's nonagenarian mother, have been the sole employees since Katrina. They have moved from suburban Harahan and now reside in the apartments above the storefront to eliminate the commute. The client base for the store has not changed much; however, sales have declined since Katrina. Promotion consists of charitable contributions, school fairs and word-of-mouth.

Smith's has received no assistance from federal or local government agencies, or nonprofits. Business expenses have gone up. Insurance claims were filed and paid. The store's current challenge is the lack of parking. The owner has neutral feelings about the business climate in New Orleans.

The owner of Smith's store joined Stay Local! in 2004. He feels that his Stay Local! membership has not helped his firm's visibility. On the other hand, his customers show an interest that his business is locally owned. The owner would like to see Stay Local! help finance a community parking lot for the Oak Street stores.

King of the Realm is an indoor snowball stand dating back to 2006. Its sales are less than $250,000 per year. Targeted customers are neighborhood locals and tourists. The business was not in operation at the time of Katrina. The owners' previous business was a vintage clothing boutique located on Oak Street (but at a different location). Roof damage sustained in Hurricane Rita resulted in water damage to virtually all of her inventory and resulted in a radical change to the owner's business plan. She knew she wanted to remain on Oak Street, and decided to open her dream business: a sweets shop. She researched snoball equipment and syrup formulas and taught herself what she needed to run the business. She and her husband made extensive renovations to a former hair salon to convert into a boutique snoball parlor.

King of the Realm has received technical assistance from Idea Village, none from federal or local governments. King of the Realm is promoted by signs, fliers, church bulletins and in the Tulane and Loyola University directories. Print ads and publicity pieces have appeared in the daily newspaper and other print outlets.

During 2008, business expenses such as utilities, insurance, and taxes have gone up. The owner would like to expand to a second site, however, she is more interested in surviving than expanding her business. She is optimistic about the present business climate in New Orleans.

The owner of this business is a member of the Oak Street Association and joined Stay Local! in 2005. Her affiliation with Stay Local! has increased her firm's visibility. Customers do not show an interest in the fact that the firm is locally owned. The owner would like Stay Local! to help in getting a community parking lot and group advertising. Help is needed in getting financing. Classes are needed in taxes and bookkeeping.

DISCUSSION

The findings suggest that recovery from the effects of Hurricane Katrina is no longer a concern of these small business owners. Despite continuing to live with the after-effects of the hurricane (such as living in their place of business), business owners consider Katrina a distant bad memory. The participants are more concerned about present and future economic conditions and the rising cost of doing business.

Four of the five respondents were not optimistic about the New Orleans economy. Their perception is that times are bad, economy wise. Overall, the economy in New Orleans is not that bad. There are soft spots. For example, the retail sector has taken a hit as high gasoline prices gave way to uncertainty over the effects of the global economy. Some Mardi Gras Krewes are not marching in the 2009 Mardi Gras parades. (Webster, 2009, January 19). Retailers have reported customers cutting back over growing concerns about the economy. The visit of Hurricane Gustav provided another hit (Retailers feel economic pinch, 2008). Advertising agencies have cut back due to the decline in advertising by auto dealers. Sectors hit hard as well include retail and tourism while health care, government and nonprofits appear to have retained spending levels for promotion (Guillet, 2009, January 9).

On the other hand, the unique dynamics of rebuilding the area after Katrina have kept New Orleans (and Louisiana) somewhat insulated from the effects of the national economy. Money is still flowing through the area especially for long-term infrastructure projects such as roads, bridges, and levee protection for years to come (Mobray, 2009, January 11). For example, the U.S. Army Corps of Engineers is launching $4 billion in contracts for levee and drainage projects in 2009 alone. This has resulted in an influx of jobs, cash and companies for already approved projects. The Corps has also reached out to small businesses owned by minority contractors (Schieifstein, 2009, January 11).

The New Orleans recovery is trending upwards. Employment and population are on an upward path. The pressure of recovery is unlikely to stop in the near future, although the pace of recovery will slow as time moves on (Metropolitan Report, 2008, December). On the other hand, the longer the U.S. recession continues, the more vulnerable the New Orleans economy becomes (Mobray, 2009 January 11).

The lack of optimism by the majority of respondents about the local economy, reflects sales decline in their businesses. On the other hand, the New Orleans economy has done well relative to the U.S. economy.

Another concern of the respondents is the rising cost of doing business. They are not alone. A national survey by the National Federation of Independent Business (NFIB) shows top concerns among small business owners are business costs, especially those that are difficult to control such as health insurance, energy costs (fuel and electricity), supplies, inventories, and workman's compensation insurance (National Federation of Independent Business, 2008, January 16). An August 2008 survey by Echo Research found that manufacturers, retailers and service firms felt that the biggest challenge they face is the rising costs of business in an uncertain economy. (American Express.... 2009, January 12). Closer to home, the average weekly wage for Orleans parish rose from $919 in 2006 to $1,005 per week in the first quarter of 2008. Retail trade wages actually declined from $521 to $443 per week during the same time. (http://www.laworks).

Restaurants are a major part of the New Orleans economy. They are faced with similar increases in the cost of doing business. During 2007, food costs increased 18%, insurance 95%, labor 31%, water 37%, gas 30%, and electricity 31%. These are extreme increases especially in the area of insurance (Funk, 2008, March 20).

Several respondents received federal aid although there was some frustration over the complexity and the time lag in receiving these services. No assistance was received from local government.

All of the businesses surveyed belong to the Oak Street Association as well as Stay Local!. There was little or no membership in other business organizations. The restaurant, however, does belong to the Louisiana Restaurant Association (LRA). There is no evidence that the owner has taken advantage of the services offered by the LRA. During this time period, the Greater New Orleans Chamber of Commerce was not very active, having yet to recover from Katrina. Several of those surveyed are very active in the Oak Street Association.

It was felt by the respondents that Stay Local! was helpful in increasing the visibility of their businesses, but not much help in generating sales. More help is desired of the Stay Local! organization especially in getting better parking facilities and cooperative advertising perhaps tied in with the current promotion efforts of the Oak Street Association.

Parking is viewed as a very serious problem, particularly by some of the business owners within the blocks closest to Carrollton where density is very high and patrons of the coffee shops tend to disregard the two-hour parking limit to the detriment of other businesses nearby. However, a surface parking lot along Oak Street would run counter to best practices and proven models for revitalization of historic commercial corridors, where walkability and density of storefronts is important. The Oak Street Association is actively working to educate its business membership on best practices in walkable urbanism, while advocating to appropriate City departments on implementing enforcement of 2-hour parking limits, installing bicycle racks, and touting its proximity to the streetcar to minimize automobile congestion. Stay Local!'s major thrust should be working with the Oak Street Association in developing a cooperative promotion strategy, getting funding, and implementing strategy. Also, local businesses should be made aware of the free or low-cost business seminars made available through the Louisiana Small Business Development Center (SBDC) of the Greater New Orleans Region. These are mostly conducted at the Jefferson Center in nearby Jefferson Parish. A comparison of the findings of the January 2007 Summit and the findings of this survey are discussed next.

In 2007 business owners were frustrated with the lack of leadership and progress by the New Orleans City government. They still are.

The 2007 Summit findings reflect doing business in uncertain conditions following a major disaster. Conditions in the fall of 2008 are still uncertain, however, the uncertainty is due to the condition of the local and U.S. economy. As noted above, this area received no flooding from Katrina and little wind damage. Hurricane recovery was not nearly as difficult as the other areas represented at the 2007 Summit as well as the rest of the city.

Concerns at the 2007 Summit were voiced over the lack of support of small business by banks. They felt that grants and other financial aid available were available to homeowners but not to small business owners. To the contrary, grants and loans were available through the Louisiana Recovery Authority to small businesses after Katrina. An initial program provided grants of $20,000-$100,000. A second round provided packages of grants of 20% and loans 80% of the money needed. The U.S. Small Business Administration had disaster recovery loans available as well as those under their regular loan programs. Concern over loans was not voiced in the fall of 2008.

The primary money concerns in the fall of 2008 had to do with maintaining cash flow under the slowing of sales and rising costs of doing business. Concern over cash flow is similar to small businesses nationwide as found by Echo Research. Some 55% of small businesses across the U.S. are experiencing cash flow problems, especially retailers (American Express.. 2009, January 12).

The mood of most of the attendees at the 2007 Summit is best described as cautious optimism. In contrast, the mood in 2008 is more negative reflecting real or perceived views of economic conditions rather than the effects of Katrina. At the 2007 Summit a need was expressed for improved infrastructure. However, major street improvements that are now underway are adding to the anxiety of the business owners who are concerned that it will create long-term disruption and serve as a deterrent to shoppers.

There are several happenings which should have a positive impact on the future of Oak Street. Few of these were mentioned by the respondents. For one, the street is being refurbished. Some business owners are concerned about business interruption during the period of construction.

The Louisiana Department of Culture, Recreation and Tourism has announced that Oak Street has been certified as one of the first Cultural Products Districts in Louisiana. Property owners now have the ability to apply for state historic tax credits for revitalization projects and to market the sales of original art on a tax free basis.

Another important aspect of Oak Street is its three year membership as a part of the Main Street Program. The program is a community-driven comprehensive methodology used to revitalize older traditional business districts through the U.S. It encompasses a four point approach, design, economic restructuring, promotion and organization. The association has committees addressing each of these points. The Design Committee works with the Main Street staff in Baton Rouge, Louisiana regarding annual facade grant awards. Grant funds are available to improve store fronts. Last, special events sponsored by the Oak Street Association have been found to benefit the businesses located there. Future events are planned.

CONCLUSION

On August 29, 2005 Hurricane Katrina devastated Southeast Louisiana and the Mississippi Gulf Coast. Some 80% of the City of New Orleans had flooded areas. Both flooded and non-flooded have been recovering these past three years. One of the relatively undamaged and unflooded areas was Oak Street, a commercial strip of some two blocks in Western New Orleans. In January 2007 a summit meeting of Oak Street small businesses was held by Stay Local!, a local nonprofit organization to bring together Oak Street businesses and to develop a foundation for future partnerships and development. In the fall of 2008, five of those businesses attending the 2007 Summit were studied to access any changes.

The 2007 Summit reflected uncertainty due to Katrina. Today (2008), the uncertainty lies in the perception or reality of the economy, local and national with additional worries brought on by street construction. The summit brought out feelings of no help from city government. That feeling persisted in 2008. The mood in 2008 was one of negativity in contrast to the cautious optimism of 2007. A theme that was prevalent in both 2007 and 2008, particularly for tenants in the blocks closest to Carrollton Avenue, was the lack of parking space.

While Oak Street has the potential to be one of the most vibrant commercial corridors in New Orleans, many of its businesses are operating with very thin capitalization, and are still trying to recoup the losses from Hurricane Katrina while staring down the looming national economic crisis which affects their access to credit, their operating costs, and their foot traffic.

Any disruption to daily operations, whether a mandatory evacuation, street repairs, or a spike in criminal activity are cause for concern for Oak Street merchants.

Oak Street's small businesses have a strong ally in the Oak Street Association. As part of the Main Street Program, the association has been actively promoting the area as a shopping destination for locals and tourists. It has also secured matching grants for store owners to make facade improvements, and worked in partnership with Stay Local! to apply for and receive certification from the State as a Louisiana Cultural Products District.

As valid as concerns of individual business owners are, Oak Street is well-positioned to weather the current economic downturn and continue on an upward trajectory. Oak Street offers the opportunity for the tourist to get off the nearby streetcar line and visit an authentic New Orleans neighborhood with a diversity of goods and services packed into a walkable corridor. The street improvements underway will add to Oak Street's curb appeal and serve to draw visitors down the length of the corridor.

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Kenneth J. Lacho, The University of New Orleans

Dana Eness, The Urban Conservancy