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Retreat, Hell: Four Contrarians Who Hear Opportunity Knocking


Industry Outlook 1991: INTRODUCTION

RETREAT, HELL: FOUR CONTRARIANS WHO HEAR OPPORTUNITY KNOCKING

It's hard to find confidence in any retailer in 1991. But one who's bubbling with it is Wayne Badovinus, president of Eddie Bauer Inc. After opening some 60 stores last year, Badovinus plans to christen an additional 25 or 30 in 1991, plus 2 to 5 in a new product line: home furnishings. That will give the Redmond (Wash.) apparel company more than 200 retail outlets by yearend, and about $740 million in store and catalog sales.

Does Badovinus see something everyone else is missing? He concedes there could be a severe retailing shakeout this year. "Customers are brutal," he says. But "there are never enough great stores with great concepts." He thinks Eddie Bauer, with its focus on outdoor and casual wear, is one such store. And since it targets married men and women in their mid- to late-40s with household incomes of $50,000-plus, he thinks sales will hold up fairly well this year.

Badovinus admitted to feeling tremors in December, when Bauer's comparable-store sales growth dropped to nearly zero, vs. 10% plus in early 1990. But its parent, Spiegel Inc., can fund the expansion he wants internally. So he's paring his plans only slightly to give Bauer time to digest the more than 100 stores added since 1988. "If you marry your business to your customers," he says, "they'll be there at the end of the recession.

HALE AND HEARTY HEALTH CARE

With health costs rising and Washington hell-bent to get a grip on medicare spending, it would seem an odd time to be investing more money in nursing home facilities. But Stewart Bainum Jr., the affable chief executive of Manor Care Inc., an $800 million health care and lodging concern based in Silver Spring, Md., is doing just that.

Over the past four years, Bainum has spent $280 million to build 39 nursing homes, 10 of them in 1990. He's so confident of Manor Care's ability to thrive in tough times that he plans to open 5% more capacity in 1991 and is hiring new employees. "We wouldn't wish an economic downturn on the country," says the 44-year-old executive. "But we think we're as well-positioned as any company if one comes." Margo L. Vignola, a health care analyst with Salomon Brothers, agrees. She thinks Manor Care's net could jump 34% in fiscal 1991, to $35.6 million--tops in growth among publicly traded nursing home companies.

In fact, Bainum argues, Manor Care's core nursing home business may even benefit from hard times. With labor costs accounting for 65% of its operating expenses, any softening in wages flows right to the bottom line. And even if state and federal lawmakers slow payments to nursing homes as tax revenues decline, Manor Care may not be hurt much. "We're less dependent on government for rate increases than most of our competitors," Bainum says.

No wonder. Some 63% of its nursing home revenues come from private-pay patients, whom he has targeted. That's twice the average of other major chains, such as Beverly Enterprises and Hillhaven--the industry's highest percentage.

THE LOGIC OF LODGING

There's room at the inn. In fact, across the country, there's far too much of it. The U. S. hotel industry's massive overbuilding in the past decade has led to a rash of foreclosure notices, a national occupancy rate of just 65%, and flat room rates. Developer Guy B. Lawrence, however, thinks good investments still can be made. "You just have to be very selective about what markets you go into," explains Lawrence, who heads the lodgings operations of New York-based Tishman Realty & Construction Co. An ex-Wall Streeter, the 42-year-old Lawrence combs the country for profitable niches. He says he's found one in huge, upscale hotels with lots of meeting space for conventioneers. The convention business will be strong enough, recession or no, to buoy occupancy if individual travel dips, he predicts.

He aims to put this logic into concrete by rounding up $2 billion from big investors over the next five years. Already, Tishman has opened two new hotels in 1990 at a cost of $375 million--the 758-room Swan and the 1,510-room Dolphin at the Epcot Center in Orlando, home of Disney World. Even in a recession, Lawrence expects them to attract guests.

The strategy is much the same for the $185 million, 1,200-room Sheraton that Tishman is building in downtown Chicago. Although the Windy City already has too many hotels, Lawrence believes the Sheraton's cavernous ballroom and exhibition hall will give it an edge. Later in 1991, he will break ground for a 600-room hostelry in Puerto Rico. Success in the hotel business, he says with zeal, is "understanding the needs of an area." And you can build on that.

STAYING CHIPPER IN CHIPLAND

Talk about a contrarian. While most of Silicon Valley is hunkering down--cutting spending, laying off workers, or freezing payroll rosters--T. J. Rodgers, CEO of Cypress Semiconductor Corp., is doing just the opposite. He is planning a lavish holiday dinner-and-dance for 2,000 Cypress employees and spouses at the local Fairmont Hotel in San Jose on Jan. 11. The object: to kick off what Rodgers expects to be a great year for Cypress, a maker of computer memory and microprocessor chips.

Forget the doomsayers who think semiconductor producers will have a disappointing year. "The evidence is perverted to fit a square hole," says Rodgers. He relies instead on the idea that "the semiconductor industry tanks and recovers ahead of the general economy." Rodgers expects his company's sales to grow by 30% in 1991, to at least $285 million. He's so sure of it that in September he ended a three-month hiring freeze and is buying a chip plant from a subsidiary of Control Data Corp. that will increase his capacity by 40%. He is paying $15 million for the plant, which cost $120 million to build. And rather than sweating Japanese competition, he confronts it: Rodgers boasts of beating out Fujitsu Ltd. in October for a contract to sell microprocessors to Toshiba Corp.

Swimming against the tide isn't new for Rodgers. For years, he has ridiculed the industry's support of consortiums aimed at fighting the Japanese, including Sematech and the ill-fated U. S. Memories. He thinks U. S. companies can compete by combining innovative design with better manufacturing techniques. The U. S. chip industry "has been at the bottom of a trough for five years," he concedes. "But that's about to turn around." Rodgers plans to lead the way.


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