Short And Long-Range Prospects For Royal Caribbean
Reuters
After a nine-month surge, can Royal Caribbean's stock keep cruising?
Shares of Royal Caribbean Cruises have more than tripled since early March, spurred by an upswing in the broader market and signs that ticket prices are starting to stabilize.
While Royal Caribbean executives said last week that there was still little evidence of an economic rebound in its business, they do not see a need to discount prices to the levels seen earlier this year. [ID:nN02460627]
The world's No. 2 cruise operator expects to post a loss for the fourth quarter -- missing Wall Street expectations for a profitable quarter, but reiterated its outlook for positive net revenue yields in 2010.
FULL STEAM AHEAD
Of the 24 analysts who cover Royal Caribbean Cruises, 15 rate the stock the equivalent of a "buy" or a "strong buy," according to StarMine data. That figure has grown in the past 90 days, reflecting growing bullish sentiment about the stock.
"We're starting to see the initial signs of pricing firming," said William Blair & Company analyst Sharon Zackfia, who has an "outperform" rating on the stock. This is the first step to improved earnings, she said.
Zackfia noted that the cruise operator is also positioned to benefit from a rebound in spending from wealthier consumers, which the company caters to through two of its cruise lines: Royal Caribbean and Celebrity.
"What's very apparent in our coverage is that the upper middle-class consumer has started to rebound pretty markedly," Zackfia said.
Susquehanna Financial Group analyst Robert LaFleur said in a research note last week that he forecasts the company will double its earnings per share in 2010.
ROUGH SEAS?
But while shares have surged in recent months, short interest has also risen, suggesting that some investors are banking on a drop in the stock price.
Short interest represented 14.1 percent of the overall float as of Oct. 12, according to the most recently available data from the New York Stock Exchange.
Goldman Sachs analyst Steve Kent points out that the company has cut its outlook four times in the past five months. Kent, who has a "sell" on the stock, maintains that the cruise industry is still facing some serious long-term risks, including rising fuel costs and oversupply.
"We believe the company's visibility into future bookings remains low and its leverage remains high," he wrote in a research note.
Societe Generale analyst Simon Mezzanotte, who also rates the company a "sell," noted that U.S. consumer confidence has not seen substantial improvement and pricing power next year remains "very limited."
Industry capacity will grow 7 percent in both 2009 and 2010 and another 4 percent in 2011, wrote Kent, who also has a "sell" on Carnival Cruises Corp.
That growth "will further pressure results and Street estimates will continue to come down," he said.
The maiden voyage of Royal Caribbean's Oasis of the Seas, the world's largest cruise liner, is slated for early December.
Shares of Royal Caribbean Cruises have more than tripled since early March, spurred by an upswing in the broader market and signs that ticket prices are starting to stabilize.
While Royal Caribbean executives said last week that there was still little evidence of an economic rebound in its business, they do not see a need to discount prices to the levels seen earlier this year. [ID:nN02460627]
The world's No. 2 cruise operator expects to post a loss for the fourth quarter -- missing Wall Street expectations for a profitable quarter, but reiterated its outlook for positive net revenue yields in 2010.
FULL STEAM AHEAD
Of the 24 analysts who cover Royal Caribbean Cruises, 15 rate the stock the equivalent of a "buy" or a "strong buy," according to StarMine data. That figure has grown in the past 90 days, reflecting growing bullish sentiment about the stock.
"We're starting to see the initial signs of pricing firming," said William Blair & Company analyst Sharon Zackfia, who has an "outperform" rating on the stock. This is the first step to improved earnings, she said.
Zackfia noted that the cruise operator is also positioned to benefit from a rebound in spending from wealthier consumers, which the company caters to through two of its cruise lines: Royal Caribbean and Celebrity.
"What's very apparent in our coverage is that the upper middle-class consumer has started to rebound pretty markedly," Zackfia said.
Susquehanna Financial Group analyst Robert LaFleur said in a research note last week that he forecasts the company will double its earnings per share in 2010.
ROUGH SEAS?
But while shares have surged in recent months, short interest has also risen, suggesting that some investors are banking on a drop in the stock price.
Short interest represented 14.1 percent of the overall float as of Oct. 12, according to the most recently available data from the New York Stock Exchange.
Goldman Sachs analyst Steve Kent points out that the company has cut its outlook four times in the past five months. Kent, who has a "sell" on the stock, maintains that the cruise industry is still facing some serious long-term risks, including rising fuel costs and oversupply.
"We believe the company's visibility into future bookings remains low and its leverage remains high," he wrote in a research note.
Societe Generale analyst Simon Mezzanotte, who also rates the company a "sell," noted that U.S. consumer confidence has not seen substantial improvement and pricing power next year remains "very limited."
Industry capacity will grow 7 percent in both 2009 and 2010 and another 4 percent in 2011, wrote Kent, who also has a "sell" on Carnival Cruises Corp.
That growth "will further pressure results and Street estimates will continue to come down," he said.
The maiden voyage of Royal Caribbean's Oasis of the Seas, the world's largest cruise liner, is slated for early December.
Regeneron Gains On Collaboration With Sanofi
Bloomberg
Regeneron Pharmaceuticals Inc., an unprofitable biotechnology company, rose the most in almost two years in Nasdaq trading after expanding a drug-development collaboration with Sanofi-Aventis SA.
Regeneron gained $3.16, or 20 percent, to $18.96 at 9:44 a.m. New York time, the biggest percentage gain since Nov. 29, 2007. Before today, the Tarrytown, New York-based company had fallen 14 percent this year, underperforming a 12 percent gain in the 78-member Standard & Poor’s SmallCap Health-Care Index.
Sanofi, of Paris, said late yesterday that it will boost its annual commitment to Regeneron to $160 million from $100 million and extend the partnership to 2017. Regeneron will get as much as $250 million from Sanofi, more than its revenue for all of last year, if the products they are developing for cancer, pain and arthritis pain management are approved and top $1 billion in sales outside the U.S.
Regeneron’s only marketed product is Arcalyst, a treatment for rare inflammatory conditions, and arithritis pain relief. The company reported a net loss of $82.7 million last year and hasn’t had an annual profit since 2004, according to data compiled by Bloomberg. Sanofi is the company’s largest shareholder, with a 19 percent stake as of a December 2007 filing.
Regeneron gained $3.16, or 20 percent, to $18.96 at 9:44 a.m. New York time, the biggest percentage gain since Nov. 29, 2007. Before today, the Tarrytown, New York-based company had fallen 14 percent this year, underperforming a 12 percent gain in the 78-member Standard & Poor’s SmallCap Health-Care Index.
Sanofi, of Paris, said late yesterday that it will boost its annual commitment to Regeneron to $160 million from $100 million and extend the partnership to 2017. Regeneron will get as much as $250 million from Sanofi, more than its revenue for all of last year, if the products they are developing for cancer, pain and arthritis pain management are approved and top $1 billion in sales outside the U.S.
Regeneron’s only marketed product is Arcalyst, a treatment for rare inflammatory conditions, and arithritis pain relief. The company reported a net loss of $82.7 million last year and hasn’t had an annual profit since 2004, according to data compiled by Bloomberg. Sanofi is the company’s largest shareholder, with a 19 percent stake as of a December 2007 filing.
Logitech Acquires LifeSize
NY Times
In a move to break into the videoconferencing market, Logitech International has agreed to buy LifeSize Communications, a start-up that makes high-definition videoconferencing equipment, for $405 million in cash.
LifeSize, which is based in Austin, Tex., sells videoconferencing tools that cost less than most other products on the market. The high-definition video is so clear that viewers can see scribbles on Post-it notes.
Logitech, a maker of desktops and personal computer equipment that is based in Fremont, Calif., and Switzerland, will be competing against Cisco Systems, Polycom, Microsoft, Hewlett-Packard and I.B.M, which have all made investments in the industry.
With LifeSize’s technology, Logitech aims to “make lifelike, HD-quality video communication as mainstream and seamless as a telephone,” said Gerald P. Quindlen, Logitech’s chief executive.
For a long time, videoconferencing was limited to big businesses that could afford to build expensive systems for business VoIP and video in their conference rooms. But videoconferencing has become more accessible because Internet connections are commonplace, video has become more efficient and the price has dropped for high-definition cameras and displays. Now, many companies are trying to reach small businesses and individuals that previously used low-quality webcams on PCs.
Cisco, for instance, sells its high-end TelePresence system to big businesses that install it in conference rooms. Last month, Cisco said it planned to buy Tandberg, a Norwegian video communications company, for $3 billion. Tandberg makes smaller and less expensive videoconferencing tools that can sit on desks. Cisco has said it hopes to use Tandberg’s technology to sell equipment to small businesses and individuals.
The LifeSize Passport, a high-definition videoconferencing system for use with televisions or computers, was introduced in October. The device, which weighs less than a pound and is priced under $2,500, works with Skype business VoIP services and is aimed at workers who travel or telecommute.
Andrew W. Davis, senior partner at the consulting firm Wainhouse Research, said the deal surprised many in the industry because Logitech made products for consumers while LifeSize made products for businesses. “But that wall, like the Berlin Wall, will come down,” he said. “Logitech has been aggressive in this space across a variety of fronts, and that’s who you’ll see in your living room, not Cisco.”
LifeSize, which is based in Austin, Tex., sells videoconferencing tools that cost less than most other products on the market. The high-definition video is so clear that viewers can see scribbles on Post-it notes.
Logitech, a maker of desktops and personal computer equipment that is based in Fremont, Calif., and Switzerland, will be competing against Cisco Systems, Polycom, Microsoft, Hewlett-Packard and I.B.M, which have all made investments in the industry.
With LifeSize’s technology, Logitech aims to “make lifelike, HD-quality video communication as mainstream and seamless as a telephone,” said Gerald P. Quindlen, Logitech’s chief executive.
For a long time, videoconferencing was limited to big businesses that could afford to build expensive systems for business VoIP and video in their conference rooms. But videoconferencing has become more accessible because Internet connections are commonplace, video has become more efficient and the price has dropped for high-definition cameras and displays. Now, many companies are trying to reach small businesses and individuals that previously used low-quality webcams on PCs.
Cisco, for instance, sells its high-end TelePresence system to big businesses that install it in conference rooms. Last month, Cisco said it planned to buy Tandberg, a Norwegian video communications company, for $3 billion. Tandberg makes smaller and less expensive videoconferencing tools that can sit on desks. Cisco has said it hopes to use Tandberg’s technology to sell equipment to small businesses and individuals.
The LifeSize Passport, a high-definition videoconferencing system for use with televisions or computers, was introduced in October. The device, which weighs less than a pound and is priced under $2,500, works with Skype business VoIP services and is aimed at workers who travel or telecommute.
Andrew W. Davis, senior partner at the consulting firm Wainhouse Research, said the deal surprised many in the industry because Logitech made products for consumers while LifeSize made products for businesses. “But that wall, like the Berlin Wall, will come down,” he said. “Logitech has been aggressive in this space across a variety of fronts, and that’s who you’ll see in your living room, not Cisco.”
What Does A New Kind Of Car Company Look Like?
Business Week
When John B. Rogers was a Marine deployed in Iraq in 2004, he brought a book called Winning the Oil Endgame with him to the Gulf. The book, by environmental activist Amory B. Lovins, discusses how people can end their dependence on fossil fuels. Rogers says reading the volume inspired him to create a new type of car company, one he believes offers a more efficient and effective way of designing, manufacturing, and selling autos.
John B. Rogers, founder of Local Motors
"I realized it was possible to run an environmentally focused car company in different ways," he says. Most of today's auto entrepreneurs, such as Tesla Motors and A Better Place, focus on alternative fuel sources. But Rogers looked at another way of building a sustainable car business. He imagined he could produce vehicles locally and on demand at "micro-factories," where buyers could watch and even participate in making the car. This would eliminate wasting resources on mass-producing and shipping cars that might sit unbought on a car dealer's lot. More than that, he wanted to source "dream car" concepts direct from potential buyers, rather than to dictate designs, as the major automakers do.
Having left active duty in the Marines in 2005, Rogers headed to Harvard Business School to study for an MBA and learn how to make his dream a reality. After raising $4 million from unnamed private investors, Local Motors made its official debut in March 2008, with a Web site that calls for designers to submit sketches of their dream cars. Contributors can also enter competitions to come up with ideas for a specific type of vehicle, such as an electric car for the eco-conscious San Francisco Bay Area. The site's online community votes on the designs, with winners chosen by the audience, not Local Motors' employees. Cash prizes range from $1,500 to $20,000, with over $30,000 awarded to date.
A Community of Designers
Having left active duty in the Marines in 2005, Rogers headed to Harvard Business School to study for an MBA and learn how to make his dream a reality. After raising $4 million from unnamed private investors, Local Motors made its official debut in March 2008, with a Web site that calls for designers to submit sketches of their dream cars. Contributors can also enter competitions to come up with ideas for a specific type of vehicle, such as an electric car for the eco-conscious San Francisco Bay Area. The site's online community votes on the designs, with winners chosen by the audience, not Local Motors' employees. Cash prizes range from $1,500 to $20,000, with over $30,000 awarded to date.
A Community of Designers
The Rally Fighter will be Local Motors' first vehicle.
It goes into production in June 2010
By March 2009 there were 2,400 active contributors to the site, uploading drawings, commenting on each others' work, and voting on designs. Today, Rogers says that number has climbed to 4,000. "And if you count our social media channels—our presence on YouTube, Facebook, and Twitter—there are 50 million more people in our community," he adds.
That might sound fanciful, but the company is now gearing up to produce its first vehicle: a rugged-looking, off-road vehicle called the Rally Fighter. The initial concept was posted online by community member Sangho Kim. On seeing the community's enthusiasm for the design, and recognizing that off-road vehicles present an underserved niche market, Local Motors decided to put the car into production. Interested buyers pay $99 for a place in line to purchase it. When production starts, in June 2010, buyers will be invited to the company's headquarters in Wareham, Mass., to help build the car. The eventual price tag? $50,000.
Rogers is confident that his company can eventually turn a profit. "A single Local Motors micro-factory has the capacity to sell 2,000 units a year at an average price of $40,000," he says. Currently, the Local Motors Web site indicates the tally for Rally Fighter orders is 23, a number that's not exactly likely to trouble any of the Big Three. But Rogers insists he is trying to rethink, rather than overtake, the traditional auto industry.
A Complicated Business
Still, success is far from certain. "Local Motors is an interesting idea in the context of the design of a vehicle. There are real benefits to drawing on a large community of designers; you can come up with truly unique designs and come up with interesting new niches," says Jeremy Anwyl, chief executive of car-buying guide Edmunds.com. "But it gets trickier when you take that notion and move into actually building a car—which is technically very complicated." Not to mention, highly regulated.
Rogers is unfazed. "Building a car is complex, but it is a well-understood science. This is not the challenge," he says. "The challenge is bringing cars to market in a sustainable manner—the cars people want, where they want, when they want. This is what Local Motors accomplishes."
That might sound fanciful, but the company is now gearing up to produce its first vehicle: a rugged-looking, off-road vehicle called the Rally Fighter. The initial concept was posted online by community member Sangho Kim. On seeing the community's enthusiasm for the design, and recognizing that off-road vehicles present an underserved niche market, Local Motors decided to put the car into production. Interested buyers pay $99 for a place in line to purchase it. When production starts, in June 2010, buyers will be invited to the company's headquarters in Wareham, Mass., to help build the car. The eventual price tag? $50,000.
Rogers is confident that his company can eventually turn a profit. "A single Local Motors micro-factory has the capacity to sell 2,000 units a year at an average price of $40,000," he says. Currently, the Local Motors Web site indicates the tally for Rally Fighter orders is 23, a number that's not exactly likely to trouble any of the Big Three. But Rogers insists he is trying to rethink, rather than overtake, the traditional auto industry.
A Complicated Business
Still, success is far from certain. "Local Motors is an interesting idea in the context of the design of a vehicle. There are real benefits to drawing on a large community of designers; you can come up with truly unique designs and come up with interesting new niches," says Jeremy Anwyl, chief executive of car-buying guide Edmunds.com. "But it gets trickier when you take that notion and move into actually building a car—which is technically very complicated." Not to mention, highly regulated.
Rogers is unfazed. "Building a car is complex, but it is a well-understood science. This is not the challenge," he says. "The challenge is bringing cars to market in a sustainable manner—the cars people want, where they want, when they want. This is what Local Motors accomplishes."
Hard Times For Business Schools
Business Week
The economic crisis has hit executive MBA and non-degree programs hard, but the savviest are adapting to the new market
When Megan Lum enrolled in the MBA program for executives at the University of Washington's Foster School of Business last fall, her plan was to use the degree as a stepping-stone to the C-suite. Based on her career trajectory, that goal wasn't so farfetched. In 20 years she had worked her way up the corporate ladder to the role of senior environmental manager at Weyerhaeuser (WY). The company thought so highly of her that it agreed to foot 80% of the bill for her EMBA, a nice perk considering the degree's $75,000 price tag. But just as Lum was starting classes the global economy went into a tailspin. Seven months later she was laid off. "Suddenly, I was without work, enrolled in an expensive EMBA program with no corporate support," says Lum, who has since found a job. Still, this wasn't part of the plan.
In fact, nothing about this year was part of the plan for a host of MBA programs that cater to working professionals and students like Lum. It has been a year of transition for executive MBA programs, which serve senior managers attending on weekends; part-time MBA programs, which allow mid-level managers to take courses on nights and weekends; and non-degree executive-education classes of a few days or weeks.
Once designed to give promising managers some high-level training and then return them to the corporate fold, part-time and executive MBA programs have been transformed entirely by the economic downturn. The generous corporate sponsorship Lum received is now more the exception than the rule, and far more students use the programs as transitions to new jobs or even new careers. As a result, students are expecting the kind of job-placement services usually reserved for full-time students to help them on their way. With virtually no programs offering such support, student satisfaction has plummeted across the board. Worse, applications are down dramatically for both types of programs, in large part because of reduced corporate support. Nearly half of all EMBA programs and part-time programs reported a decrease in 2009, according to the Graduate Management Admission Council.
Non-degree executive-education programs have also taken a hit. Many corporate travel budgets have been slashed to the bone, and companies are sending fewer employees to expensive on-campus open-enrollment programs. Others have suspended the use of customized training courses— for many years a B-school cash cow—until the economy turns around.
In BusinessWeek's 2009 ranking of the best executive MBA, part-time MBA, and executive-education programs, those that fared best are the ones that quickly adapted to these changing economic conditions. Each of the rankings is based solely or in part on surveys of the programs' main constituents: EMBA graduates and program directors, part-time MBA students, and companies that enroll employees in executive-education courses. The best part-time and executive MBA programs were able to help students navigate the downturn with career support tailored to their particular circumstances, while the top executive-education programs were able to convince corporate clients that their courses are critical, even in today's tough financial climate.
In the EMBA ranks, the top three schools—Northwestern University's Kellogg School of Management, University of Chicago's Booth School of Business, and University of Pennsylvania's Wharton School—each tapped their faculty's corporate connections and extensive alumni networks to help students through a difficult job market. All three, which have held the top three spots since the ranking started in 1991, also benefited from spotless reputations for academic rigor, star-studded faculty, and high-caliber students.
Even so, all three business administration degree programs dropped in student satisfaction compared with 2007, the last time BusinessWeek ranked EMBA programs. They weren't alone: Of the 83 EMBA programs in the 2009 ranking, only the University of Texas at Austin's McCombs School of Business boosted student satisfaction.
It's a change that was a long time coming but that picked up steam during the downturn as corporate support eroded further. "It's been a complete reversal," says David Springate, founder of the EMBA program at the University of Texas at Dallas.
These days fewer EMBA students feel the kind of loyalty to their companies they may have felt in the past, and many more expect their programs to help them find a job. This poses a problem for business schools, since most career offices are not accustomed to finding jobs for senior-level managers such as those enrolled in executive MBA programs. So administrators are seeking reinforcements.
At some schools, including Duke University's Fuqua School of Business (No. 10), INSEAD (No. 19), and University of Texas at Dallas (No. 22), this means partnerships with Web-based executive search firms—including Doostang, RiseSmart, and Ivy Exec—that specialize in helping ultra-experienced individuals find jobs. At University of Michigan's Ross School of Business (No. 7), an executive career coach helps EMBA students and alumni with job searches. And at the University of Alabama's Manderson Graduate School of Business, EMBA students create a personal career plan during orientation, before they set foot in a classroom. Career-services offices are also encouraging EMBA students to reach out to professional contacts, alumni, and even current students to assist in the search. "We tell our students that there is a tremendous group of people sitting in the room with you," says Susan West, assistant dean at Alabama. "Get to know them. You never know who might be aware of a job opportunity."
Economic forces reshaping the executive MBA world are taking their toll on part-time MBA programs as well. When the economy began to falter, interest in part-time MBA programs went up. B-school-hosted information sessions attracted standing-room-only crowds, and all signs pointed to a banner year for applications. But at Southern Methodist University's Cox School of Business (No. 15), Marci Armstrong, associate dean of graduate programs, was worried. "The mood at the sessions was very, very different," Armstrong says. "People had serious concerns about whether or not it was the right time to get an MBA. There were a lot of questions about costs and about the time commitment the program required." In the end, few prospective applicants wanted to put their jobs at risk by taking time off for classes. The result: Applications were flat. And not just at Cox. At the top-10 part-time programs, applications dropped an average of 9% compared with 2008.
One exception was Massachusetts' Worcester Polytechnic Institute, which snagged the No. 1 ranking this year. Because the program is small—fewer that 200 students—and focused on innovation and technology, grads say they get more attention from career staff and experience greater success on the job front than peers at other top part-time programs. Through visits to local companies, alumni networking events, and workshops with industry leaders, students make contacts that can advance their careers.
Like EMBA programs, part-time MBA programs saw a marked decrease in student satisfaction this year. In all, 80% of those participating in the ranking experienced a decline in 2009 compared with 2007. The overarching complaint: lack of exposure to on-campus recruiting. The criticism is valid. Unlike full-time MBAs, who are courted by employers during on-campus recruiting events, part-timers are often excluded, either because of work conflicts or by the companies.
To deal with increased demand for career services, some schools have started offering career-management courses, as well as extended office hours for part-time students unable to meet with career advisers during the day. At SMU, first-year part-time students are able to take a not-for-credit career-management course. After completing it, students have full access to career services' offerings.
In 2007, 25% of part-time students at Cox enrolled in the course. This year it was nearly everyone. "It's a dramatic change," Armstrong says.
Elsewhere, administrators at New York University's Stern School of Business (No. 23) were prepared to deal with increased demand for career support, thanks to an initiative begun during the last economic downturn. In 2003, in the aftermath of the dot-com bust and September 11, Pamela Mittman, assistant dean of career services, and her team opened the Career Center for Working Professionals (CCWP) after observing the challenges faced by part-time MBA and EMBA students looking to make 180-degree career changes. "We hadn't seen success in part-time students throwing their hat in the ring for typical [MBA-level] roles," Mittman says. "The delivery of career development needed to be different, more customized." Today the CCWP functions much like a full-time MBA career office, offering students with full- time jobs personalized career-management support. Mittman estimates that the office has conducted 1,500 one-on-one meetings in the past year, covering about half the student population.
Change was afoot in the executive-education world as well. When the economy is booming, executive education is a lucrative business. But all that changed last year. With travel budgets slashed, fewer companies sent managers to "open-enrollment" non-degree programs, which typically last a few days or weeks on campus. Of the 188 companies that responded to the BusinessWeek survey, 25% reported sending fewer employees to open-enrollment programs this year vs. last. For custom programs, designed for specific corporate clients, the total is down 12%.
When Megan Lum enrolled in the MBA program for executives at the University of Washington's Foster School of Business last fall, her plan was to use the degree as a stepping-stone to the C-suite. Based on her career trajectory, that goal wasn't so farfetched. In 20 years she had worked her way up the corporate ladder to the role of senior environmental manager at Weyerhaeuser (WY). The company thought so highly of her that it agreed to foot 80% of the bill for her EMBA, a nice perk considering the degree's $75,000 price tag. But just as Lum was starting classes the global economy went into a tailspin. Seven months later she was laid off. "Suddenly, I was without work, enrolled in an expensive EMBA program with no corporate support," says Lum, who has since found a job. Still, this wasn't part of the plan.
In fact, nothing about this year was part of the plan for a host of MBA programs that cater to working professionals and students like Lum. It has been a year of transition for executive MBA programs, which serve senior managers attending on weekends; part-time MBA programs, which allow mid-level managers to take courses on nights and weekends; and non-degree executive-education classes of a few days or weeks.
Once designed to give promising managers some high-level training and then return them to the corporate fold, part-time and executive MBA programs have been transformed entirely by the economic downturn. The generous corporate sponsorship Lum received is now more the exception than the rule, and far more students use the programs as transitions to new jobs or even new careers. As a result, students are expecting the kind of job-placement services usually reserved for full-time students to help them on their way. With virtually no programs offering such support, student satisfaction has plummeted across the board. Worse, applications are down dramatically for both types of programs, in large part because of reduced corporate support. Nearly half of all EMBA programs and part-time programs reported a decrease in 2009, according to the Graduate Management Admission Council.Non-degree executive-education programs have also taken a hit. Many corporate travel budgets have been slashed to the bone, and companies are sending fewer employees to expensive on-campus open-enrollment programs. Others have suspended the use of customized training courses— for many years a B-school cash cow—until the economy turns around.
In BusinessWeek's 2009 ranking of the best executive MBA, part-time MBA, and executive-education programs, those that fared best are the ones that quickly adapted to these changing economic conditions. Each of the rankings is based solely or in part on surveys of the programs' main constituents: EMBA graduates and program directors, part-time MBA students, and companies that enroll employees in executive-education courses. The best part-time and executive MBA programs were able to help students navigate the downturn with career support tailored to their particular circumstances, while the top executive-education programs were able to convince corporate clients that their courses are critical, even in today's tough financial climate.
In the EMBA ranks, the top three schools—Northwestern University's Kellogg School of Management, University of Chicago's Booth School of Business, and University of Pennsylvania's Wharton School—each tapped their faculty's corporate connections and extensive alumni networks to help students through a difficult job market. All three, which have held the top three spots since the ranking started in 1991, also benefited from spotless reputations for academic rigor, star-studded faculty, and high-caliber students.
Even so, all three business administration degree programs dropped in student satisfaction compared with 2007, the last time BusinessWeek ranked EMBA programs. They weren't alone: Of the 83 EMBA programs in the 2009 ranking, only the University of Texas at Austin's McCombs School of Business boosted student satisfaction.
With more students paying their own way, expectations are higher, and disappointments—over career services, faculty, accommodations, even food—are felt more sharply.
It's a change that was a long time coming but that picked up steam during the downturn as corporate support eroded further. "It's been a complete reversal," says David Springate, founder of the EMBA program at the University of Texas at Dallas.
These days fewer EMBA students feel the kind of loyalty to their companies they may have felt in the past, and many more expect their programs to help them find a job. This poses a problem for business schools, since most career offices are not accustomed to finding jobs for senior-level managers such as those enrolled in executive MBA programs. So administrators are seeking reinforcements.
At some schools, including Duke University's Fuqua School of Business (No. 10), INSEAD (No. 19), and University of Texas at Dallas (No. 22), this means partnerships with Web-based executive search firms—including Doostang, RiseSmart, and Ivy Exec—that specialize in helping ultra-experienced individuals find jobs. At University of Michigan's Ross School of Business (No. 7), an executive career coach helps EMBA students and alumni with job searches. And at the University of Alabama's Manderson Graduate School of Business, EMBA students create a personal career plan during orientation, before they set foot in a classroom. Career-services offices are also encouraging EMBA students to reach out to professional contacts, alumni, and even current students to assist in the search. "We tell our students that there is a tremendous group of people sitting in the room with you," says Susan West, assistant dean at Alabama. "Get to know them. You never know who might be aware of a job opportunity."
Economic forces reshaping the executive MBA world are taking their toll on part-time MBA programs as well. When the economy began to falter, interest in part-time MBA programs went up. B-school-hosted information sessions attracted standing-room-only crowds, and all signs pointed to a banner year for applications. But at Southern Methodist University's Cox School of Business (No. 15), Marci Armstrong, associate dean of graduate programs, was worried. "The mood at the sessions was very, very different," Armstrong says. "People had serious concerns about whether or not it was the right time to get an MBA. There were a lot of questions about costs and about the time commitment the program required." In the end, few prospective applicants wanted to put their jobs at risk by taking time off for classes. The result: Applications were flat. And not just at Cox. At the top-10 part-time programs, applications dropped an average of 9% compared with 2008.
One exception was Massachusetts' Worcester Polytechnic Institute, which snagged the No. 1 ranking this year. Because the program is small—fewer that 200 students—and focused on innovation and technology, grads say they get more attention from career staff and experience greater success on the job front than peers at other top part-time programs. Through visits to local companies, alumni networking events, and workshops with industry leaders, students make contacts that can advance their careers.
Like EMBA programs, part-time MBA programs saw a marked decrease in student satisfaction this year. In all, 80% of those participating in the ranking experienced a decline in 2009 compared with 2007. The overarching complaint: lack of exposure to on-campus recruiting. The criticism is valid. Unlike full-time MBAs, who are courted by employers during on-campus recruiting events, part-timers are often excluded, either because of work conflicts or by the companies.
To deal with increased demand for career services, some schools have started offering career-management courses, as well as extended office hours for part-time students unable to meet with career advisers during the day. At SMU, first-year part-time students are able to take a not-for-credit career-management course. After completing it, students have full access to career services' offerings.
In 2007, 25% of part-time students at Cox enrolled in the course. This year it was nearly everyone. "It's a dramatic change," Armstrong says.
Elsewhere, administrators at New York University's Stern School of Business (No. 23) were prepared to deal with increased demand for career support, thanks to an initiative begun during the last economic downturn. In 2003, in the aftermath of the dot-com bust and September 11, Pamela Mittman, assistant dean of career services, and her team opened the Career Center for Working Professionals (CCWP) after observing the challenges faced by part-time MBA and EMBA students looking to make 180-degree career changes. "We hadn't seen success in part-time students throwing their hat in the ring for typical [MBA-level] roles," Mittman says. "The delivery of career development needed to be different, more customized." Today the CCWP functions much like a full-time MBA career office, offering students with full- time jobs personalized career-management support. Mittman estimates that the office has conducted 1,500 one-on-one meetings in the past year, covering about half the student population.
Change was afoot in the executive-education world as well. When the economy is booming, executive education is a lucrative business. But all that changed last year. With travel budgets slashed, fewer companies sent managers to "open-enrollment" non-degree programs, which typically last a few days or weeks on campus. Of the 188 companies that responded to the BusinessWeek survey, 25% reported sending fewer employees to open-enrollment programs this year vs. last. For custom programs, designed for specific corporate clients, the total is down 12%.
A SPOOKED NEW WORLD
Few top programs were spared. At INSEAD in Fontainebleau, France, revenues are down 15% for custom programs and 20% for open-enrollment. At Michigan's Ross School, participation dropped 30% compared with two years ago. And at the Center for Creative Leadership, open-enrollment revenue fell from $34 million in 2008 to $30 million this year. Even Duke Corporate Education, ranked No. 1 among custom programs, saw revenues drop 19%, to $56 million. "Several clients in the mining and materials industries were forced to cancel when commodity prices dropped," says Gordon Armstrong, Duke CE's director of marketing communication and competitive intelligence. "We had several financial institutions cancel because of their distress."
Like many open-enrollment programs this year, Harvard Business School held on to its No. 1 ranking by focusing on strengths such as general management. In the custom category, Duke CE retained the top spot by doing what it does best: teaching complex business concepts such as leadership by combining classroom sessions with innovative activities requiring student participation. In the past year, 10,000 people from 65 companies participated in Duke CE's custom offerings, with price tags ranging from $200,000 to $1 million per program.
Even with its decline in revenues, Duke CE and outfits like it that focus solely on custom programs may be better positioned for the recovery than many business schools that offer both open-enrollment and custom programs. For many companies, low-cost custom programs that can be conducted at the workplace represent a far better value than expensive on-campus open-enrollment options.
Boston Scientific (BSX) has shifted most of its training budget to custom business degree programs developed by Wharton. Albert Siu, vice-president for learning and development at the medical-device maker, estimates that the total cost is a tenth that of open-enrollment programs. "When you have to manage costs, custom programs become the preferred mode of operation," he says. The credit-reporting agency Experian, for example, has halted all spending on open-enrollment programs. Custom programs are under the microscope, too, but for now the company is proceeding with one being developed by the Center for Creative Leadership. "I was faced with a lot of questions from our CEO and COO about whether we should go ahead with the plans we had been working on because of the economic environment," says Steve Hellman, vice-president for leadership and organizational development. "It's something that's of critical importance to our future growth, so we went ahead with it."
Few top programs were spared. At INSEAD in Fontainebleau, France, revenues are down 15% for custom programs and 20% for open-enrollment. At Michigan's Ross School, participation dropped 30% compared with two years ago. And at the Center for Creative Leadership, open-enrollment revenue fell from $34 million in 2008 to $30 million this year. Even Duke Corporate Education, ranked No. 1 among custom programs, saw revenues drop 19%, to $56 million. "Several clients in the mining and materials industries were forced to cancel when commodity prices dropped," says Gordon Armstrong, Duke CE's director of marketing communication and competitive intelligence. "We had several financial institutions cancel because of their distress."
Like many open-enrollment programs this year, Harvard Business School held on to its No. 1 ranking by focusing on strengths such as general management. In the custom category, Duke CE retained the top spot by doing what it does best: teaching complex business concepts such as leadership by combining classroom sessions with innovative activities requiring student participation. In the past year, 10,000 people from 65 companies participated in Duke CE's custom offerings, with price tags ranging from $200,000 to $1 million per program.
Even with its decline in revenues, Duke CE and outfits like it that focus solely on custom programs may be better positioned for the recovery than many business schools that offer both open-enrollment and custom programs. For many companies, low-cost custom programs that can be conducted at the workplace represent a far better value than expensive on-campus open-enrollment options.
Boston Scientific (BSX) has shifted most of its training budget to custom business degree programs developed by Wharton. Albert Siu, vice-president for learning and development at the medical-device maker, estimates that the total cost is a tenth that of open-enrollment programs. "When you have to manage costs, custom programs become the preferred mode of operation," he says. The credit-reporting agency Experian, for example, has halted all spending on open-enrollment programs. Custom programs are under the microscope, too, but for now the company is proceeding with one being developed by the Center for Creative Leadership. "I was faced with a lot of questions from our CEO and COO about whether we should go ahead with the plans we had been working on because of the economic environment," says Steve Hellman, vice-president for leadership and organizational development. "It's something that's of critical importance to our future growth, so we went ahead with it."
From Humble Origins: The 5-Dollar Foot-Long
Business Week
Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
"A LIFE OF ITS OWN"
Frankel's $5 footlong idea illustrates how a huge company can wake up and eventually seize on a good idea that's not generated at headquarters. Frankel, along with two other local managers in economically ravaged South Florida, ceaselessly championed the idea to Subway's corporate leadership amid widespread skepticism. Once it was approved, Subway's marketing team quickly generated a memorable campaign that firmly established the $5 footlong nationwide. The promotion's success spawned imitators and created an unprecedented demand for staple ingredients such as turkey, ham, and tuna. "The whole thing took on a life of its own," says Jeff Moody, CEO of Subway's franchise-owned advertising arm, the Subway Franchisee Advertising Fund Trust.
The fact that a sandwich, the quintessential American food, has grabbed the spotlight right now comes as no surprise to some. Its appeal goes beyond the low sticker price—you can share a footlong with a co-worker or a friend (something that's not quite as easy with a Big Mac). "People are not eating out as much anymore, so anything that brings people together through food is much more compelling nowadays," says Michelle Barry of the Hartman Group, a Seattle consultancy that employs anthropologists and sociologists to ferret out consumer perceptions for such companies as Kraft Foods (KFT) and Wal-Mart Stores (WMT).
For Frankel, the biggest surprise from his $5 promotion was that his profit margins didn't decline. Many promotions are so-called loss leaders designed to draw customers in the hope they'll buy higher-margin items alongside the featured special. That's one reason most offers have a time limit. Frankel's food costs did rise as a percentage of sales, but that was offset by the overall boost in volume and the increased productivity of his employees, who had less down time. Even after adding two new staffers, Frankel made money on each $5 sandwich.
Frankel kept the weekend promotion going for more than a year. At the same time, Subway's top brass was growing tired of a national ad campaign that featured spokesman Jared Fogle, who had lost 245 pounds almost a decade earlier by eating Subway six-inch subs for lunch and dinner. Company insiders envied the success of McDonald's dollar menu and wanted a "value" offering of their own. In September 2007, Steve Sager, a Subway development agent who oversaw about 225 franchises across South Florida, heard about the success of Frankel's $5 deal. He decided to try it in a troubled Fort Lauderdale outlet on Commercial Boulevard, a gritty thoroughfare dotted with strip malls. On the first day of the promotion, the store nearly ran out of bread and meat. Sales doubled.
Sager called Subway co-founder Fred DeLuca, who lives in the vicinity, and excitedly shared the news. An intrigued DeLuca came by the shop and, Sager says, "saw the potential instantly." (DeLuca declined to comment.) Charlie Serabian, the owner of 50 South Florida Subways, decided to launch the promotion in some of his stores. To advertise, he slapped crude homemade signs in the windows that spelled out "ALL FOOTLONGS $5." DeLuca joked that they looked like ransom letters. It didn't matter: Sales rose as much as 35%. Some locations, such as those housed inside Wal-Mart stores, did even better.
Moody, the marketing chief, hopped a flight to Fort Lauderdale a month later. He arrived at one store at 11 a.m. to find a line out the door. Frankel and Sager, who accompanied him, jumped behind the counter to help make sandwiches, while Moody talked to customers. Most were buying footlongs, and some were saving half for later.
Clearly, the South Florida crew was onto something. The question was whether it would resonate elsewhere. "Unless it was in your store, you were skeptical," Moody says. At a meeting of the franchisee marketing board that fall, Frankel presented his idea. Many owners thought the promotion would send food and labor costs soaring, erasing any hope of profits. A motion to roll it out nationally failed.
Frankel's $5 footlong idea illustrates how a huge company can wake up and eventually seize on a good idea that's not generated at headquarters. Frankel, along with two other local managers in economically ravaged South Florida, ceaselessly championed the idea to Subway's corporate leadership amid widespread skepticism. Once it was approved, Subway's marketing team quickly generated a memorable campaign that firmly established the $5 footlong nationwide. The promotion's success spawned imitators and created an unprecedented demand for staple ingredients such as turkey, ham, and tuna. "The whole thing took on a life of its own," says Jeff Moody, CEO of Subway's franchise-owned advertising arm, the Subway Franchisee Advertising Fund Trust.
The fact that a sandwich, the quintessential American food, has grabbed the spotlight right now comes as no surprise to some. Its appeal goes beyond the low sticker price—you can share a footlong with a co-worker or a friend (something that's not quite as easy with a Big Mac). "People are not eating out as much anymore, so anything that brings people together through food is much more compelling nowadays," says Michelle Barry of the Hartman Group, a Seattle consultancy that employs anthropologists and sociologists to ferret out consumer perceptions for such companies as Kraft Foods (KFT) and Wal-Mart Stores (WMT).
For Frankel, the biggest surprise from his $5 promotion was that his profit margins didn't decline. Many promotions are so-called loss leaders designed to draw customers in the hope they'll buy higher-margin items alongside the featured special. That's one reason most offers have a time limit. Frankel's food costs did rise as a percentage of sales, but that was offset by the overall boost in volume and the increased productivity of his employees, who had less down time. Even after adding two new staffers, Frankel made money on each $5 sandwich.
Frankel kept the weekend promotion going for more than a year. At the same time, Subway's top brass was growing tired of a national ad campaign that featured spokesman Jared Fogle, who had lost 245 pounds almost a decade earlier by eating Subway six-inch subs for lunch and dinner. Company insiders envied the success of McDonald's dollar menu and wanted a "value" offering of their own. In September 2007, Steve Sager, a Subway development agent who oversaw about 225 franchises across South Florida, heard about the success of Frankel's $5 deal. He decided to try it in a troubled Fort Lauderdale outlet on Commercial Boulevard, a gritty thoroughfare dotted with strip malls. On the first day of the promotion, the store nearly ran out of bread and meat. Sales doubled.
Sager called Subway co-founder Fred DeLuca, who lives in the vicinity, and excitedly shared the news. An intrigued DeLuca came by the shop and, Sager says, "saw the potential instantly." (DeLuca declined to comment.) Charlie Serabian, the owner of 50 South Florida Subways, decided to launch the promotion in some of his stores. To advertise, he slapped crude homemade signs in the windows that spelled out "ALL FOOTLONGS $5." DeLuca joked that they looked like ransom letters. It didn't matter: Sales rose as much as 35%. Some locations, such as those housed inside Wal-Mart stores, did even better.
Moody, the marketing chief, hopped a flight to Fort Lauderdale a month later. He arrived at one store at 11 a.m. to find a line out the door. Frankel and Sager, who accompanied him, jumped behind the counter to help make sandwiches, while Moody talked to customers. Most were buying footlongs, and some were saving half for later.
Clearly, the South Florida crew was onto something. The question was whether it would resonate elsewhere. "Unless it was in your store, you were skeptical," Moody says. At a meeting of the franchisee marketing board that fall, Frankel presented his idea. Many owners thought the promotion would send food and labor costs soaring, erasing any hope of profits. A motion to roll it out nationally failed.
ANNOYING JINGLE
But others picked up on Frankel's idea and tried it in locations ranging from Washington to Chicago. Right before Christmas 2008, the board voted again, and the motion passed. (Franchisees still had the option to not do it.) Moody pushed ahead with a national campaign, despite having no market research to back up the idea. "It violated all our normal processes," says Moody, whose annual ad budget is around $500 million.
Subway soon brought in its ad agency, MMB of Boston. "Let's not overcomplicate this," MMB managing partner Chad Caufield recalls thinking. The idea was to use hand gestures and an irritatingly addictive jingle to convey both the price (five fingers) and the product (hands spread about a foot apart). MMB also shot on a soundstage, giving the commercial a stylized, campy look. "We wanted to create the feeling that this was a movement taking hold," Caufield says.
The campaign was launched on Mar. 23, 2008—the same month that Bear Stearns collapsed into the arms of JPMorgan Chase (JPM). "The timing could not have been better," says Dennis Lombardi, executive vice-president at restaurant consultancy WD Partners. Over the first two weeks, franchisees reported that sales shot up 25% on average. Within weeks, 3,600 videos of people performing the jingle appeared on YouTube (GOOG). Fogle, attending the NCAA Final Four college basketball tournament soon after the launch, was serenaded with the song by students. The $5 footlong was mentioned on ESPN, The Tonight Show, and celebrity gossip site TMZ (TWX). The North Carolina State Fair even held a $5 Footlong Song Challenge—an American Idol-style event for the 4-H crowd.
The franchisee marketing board quickly voted to extend the four-week promotion to seven weeks. When that ended, Subway kept it going but limited the number of $5 sandwiches to just eight, removing items with high ingredient costs, such as the Chicken & Bacon Ranch sandwich.
Suddenly Subway needed 50% more food supplies. Bread shortages became a problem, as the ratio of six-inch sandwiches to footlong orders, normally 2 to 1, flipped. Subway's franchise-owned Independent Purchasing Cooperative, or IPC, had to scramble to find new sources of bread. Even mundane items, such as plastic sandwich bags from China, nearly ran out. "I was in a panic," recalls IPC CEO Jan Risi, who furiously worked the phones, cajoling her network of suppliers to run extra shifts.
But others picked up on Frankel's idea and tried it in locations ranging from Washington to Chicago. Right before Christmas 2008, the board voted again, and the motion passed. (Franchisees still had the option to not do it.) Moody pushed ahead with a national campaign, despite having no market research to back up the idea. "It violated all our normal processes," says Moody, whose annual ad budget is around $500 million.
Subway soon brought in its ad agency, MMB of Boston. "Let's not overcomplicate this," MMB managing partner Chad Caufield recalls thinking. The idea was to use hand gestures and an irritatingly addictive jingle to convey both the price (five fingers) and the product (hands spread about a foot apart). MMB also shot on a soundstage, giving the commercial a stylized, campy look. "We wanted to create the feeling that this was a movement taking hold," Caufield says.
The campaign was launched on Mar. 23, 2008—the same month that Bear Stearns collapsed into the arms of JPMorgan Chase (JPM). "The timing could not have been better," says Dennis Lombardi, executive vice-president at restaurant consultancy WD Partners. Over the first two weeks, franchisees reported that sales shot up 25% on average. Within weeks, 3,600 videos of people performing the jingle appeared on YouTube (GOOG). Fogle, attending the NCAA Final Four college basketball tournament soon after the launch, was serenaded with the song by students. The $5 footlong was mentioned on ESPN, The Tonight Show, and celebrity gossip site TMZ (TWX). The North Carolina State Fair even held a $5 Footlong Song Challenge—an American Idol-style event for the 4-H crowd.
The franchisee marketing board quickly voted to extend the four-week promotion to seven weeks. When that ended, Subway kept it going but limited the number of $5 sandwiches to just eight, removing items with high ingredient costs, such as the Chicken & Bacon Ranch sandwich.
Suddenly Subway needed 50% more food supplies. Bread shortages became a problem, as the ratio of six-inch sandwiches to footlong orders, normally 2 to 1, flipped. Subway's franchise-owned Independent Purchasing Cooperative, or IPC, had to scramble to find new sources of bread. Even mundane items, such as plastic sandwich bags from China, nearly ran out. "I was in a panic," recalls IPC CEO Jan Risi, who furiously worked the phones, cajoling her network of suppliers to run extra shifts.
EVEN CHEAPER
Soon, copycat offers emerged. Boston Market offered 11 meals for $5 each, while Domino's sold sandwiches for $4.99 and KFC launched $5 combo meals. T.G.I. Friday's began selling $5 sandwiches. "Five dollars is the magic number now," says restaurant consultant Malcolm Knapp. "It's become a price point that consumers respond to," says Judy Cantrell, Boston Market's chief brand officer.
The question now is when the campaign will run out of steam. MMB's Caufield admits the issue keeps him up at night: "Are we riding this pony too long?" Tony Pace, a senior executive who works with Subway's marketing arm, replies bluntly: "If you had a brand that represented nearly $4 billion in sales, would you plan an exit strategy for it?"
Pace says the footlong will remain "as long as it makes good economic sense," so a decline in footlong sales could force price hikes, or limits such as $5 after 4 p.m. (Serabian has gone the other way as the South Florida economy has worsened, offering footlongs for $4 in his stores.) There are also concerns that Subway's focus on the footlong could distract it from new growth areas, such as a planned push into breakfast items or international expansion. (Save for some tests in Australia and Canada, the $5 footlong hasn't gone beyond the U.S.)
Meanwhile, Frankel has moved on to a new idea. Now he's pushing for Subway loyalty cards that let purchasers accrue points toward free sandwiches. Driving down Interstate 95 toward Jackson Memorial on a cloudy autumn day, Frankel chronicles the frustrations he's had convincing DeLuca and others that this could be a hit. Maybe now that Frankel is the Father of the $5 Footlong, they'll listen.
Soon, copycat offers emerged. Boston Market offered 11 meals for $5 each, while Domino's sold sandwiches for $4.99 and KFC launched $5 combo meals. T.G.I. Friday's began selling $5 sandwiches. "Five dollars is the magic number now," says restaurant consultant Malcolm Knapp. "It's become a price point that consumers respond to," says Judy Cantrell, Boston Market's chief brand officer.
The question now is when the campaign will run out of steam. MMB's Caufield admits the issue keeps him up at night: "Are we riding this pony too long?" Tony Pace, a senior executive who works with Subway's marketing arm, replies bluntly: "If you had a brand that represented nearly $4 billion in sales, would you plan an exit strategy for it?"
Pace says the footlong will remain "as long as it makes good economic sense," so a decline in footlong sales could force price hikes, or limits such as $5 after 4 p.m. (Serabian has gone the other way as the South Florida economy has worsened, offering footlongs for $4 in his stores.) There are also concerns that Subway's focus on the footlong could distract it from new growth areas, such as a planned push into breakfast items or international expansion. (Save for some tests in Australia and Canada, the $5 footlong hasn't gone beyond the U.S.)
Meanwhile, Frankel has moved on to a new idea. Now he's pushing for Subway loyalty cards that let purchasers accrue points toward free sandwiches. Driving down Interstate 95 toward Jackson Memorial on a cloudy autumn day, Frankel chronicles the frustrations he's had convincing DeLuca and others that this could be a hit. Maybe now that Frankel is the Father of the $5 Footlong, they'll listen.
Dell Will Soon Close Perot Deal
Information Week
Computer maker Dell said it successfully completed its tender offer for Perot Systems' shares and is close to completing its acquisition of the Texas-based outsourcer.The offer gives Dell more than 90% of Perot's outstanding shares. The company announced its intention to acquire Perot for $3.9 billion in September.
It said Tuesday it expects to close the deal "promptly." Dell plans to launch a new unit, Dell Services, into which it will integrate Perot's tech and business services offerings.
The merger could be a boon for enterprises looking to implement new architectures like virtualization and cloud computing—but those benefits will only be realized if Dell can successfully manage the integration challenges that will arise upon the deal's closure.
Dell has the hardware and, to a lesser extent, software needed to form the bedrock of advanced data center implementations.
The company recently partnered with VMware to bundle VMware's View virtualization offering on its Latitude and Optiplex client machines and on PowerEdge servers. It's also customized a line of servers to run Microsoft's cloud-based Azure operating system.
Perot, meanwhile, has expertise around integration, deployment, and management. In September it launched a cloud integration service under which it advises customers on cloud computing architectures, combines offerings from different vendors, and hosts and manages cloud solutions from its data centers.
The question is whether Dell can smoothly integrate a business from a market where it's had little experience. That aside, many observers believe Dell had little choice but to diversify given its falling hardware revenues.
Dell plans to bolt on other acquisitions to enhance Perot's global footprint. To date, Perot has mainly been a player in the U.S. market.
Current Perot Systems CEO Peter Altabef is expected to continue leading the operation. Plans also call for Perot chairman Ross Perot Jr. to join Dell's board. Dell said it believes the acquisition will contribute positively to earnings by 2012.
Dell plans to bolt on other acquisitions to enhance Perot's global footprint. To date, Perot has mainly been a player in the U.S. market.
Current Perot Systems CEO Peter Altabef is expected to continue leading the operation. Plans also call for Perot chairman Ross Perot Jr. to join Dell's board. Dell said it believes the acquisition will contribute positively to earnings by 2012.
Stimulus Analysis Offers Up Confusing Numbers
USA Today
The federal government sent Bob Bray $26,174 in stimulus aid to fix a fence and replace the roofs on public Dallas apartments near Blooming Grove, Texas, a town of fewer than 900 people outside Dallas. He hired five roofers and an inspector to do the job.
But the number of jobs he reported to the government looked very different — 450 jobs.
"Oh, no," said Bray, who runs the local public housing authority part-time with his wife, Linda, when asked about the discrepancy. He said that he told the government that he had created six jobs but that a federal official told him that wasn't right. So he reported the number of hours the roofers worked instead. The Department of Housing and Urban Development caught the mistake, but he couldn't fix it before the jobs figures were published. "The money was great, but the reports are really confusing," he said. "I've been fighting with it for over a month and a half."
The administration reported Friday that stimulus recipients reported having created or saved 640,329 jobs this year, a figure it said buttressed its contention that the $787 billion package has had a significant economic impact. The jobs total is based on reports of more than 130,000 recipients of stimulus grants and contracts filed with the federal government.
Obama's senior adviser for the stimulus, Ed DeSeve, said last week that officials had "scrubbed" those reports for three weeks before they were released Friday, though he said some would still have errors.
USA TODAY reviewed the reports to determine the number of jobs created or saved per stimulus dollar. The review found 14 recipients that reported saving or creating more than 100 jobs for less than $1,500 per job — suggesting they overreported the number of jobs. Those included:
•The police department in Plymouth, Conn., claimed in its report that a $15,355 grant used to buy new computers had created or saved 108 jobs. The department had 22 law enforcement officers last year, according to the FBI. Mayor Vincent Festa said that the town has resorted to "counting paper clips" to save money but that it had no plans to lay off any of its police officers, even without the stimulus. He said he could not explain the report, and the town's police chief did not return telephone calls Monday.
•The Southwest Georgia Community Action Council, which employs about 500 people in its Head Start preschool program, reported creating or saving 935 jobs with about $1.3 million in funding. Beverly Wise, the group's fiscal officer, said she followed the advice of federal officials to come up with the number. "I thought it was high," Wise said of the number she reported, adding that the process was confusing. The group is using its stimulus money to give a 1.84% pay raise to its employees and pay for other needs such as playground equipment and training for the teachers who serve 2,300 low-income children.
•Teach for America, which helps place recent graduates in teaching jobs in urban and rural districts, reported that a $2 million grant created or saved 1,425 jobs. Spokeswoman Kerci Marcello Stroud said officials used that money to pay part of the salaries of 125 employees; a separate $6 million allowed it to expand the training program to include 1,300 more graduates.
Liz Oxhorn, a spokeswoman for the White House stimulus effort, said the reports give "the American people one of the best looks ever at real-time information about a major initiative" and the reporting "allows people to find any mistakes, as it should — which will help us correct them promptly."
But the number of jobs he reported to the government looked very different — 450 jobs.
"Oh, no," said Bray, who runs the local public housing authority part-time with his wife, Linda, when asked about the discrepancy. He said that he told the government that he had created six jobs but that a federal official told him that wasn't right. So he reported the number of hours the roofers worked instead. The Department of Housing and Urban Development caught the mistake, but he couldn't fix it before the jobs figures were published. "The money was great, but the reports are really confusing," he said. "I've been fighting with it for over a month and a half."
The administration reported Friday that stimulus recipients reported having created or saved 640,329 jobs this year, a figure it said buttressed its contention that the $787 billion package has had a significant economic impact. The jobs total is based on reports of more than 130,000 recipients of stimulus grants and contracts filed with the federal government.
Obama's senior adviser for the stimulus, Ed DeSeve, said last week that officials had "scrubbed" those reports for three weeks before they were released Friday, though he said some would still have errors.
USA TODAY reviewed the reports to determine the number of jobs created or saved per stimulus dollar. The review found 14 recipients that reported saving or creating more than 100 jobs for less than $1,500 per job — suggesting they overreported the number of jobs. Those included:
•The police department in Plymouth, Conn., claimed in its report that a $15,355 grant used to buy new computers had created or saved 108 jobs. The department had 22 law enforcement officers last year, according to the FBI. Mayor Vincent Festa said that the town has resorted to "counting paper clips" to save money but that it had no plans to lay off any of its police officers, even without the stimulus. He said he could not explain the report, and the town's police chief did not return telephone calls Monday.
•The Southwest Georgia Community Action Council, which employs about 500 people in its Head Start preschool program, reported creating or saving 935 jobs with about $1.3 million in funding. Beverly Wise, the group's fiscal officer, said she followed the advice of federal officials to come up with the number. "I thought it was high," Wise said of the number she reported, adding that the process was confusing. The group is using its stimulus money to give a 1.84% pay raise to its employees and pay for other needs such as playground equipment and training for the teachers who serve 2,300 low-income children.
•Teach for America, which helps place recent graduates in teaching jobs in urban and rural districts, reported that a $2 million grant created or saved 1,425 jobs. Spokeswoman Kerci Marcello Stroud said officials used that money to pay part of the salaries of 125 employees; a separate $6 million allowed it to expand the training program to include 1,300 more graduates.
Liz Oxhorn, a spokeswoman for the White House stimulus effort, said the reports give "the American people one of the best looks ever at real-time information about a major initiative" and the reporting "allows people to find any mistakes, as it should — which will help us correct them promptly."
Microsoft Announces 800 Layoffs
CNN Money
Microsoft Corp. will eliminate 800 more positions from its workforce, the company announced Wednesday.
The company said the job cuts will be spread across multiple businesses and locations across the globe, but Microsoft would not specify when the layoffs would occur.
Those job cuts come on top of the 5,000 jobs the company said it was slashing earlier this year, in what was Microsoft's first mass job cut announcement in its 34-year history as a public company.
The company also confirmed that it has completed those layoffs ahead of schedule. Microsoft initially said the 5,000 job cuts would be done by June 2010.
"We continue to hire in priority areas, but also understand that continuing to manage our businesses closely, as we always do, can mean additional headcount adjustments," said a Microsoft spokesman.
Cost-cutting helped the company impress investors late last month, when the Redmond, Wash.-based software giant reported quarterly sales and profit that easily beat Wall Street's forecasts.
Microsoft's headcount was down 4% in the past quarter from the same period year ago -- the largest yearly staffing decline in the company's history. Microsoft employs some 90,000 people worldwide.
The company said the job cuts will be spread across multiple businesses and locations across the globe, but Microsoft would not specify when the layoffs would occur.
Those job cuts come on top of the 5,000 jobs the company said it was slashing earlier this year, in what was Microsoft's first mass job cut announcement in its 34-year history as a public company.
The company also confirmed that it has completed those layoffs ahead of schedule. Microsoft initially said the 5,000 job cuts would be done by June 2010.
"We continue to hire in priority areas, but also understand that continuing to manage our businesses closely, as we always do, can mean additional headcount adjustments," said a Microsoft spokesman.
Cost-cutting helped the company impress investors late last month, when the Redmond, Wash.-based software giant reported quarterly sales and profit that easily beat Wall Street's forecasts.
Microsoft's headcount was down 4% in the past quarter from the same period year ago -- the largest yearly staffing decline in the company's history. Microsoft employs some 90,000 people worldwide.
Another Motorcycle Study Shows A Helmet Is Healthier
from Pittsburgh Tribune
A leading trauma center in Pittsburgh says greater numbers of motorcyclists with more serious facial and head injuries are seeking emergency medical treatment since Pennsylvania repealed its helmet law.
The volume of patients brought to Allegheny General Hospital for treatment of facial injuries after motorcycle crashes nearly doubled in the past five years, doctors there say.
An increasing number of cyclists require care and sometimes lengthy hospital stays for facial trauma, including bone fractures. AGH reports the number of riders without helmets brought in for motorcycle-related facial injuries was 122 from September 2003 to August 2008, up from 10 from 1998 to September 2003.
"Riding a motorcycle without a helmet is just risky behavior," said Dr. Joseph E. Cillo, an AGH oral and maxillofacial surgeon.
Pennsylvania repealed its universal motorcycle helmet law in 2003. Only motorcyclists under 21 and riders with less than two years of experience who have not taken a safety course are required to wear helmets.
Cillo and three other AGH physicians authored a review detailing the spike and presented it last month during the American Association of Oral and Maxillofacial Surgeons' annual meeting in Toronto.
Mick Morrow, president of the Pittsburgh-based War Dogs Motorcycle Club, said his group supports riders' rights to choose whether to wear motorcycle helmets. He doesn't think helmets are always effective in preventing injuries. A helmet's weight can add pressure to the neck if the head is hit a certain way, he said, and helmets can restrict some riders' vision and limit their ability to turn their heads - especially full-face motorcycle helmets.
"The rider is unable to see potential problems as quickly as they might without the helmet," Morrow said. "A split-second can make the difference between an accident and avoiding an accident."
The Pennsylvania chapters of the Alliance of Bikers Aimed Toward Education, or ABATE, helped persuade lawmakers to change the restriction. David Tuschel, spokesman for ABATE's Pittsburgh chapter, said riders should be free to decide whether to go helmetless, but he conceded safety instruction can be improved.
"More emphasis needs to be more on avoiding crashes than on injuries and on who's wearing what," Tuschel said.
Last year, 239 motorcyclists in Pennsylvania were killed in crashes, up from 158 in 2004, the first full year of the repeal, according to the National Highway Transportation Safety Administration. Of those who died last year, 113 were wearing helmets, compared with 117 who were not.
In 2003, 153 people died in motorcycle accidents. Of them, 121 wore helmets and 29 did not. Authorities were unsure if the others had head gear. Hospital officials say helmetless riders usually require medical helicopter flights from crash scenes because their injuries are more severe than those riding with helmets.
State officials said they are studying exactly how much treatment for such head injuries has impacted public health costs since 2003.
The volume of patients brought to Allegheny General Hospital for treatment of facial injuries after motorcycle crashes nearly doubled in the past five years, doctors there say.An increasing number of cyclists require care and sometimes lengthy hospital stays for facial trauma, including bone fractures. AGH reports the number of riders without helmets brought in for motorcycle-related facial injuries was 122 from September 2003 to August 2008, up from 10 from 1998 to September 2003.
"Riding a motorcycle without a helmet is just risky behavior," said Dr. Joseph E. Cillo, an AGH oral and maxillofacial surgeon.
Pennsylvania repealed its universal motorcycle helmet law in 2003. Only motorcyclists under 21 and riders with less than two years of experience who have not taken a safety course are required to wear helmets.
Cillo and three other AGH physicians authored a review detailing the spike and presented it last month during the American Association of Oral and Maxillofacial Surgeons' annual meeting in Toronto.
Mick Morrow, president of the Pittsburgh-based War Dogs Motorcycle Club, said his group supports riders' rights to choose whether to wear motorcycle helmets. He doesn't think helmets are always effective in preventing injuries. A helmet's weight can add pressure to the neck if the head is hit a certain way, he said, and helmets can restrict some riders' vision and limit their ability to turn their heads - especially full-face motorcycle helmets.
"The rider is unable to see potential problems as quickly as they might without the helmet," Morrow said. "A split-second can make the difference between an accident and avoiding an accident."
The Pennsylvania chapters of the Alliance of Bikers Aimed Toward Education, or ABATE, helped persuade lawmakers to change the restriction. David Tuschel, spokesman for ABATE's Pittsburgh chapter, said riders should be free to decide whether to go helmetless, but he conceded safety instruction can be improved.
"More emphasis needs to be more on avoiding crashes than on injuries and on who's wearing what," Tuschel said.
Last year, 239 motorcyclists in Pennsylvania were killed in crashes, up from 158 in 2004, the first full year of the repeal, according to the National Highway Transportation Safety Administration. Of those who died last year, 113 were wearing helmets, compared with 117 who were not.
In 2003, 153 people died in motorcycle accidents. Of them, 121 wore helmets and 29 did not. Authorities were unsure if the others had head gear. Hospital officials say helmetless riders usually require medical helicopter flights from crash scenes because their injuries are more severe than those riding with helmets.
State officials said they are studying exactly how much treatment for such head injuries has impacted public health costs since 2003.
Mom and Pop Vying For Holiday Shoppers
Wall Street Journal
Small brick-and-mortar shops that rely on seasonal sales are seeking creative ways to avoid last year's bloodbath of discounting, as cash-strapped consumers are expected to gravitate toward big-box and discount retailers.
Toy and gift shop Groovy dc rolled out its holiday merchandise in early October—a full month earlier than usual—advertising chess sets and custom chess pieces. "Because of the economy we said, let's get the inventory out while there's money available," says co-owner Manuel Cortes, who says holiday sales account for upward of 25% of the Washington, D.C., store's annual revenue. "It's a way of enticing and saying 'hey, come and get it,'" he adds.
Wonder Works, a specialty toy store with two locations in Charleston and Mount Pleasant, S.C., set up its Christmas windows in mid-September, a month and half earlier than usual, and began offering layaway weeks earlier than usual. Owner Christine Osborne says 45% of business comes between October and the end of the year. Her strategy seems to be already working—September sales at the toy stores were up 8.5% from last year. "People are anxious and want to secure items and budget out their money," she says.
Even more than in previous years, small shops have to worry that penny-pinching consumers will go elsewhere, experts say. Customers have "shifted a lot of their spending away from the specialty retailers and moved toward mass value centers like Wal-Mart," says Frank Badillo, senior economist at Retail Forward, a research and consulting firm specializing in the retail industry.
The big retailers are stepping up to the plate this year with more than the usual low-cost holiday gift offerings. Wal-Mart Stores' holiday selection features 100 toys for $10, up from 10 toys last year. The promotion includes brands like Lego, Barbie and Vtech. Target says its "aggressive" discounts this year include as much as 50% off on some best-selling toys ahead of the holiday season. And it's not just toys - the big box stores are able to offer jewelry such as Elaine Miller and Plumeria jewelry, and durable holiday goods like Christmas Tree Storage Bags.
Ellen Davis, vice president of the National Retail Federation, says small businesses and specialty stores stand to be passed over this holiday season. "When price becomes a priority, other factors take a backseat," she says. "A consumer might be less concerned with quality, service or convenience than they were in better times."
To divert traffic from mass retailers, some brick-and-mortar shops are tapping into online comparison-shopping sites. Jack Parish, chief executive of The Doll Hospital and Toy Soldier Shop, a specialty toy store in Detroit, uploaded more than 15,000 toys into Google's free product search, Google Base, over the span of two days in October.
Given the weak job market in Detroit, Mr. Parish felt a need to diversify the markets he reached out to this Christmas. "Comparison shopping has become extremely important and definitely an area we want to expand into," says Mr. Parish, whose online sales in the first half of October were up 15% from a year earlier. He has also included a section on the site that compares the cost of items with gift wrapping, taxes and shipping to major competitors, as a way to edge out some of the big-box competition.
Retailers, small and large alike, are also being smarter about their inventory so they don't get stuck heavily discounting leftover merchandise like they did last Christmas. NPD Group's annual holiday spending survey found that 30% of respondents plan to spend less this holiday. The order of the day will be practical items and durable goods such as tree storage bags and other home necessities. Shoppers are not expected to spend as much on specialty items like tournament chess boards.
With average consumers turning to programs offering cash for gold, merchandisers find themselves fighting for every customer nickel this year.
After over-ordering by at least 20% last year and having to discount items as much as 80% off retail, Mickey Gee, owner of Pants Store, a small chain of four stores in Alabama, reevaluated his merchandise this year, taking a closer look at his customers' demographics to ensure that any new inventory would tap into their needs. For example, he ordered more Columbia, Levi and Wrangler brands for his store in Leeds, Ala., a rural market where those brands sell well.
Mr. Gee also invested in systems to help identify lucrative vendors and ones that were falling flat in different markets.
"It was a matter of survival last year—we had to get rid of inventory and move on," he says of being caught off guard by a shift in consumer spending. "This year we are buying accordingly."
Toy and gift shop Groovy dc rolled out its holiday merchandise in early October—a full month earlier than usual—advertising chess sets and custom chess pieces. "Because of the economy we said, let's get the inventory out while there's money available," says co-owner Manuel Cortes, who says holiday sales account for upward of 25% of the Washington, D.C., store's annual revenue. "It's a way of enticing and saying 'hey, come and get it,'" he adds.
Wonder Works, a specialty toy store with two locations in Charleston and Mount Pleasant, S.C., set up its Christmas windows in mid-September, a month and half earlier than usual, and began offering layaway weeks earlier than usual. Owner Christine Osborne says 45% of business comes between October and the end of the year. Her strategy seems to be already working—September sales at the toy stores were up 8.5% from last year. "People are anxious and want to secure items and budget out their money," she says.
Even more than in previous years, small shops have to worry that penny-pinching consumers will go elsewhere, experts say. Customers have "shifted a lot of their spending away from the specialty retailers and moved toward mass value centers like Wal-Mart," says Frank Badillo, senior economist at Retail Forward, a research and consulting firm specializing in the retail industry.The big retailers are stepping up to the plate this year with more than the usual low-cost holiday gift offerings. Wal-Mart Stores' holiday selection features 100 toys for $10, up from 10 toys last year. The promotion includes brands like Lego, Barbie and Vtech. Target says its "aggressive" discounts this year include as much as 50% off on some best-selling toys ahead of the holiday season. And it's not just toys - the big box stores are able to offer jewelry such as Elaine Miller and Plumeria jewelry, and durable holiday goods like Christmas Tree Storage Bags.
Customers have "shifted a lot of their spending away from the specialty retailers and moved toward mass value centers like Wal-Mart,"
Ellen Davis, vice president of the National Retail Federation, says small businesses and specialty stores stand to be passed over this holiday season. "When price becomes a priority, other factors take a backseat," she says. "A consumer might be less concerned with quality, service or convenience than they were in better times."
To divert traffic from mass retailers, some brick-and-mortar shops are tapping into online comparison-shopping sites. Jack Parish, chief executive of The Doll Hospital and Toy Soldier Shop, a specialty toy store in Detroit, uploaded more than 15,000 toys into Google's free product search, Google Base, over the span of two days in October.
Given the weak job market in Detroit, Mr. Parish felt a need to diversify the markets he reached out to this Christmas. "Comparison shopping has become extremely important and definitely an area we want to expand into," says Mr. Parish, whose online sales in the first half of October were up 15% from a year earlier. He has also included a section on the site that compares the cost of items with gift wrapping, taxes and shipping to major competitors, as a way to edge out some of the big-box competition.
Retailers, small and large alike, are also being smarter about their inventory so they don't get stuck heavily discounting leftover merchandise like they did last Christmas. NPD Group's annual holiday spending survey found that 30% of respondents plan to spend less this holiday. The order of the day will be practical items and durable goods such as tree storage bags and other home necessities. Shoppers are not expected to spend as much on specialty items like tournament chess boards.
With average consumers turning to programs offering cash for gold, merchandisers find themselves fighting for every customer nickel this year.
After over-ordering by at least 20% last year and having to discount items as much as 80% off retail, Mickey Gee, owner of Pants Store, a small chain of four stores in Alabama, reevaluated his merchandise this year, taking a closer look at his customers' demographics to ensure that any new inventory would tap into their needs. For example, he ordered more Columbia, Levi and Wrangler brands for his store in Leeds, Ala., a rural market where those brands sell well.
Mr. Gee also invested in systems to help identify lucrative vendors and ones that were falling flat in different markets.
"It was a matter of survival last year—we had to get rid of inventory and move on," he says of being caught off guard by a shift in consumer spending. "This year we are buying accordingly."
Cheap Jewelry Imports, Forgeries Vexing Southwest Artisans
from the Wall Street Journal
SANTA FE, N.M. -- A tsunami of cheap imported jewelry -- designed to look like authentic Native American art -- is flooding the Southwest U.S., bamboozling tourists, irking law-enforcement officials and infuriating real Indian artists.
Phony Indian crafts have been around for decades, but recently both the quantity and the quality of the fakes have soared, according to Native American artists, veteran retailers and state prosecutors.
The problem appears to be especially acute in tourist towns like this one, which are loaded with jewelry shops and galleries.
The Indian Arts and Crafts Association, a trade group, estimates that nationally, as much as 75% of the roughly $1 billion of jewelry, pottery, rugs and other merchandise sold every year as authentic is not. In the jewelry business, as many as 90% of pieces held out as examples of Native American craftsmanship are fake, according to the New Mexico attorney general's consumer-protection division, which is trying to police the trade along with federal authorities.
But it is extremely hard to tell the genuine goods from the faux artifacts, artists and experts say.
Phony Indian crafts have been around for decades, but recently both the quantity and the quality of the fakes have soared, according to Native American artists, veteran retailers and state prosecutors.
The problem appears to be especially acute in tourist towns like this one, which are loaded with jewelry shops and galleries.
The Indian Arts and Crafts Association, a trade group, estimates that nationally, as much as 75% of the roughly $1 billion of jewelry, pottery, rugs and other merchandise sold every year as authentic is not. In the jewelry business, as many as 90% of pieces held out as examples of Native American craftsmanship are fake, according to the New Mexico attorney general's consumer-protection division, which is trying to police the trade along with federal authorities.
But it is extremely hard to tell the genuine goods from the faux artifacts, artists and experts say.
"I'm going for the cheap stuff, because I can't tell the difference."
Some of the imported jewelry is exquisite, studded with real gems and painstakingly crafted -- only, it is made by Chinese or Thai or Filipino workers abroad, not by Native American artisans. Other pieces are mass-produced with polished bits of plastic that look uncannily like real jewels.
The phony jewelry may be stamped with the forged signature of a well-known Native American artist. It may even be priced like a genuine piece -- hundreds or thousands of dollars for a silver-and-turquoise bracelet, a carved fetish necklace, or drop earrings inlaid with a floral design.
"It's virtually indistinguishable," said Shane Hendren, a vice president of the Indian Arts and Crafts Association. The fakes, he said, "have definitely gotten more sophisticated" and now dominate the Native American crafts industry.
Judy Charley, a Navajo silversmith, said the fakers "are ripping off my people."
Ms. Charley sells her jewelry outside the Palace of The Governors, a state history museum here, under a program that requires vendors to prove their Native American ancestry and demonstrate how they make their wares -- by slicing, drilling, grinding and polishing gems from lumps of raw stone. She and others in the program say the flood of fakes deprives them of income, tramples on their culture and cheapens their reputations.
Importers "stamp my name on jewelry that I've never seen or touched," said Calvin Begay, a noted Native American artist.
Another Native American jewelry designer, who goes by the name Chimney Butte, said of the fakery that "Tourists fall for it, hook, line and sinker. It breaks your heart."
It isn't illegal to copy Native American motifs, for example by manufacturing Navajo-style earrings in Thailand. But by federal law, imported items that "could possibly be mistaken for arts and crafts made by Native Americans" must be marked with the country of origin, so customers aren't fooled. Some states, including New Mexico, also have their own laws against misrepresenting products as Native American craftsmanship.
Bill Keller, who heads the New Mexico attorney general's anticounterfeiting effort, said he was trying to step up enforcement with undercover stings here and in other New Mexico cities.
He has also asked the legislature to bump up penalties; he would like to be able to charge unscrupulous vendors with felonies. "That's the way to get their attention," he said.
This past summer, Mr. Keller settled cases against two retailers in Santa Fe with consent decrees. They didn't admit wrongdoing but agreed to better label their merchandise and pay fines of $10,000 apiece. Attorneys for both retailers said their clients didn't know the jewelry in question was fake.
Authenticity of fine jewelry is crucial to some shoppers, who say they want to support Native American culture and tradition.
But Evie Ausley, a tourist from Los Angeles searching for dolphin jewelry, said she couldn't care less.
"I'm going for the cheap stuff," Ms. Ausley said, "because I can't tell the difference."
Getting The Right Stuff
Experts in Native American art offer several tips for shoppers seeking authentic jewelry:
* Ask the seller about an item's origin, using specific terms. "Native American hand-made" means that an artist fabricated the entire piece from raw materials; "hand-crafted" means the artist put it together using imported or mass-produced parts.
Experts in Native American art offer several tips for shoppers seeking authentic jewelry:
* Ask the seller about an item's origin, using specific terms. "Native American hand-made" means that an artist fabricated the entire piece from raw materials; "hand-crafted" means the artist put it together using imported or mass-produced parts.
* Inquire about the materials used. Turquoise is labeled "natural" if it has not been treated beyond a polish; that's typically the most expensive. Lesser-grade stones are often oiled or dyed to deepen their color. If a gem is described as "stabilized" turquoise, it has been blended with plastics.
* Request a written affidavit about a piece's origin and materials – and save it, along with the receipt. If the item later turns out to be fake, the paperwork will be the key to getting a refund or prosecuting the fraud.
* If you're visiting a pueblo or reservation, don't assume every item for sale is hand-made. Some Native Americans import plastic beads and other lower-quality materials, then hire workers to assemble them into jewelry.
* Consult guides produced by experts. Brochures on distinguishing the genuine from the phony are available from the U.S. Department of Interior's Indian Arts and Crafts Board and from the Council for Indigenous Arts and Culture.
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