Return to Virginia Business - July 2004

After manufacturing, what's next for Martinsville?

Related stories:
- Martinsville-Henry County facts at a glance
- Defense contractor MZM moving operations to Matinsville
- Martinsville Speedway sold for $192 million
- A win for Virginia Motorsports Initiative
- Henry County, Martinsville get help for business park
- Cabinet manufacturer locating new facility in Henry County


by Heather B. Hayes
Virginia Business
July 2004

JIt’s easy to understand why people in Martinsville and Henry County would prefer to talk about something other than the area’s recent loss of its 80-year-old textile industry to overseas markets. With unemployment rates of 14.7 percent and 12.2 percent, the region bears the dubious honor of leading Virginia in unemployment. It’s an unfamiliar reality for this small town and rural enclave of 73,000 nestled among the Blue Ridge Mountains along the southern border of the state. Once humming with the sounds of assembly lines and sewing machines, Martinsville was better known for its sweatshirts, furniture and Nascar racing than for bleak economic news.

Surprisingly, though, people around town remain upbeat about the area’s prospects for turning things around, and a large part of that extends from a strong sense of faith in the area’s long-time reputation as a good place for doing business. “I wouldn’t say that we’re overly optimistic but we are determined,” says Thomas L. Harned, director of economic development for the city of Martinsville. “We transitioned 100 years ago from tobacco to furniture and textiles, and we think we will make another successful transition to a more highly diversified economy.”

Despite the austere employment numbers, Martinsville and Henry County actually have a jump on that goal. The region had presciently begun preparing itself for potential economic calamity a decade ago, though Harned admits, “I don’t think anyone thought it would be as severe as it was or come as quickly as it did.”

Town officials built a high-speed fiber network, a 73-acre office park and several shell buildings. And they embarked on a successful recruiting effort, recently bringing in such new companies as Knauss Snack Foods; New Roads, an order-fulfillment/customer service company; and MZM Inc., a Washington, D.C.-based defense contractor that will run a back-end analysis operation out of Martinsville. The region even managed to bring a few firms from the beleaguered textiles industry. Nautica Enterprises has opened a distribution and customer service center here, while Sara Lee Casualwear, which once had its entire manufacturing operation in Martinsville, now runs its East Coast distribution center out of an old Tultex plant.

Meanwhile, the area’s time-honored furniture industry has also managed to thrive through diversification. For example, Hooker Furniture Co., which has been part of the Martinsville landscape since 1924, reported record sales of $309 million in 2003 by embracing the past and the future. The 700-employee firm continues to manufacture high-quality wood furniture, but 15 years ago it got into the import business, reselling wood furniture pieces from more than 65 international suppliers. Nonetheless, maintaining the dual focus is a struggle, CFO E. Larry Ryder admits, explaining that the import business is helping to support manufacturing, which hasn’t seen any sales growth at all over the past several years. Still, Hooker Furniture remains committed to preserving the homegrown operation that made it famous.

“We’ve got a lot of employees counting on us, and we’re doing everything that we can,” Ryder says. “But it’s becoming more and more of a challenge because quite frankly we’re seeing a lot of very good competition from foreign sources.”

This pattern of good news offset by troubling news is becoming all too familiar to the residents of Martinsville and Henry County. “We’ve actually created more than 5,000 new jobs over the past 10 years,” says Gene Teague, mayor of Martinsville. “At the same time, though, we lost a whole lot more. So it’s been a case of one step up and two steps back.”

Teague, who himself lost two jobs during the manufacturing meltdown of the late 1990s, thinks the Martinsville area has the potential to permanently turn that negative jobs gap around. And, he says, it has an advantage over other hard-hit areas because of its willingness to take whatever steps are necessary to both recruit and expand business and revitalize the community.

The region, for example, recently entered into a unique strategic marketing alliance with Arlington County. The idea is to attract companies — the model being MZM — that need executives in close proximity to government decision-makers in the Washington area but have back-office operations that can thrive in a rural area with lower operating costs, abundant space and resources and existing infrastructure. The plan was approved only this spring, but some companies have already expressed interest, according to both Harned and Adam Wasserman, director of Arlington Economic Development.
The region is also building on its status as home to the famed Martinsville Speedway by undertaking a Motorsports Initiative. It includes programs in motor sports management, chassis design and construction and engine technology at Patrick Henry Community College, and a special effort to recruit related businesses. Martinsville is already home to Arrington Manufacturing, which builds Dodge engines for the NASCAR truck series, and H-T Motorsports recently announced that it was relocating its truck racing team and 75 jobs from North Carolina to Henry County.

Officials at new companies say that they’ve been pleasantly surprised by the unique combination of characteristics the region has to offer. MZM was initially attracted to Martinsville, because unlike most manufacturing towns, it boasted a technology-enabled shell building that was ready for customization. “It saved us about a year and a half in construction time,” says CEO Mitchell Wade. Still, officials worried that the local area wouldn’t be able to supply the high-tech work force required and made plans to focus their recruiting efforts in larger metropolitan areas. Instead, Wade says, the company has been inundated with impressive resumes from people with ties to Martinsville. “We now believe that we’re going to be able to hire 80 percent of the folks out of Martinsville.”

John Halley, CFO of Knauss Foods, Inc., which moved its entire meat snacks division to Martinsville from its base in Pennsylvania, says the new operation is saving 10 to 15 percent on its total operating costs and around 25 percent on labor. This quarter the company registered record growth and has plans to grow its employee rolls from 130 to 150 in the next few months. “We’ve only had full packaging capacity in this facility for 60 days, so that says a lot about the productivity of the work force, which we think is just topnotch,” Halley says. “They’ve exceeded all of our expectations.”

Despite these success stories, there are potential troubles on the horizon. In May, Martinsville Speedway was sold to International Speedway Corp. (ISC), inciting fears among local residents that the transaction might mean the loss of at least one of the track’s two annual NASCAR events, which together pump up to $60 million every year into the local economy. But track president (and former owner) W. Clay Campbell dismisses such concerns, noting that ISC, a half-billion dollar company, has the kind of resources that are needed to improve the track and is already going forward with $3 million worth of planned capital improvements. “I think that’s a pretty good sign that they’re here for the long-term,” he says. Still, on the chance that Martinsville might lose one or both Nascar races Campbell was less firm. Nascar race dates are awarded on an annual basis, he says, and nothing has ever been guaranteed.

No matter what happens with the speedway, the economic woes of Martinsville and Henry County will continue for some time, according to Teague, the recent recruitment of a spate of diversified firms not withstanding. After all, the region is still strapped with double-digit unemployment. “I definitely would not classify our efforts as being as successful as we’d like them to be,” says Teague.

But the work to transform the region into a potent economic force will continue, he says, helped in part by the Harvest Foundation, a new $190 million endowment that was created after the sale of Memorial Hospital of Martinsville two years ago. The fund provides grants to organizations interested in improving health, education and welfare within the city and county and has already come forward with money to help with small business development, community revitalization and work force training. This includes nearly $400,000 to hire a market consultant to analyze the area’s economic development efforts, provide additional strategies and monitor progress. “It’s a source of revenue at a time when the community doesn’t have a lot of revenue with which to address its problems,” says Harvest Foundation Executive Director Harry Cerino.

And it’s a sign that the community has no intention of looking back on its past glory and clinging to an outdated industrial identity. “You can’t just keep doing the same thing,” Teague says. “We think that by being creative and building on our strengths, we’re already yielding some positive results, and we’ll continue to see progress. If not, we’ll try something else. But we’re confident that what we’re doing will work. It has to work.”

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