Behind the Headlines – December 6, 2019

– (female announcer)
Production funding for “Behind the Headlines
is made possible in part by: the WKNO Production Fund, the WKNO Endowment Fund, and by viewers like you.
Thank you. – FedEx’s Richard Smith on
Memphis, Economic Development, and much more tonight on
“Behind the Headlines.” [dramatic orchestral music] – I’m Eric Barnes with
“The Daily Memphian,” thanks for joining us. I am joined tonight by
Richard Smith who carries multiple roles at the Chamber. Or, not the Chamber,
and at FedEx. You are regional president,
U.S. of FedEx Express. You’re executive vice
president of global support for FedEx Express, and you
are the outgoing president of the Memphis Chamber. So,
thank you for being here. – Thank you. Appreciate you having me. – A little bit of
all that today, with Bill Dries, reporter
with “The Daily Memphian.” So, let’s start with
the kinda big picture, and this is both a question
for you as a resident, as somebody who has been
very involved in the Chamber as president for
the last two years, at a very difficult
time for the Chamber after the loss of Phil Trenary. But also, heavily
involved in FedEx. When you think about
Memphis’ biggest challenges, from a business point of
view, what comes to mind? – Well, the biggest
challenge, I think, that Memphis faces
is our poverty level. And, equity is
another big challenge. There was a statistic
that came out, I think it was a 2015
census report that came out and said, essentially, less
than 1% of all business receipts accrue to black-owned
businesses. And, in a community
that is 64% minority, that’s simply unsustainable. So, the problem that
I set out to solve when I became chairman of
the Greater Memphis Chamber was interrelated to that issue. So, Caroline Hardy who preceded
me as the Chamber Chair had kicked off a large MWBE
supplier diversity initiative as part of our chairmen circle, one of the moon missions
of the chairmen circle, if you will. We asked all of our
chamber members to try to do at least one new contract
with an MWBE business. We followed up with them. We exceeded the
goal that we set, though it was a pretty low
goal, to be quite candid. The challenge, though,
was the lack of real economic growth
in our community. So, when you have a
pie that’s not growing, and you’re literally
going to your existing member companies, some of whom have longstanding relationships with their suppliers
and vendors, and you’re saying, “Hey, I
know you have a relationship “with this company over here, “we’re asking you to
switch and move it “to somebody else,” that
is a difficult proposition. So, we didn’t make
as much progress on the supplier
diversity initiative, the MWBE initiative, as we
wanted to in that two years. And, I kept pointing to
the lack of top-line growth as the real problem. ‘Cause, if you’re
not growing at all, if your real GDP
growth is essentially a dead man’s EKG, as
ours was for decades, until more recently,
you’re ability to solve that specific problem, your
ability to have an impact on equity and poverty in this
community is non-existent. So, I had to get us growing. – Right. And, we’ll come back to
a lot of those issues, which you just brought up. But, let’s flip that
question to say, what are our biggest
advantages as a city? – So, I think some of our
biggest advantages that go… The one’s that you
always read about, certainly geography,
certainly the transportation and logistics infrastructure,
in terms of where we sit. Having FedEx here, of
course, is a big one. But, we have all four
major modes of transport. You’ve got your river,
fourth-largest inland river port in the United States of America. Rail, all five class-one
railroads converge here. Great road connectivity,
highway infrastructure and connectivity for surface
transport on the road. And, of course runway ramp,
which is air transport, we’re the second-largest
air cargo hub in the world, second only to Hong Kong, and the largest certainly
in North America, so you’ve got those
inherent advantages. But I think something that
really goes unheralded is the diversity in our
community and the people. Demographically, we
are a young community. There are a lot of
cities right now, particularly with
labor so tight, and unemployment hovering
around historical lows, there are a lot of
communities that would love to have the demographic makeup of the population that we have. We’re a majority
Millennial city, meaning the majority,
the largest demographic in our community is in
that Millennial bracket. We have a lot of Gen Z folks
entering the workforce now, or attempting to
enter the workforce. A lot of young people
in this community. So, I think that’s
something that companies, as they’re looking around
for places to expand, or to move, or
set up a location, they’re looking for
who has the workforce. So, it’s increasingly
becoming an important issue, and that is an
asset that we have, is just our demographic
makeup of our population. – Let me bring Bill in. – So, where do you think
we are at this point in growing minority business? And, have we settled
what was the question about basically a carrot or
a stick approach to this? – Yeah, so I think the
carrot or the stick approach was essentially part of
my push to figure out what were the obstacles
to us growing. That was one of
many, by the way. And, what I think you’re
specifically referring to was a proposal that I
had put on the table to look at a new type
of incentive structure, what I called the
diversity accelerator, which would have been,
the incentives deepen as you spend more with
MWBE suppliers and vendors. I had basically said,
look, no other community we compete with has this
hard requirement out there for companies, particularly
foreign capital coming into your market. That presents a risk that no
one else presents to them. So, it was a challenge. I said, “Why don’t we
incentivize it instead.” There was a pretty
vitriolic reaction to that from the community. At that point, we hadn’t
won a headquarters or back-office project
since 2005 when IP, International Paper consolidated their global headquarters here. So, I narrowly
tailored it to say, “Why don’t we just
aim it at that segment and remove the requirement
and make it pure incentive?” Well, it’s probably a good
thing I didn’t do that because we began winning
headquarters deals, including my own
shortly thereafter. And, I’m happy to
report, when it comes to the FedEx logistics
headquarters, we’re at about 30%
MWBE participation, which is excellent and higher
than the norm on that project. But, to go back
to your question, that was all an attempt to
essentially remove something that I had been told
by site selectors was a barrier in saying, “Hey, let’s focus
on winning the deals “at the top-line level, and
incentivizing what we want, is more MWBEs, which
is more MWBE spend.” So, essentially after
talking to a lot of minority business
owners in the community, I said, “Well fine. You don’t have to remove
the requirement, de-risk it.” So, what you need, is you
need someone to take ownership of that process and work with
particularly a foreign company to connect them to
the MWBE suppliers that are out there, similar
to what Joanne Massey does for the city side. When you contract with the city, she’s there to up
that MWBE spend, and to actually be a
resource to work with you as you’re contracting
with the city and help connect you
with the suppliers that can do the work. – So, the suppliers
and contractors are, from your point of view, and you’ve mentioned FedEx
Logistics moving down to the Gibson Building downtown, they’re out there. ‘Cause that was a part
of the conversation, of people saying
behind closed doors, or out on camera–
– They are– – They’re not there, we can’t– – They are and they aren’t. So, we have capacity
in certain areas. We have lots of
capacity in some areas. We lack it in other areas. So, that’s part of,
when we’re talking about this carrot-versus-stick thing, I don’t think it’s an
either/or actually. I think it’s really about
de-risking it for a company. Having a resource there,
whether it’s House to EDGE, whether it’s the Chamber. And, the Chamber and EDGE, as part of our regional
economic alliance is very focused on this,
and working with companies and helping to try
to connect them with the minority and
women-owned suppliers that can do the work. And, what you find
is, in some areas, we have capacity, lots of it. In some areas, it’s
an issue of scale, so we may have capacity, but it’s a small
two-person outfit that couldn’t do work
at the scale of say, a FedEx hub
modernization project, or a Saint Jude expansion, unless you have a lot of
small vendors come together and there’s, of course, some
focus on how do we do that, how do we build some
scale by basically getting a lot of
smaller minority and women-owned vendors
together who could actually meet the requirements for scale
that a large-scale project has. So, there are a number of
things we’re doing here to try to address
those challenges. And then, there’s other areas
where there’s no capacity. And, that’s what
our 800 Initiative, which we kicked
off with Epicenter, and which FedEx is
a big sponsor of. And of course,
Epicenter, you know, was a Chamber Moon
Mission that spun out and now stands on
its own two feet and has been wildly successful
in helping entrepreneurs, particularly minority and
women-owned small businesses or start-ups. And, they’re trying
to build capacity in those areas where we
identify a lack of capacity. So, we’re really trying to
kinda complete the ecosystem, if you will, and say, “How do
we plug in the MWBE suppliers “where we have capacity? “How do we help
them achieve scale “where they don’t have it today, “or maybe help them pull
together so they can have ” the scale to meet the needs of
a larger project for today “they couldn’t on their own? “And then, how do we fill
in the gaps in the capacity where we lack it today?” So, we’re trying to
do all of the above to address that issue. – So, what you’re trying
to knit together here is essentially something
that can hold together and continue to produce gains in the share of
minority business even when the economy is
not booming, as it is today? – 100%. And, in terms of the
economy not booming, well if you’re looking at the
global economy, certainly not. I think it’s been
well-documented that that is a result of a lot of the
trade policy here and abroad, and protectionism in the world, which has slowed things down. In the U.S., obviously the
industrial sector is slowing down, but the American
consumer is still strong. But, when you look at
Memphis, and Memphis’ growth, we’re actually growing faster
than we have in decades. Now, that’s because our
real GDP growth was so low that the bar was down here, but it’s still a trend moving
in the right direction, so I would say we should
celebrate that success. I mean, we are
growing right now. And, in fact, even in
an economic downturn where things get soft,
I’m not sure that that would hurt
Memphis this time as badly as the
last recession did, because we have some
momentum going into it. And, because the
cost of living here, and some of the other
advantages we have, in terms of being a very
fiscally well-run state, would benefit us. So, there may be companies that, in an economic
downturn in the U.S., should the consumer
sentiment start to slow, and we dip into a
recession, to use the R word that everybody hates. – (Eric)
Did you just
predict a recession? – I didn’t predict
it, I’m just saying if and when it happens, I think we’re in a
better position now, particularly relative to
peer cities we compete with for all those reasons. I mean, our cost
of living’s lower. We could actually
see continued growth going into an economic downturn, or a U.S. recession,
for that reason. And, largely because we’ve
established some momentum. – Because of what’s
in the pipeline. – Because of what’s
in the pipeline. I mean, we’re actually
growing our population after years and years of
out-migration and decline, we’re actually seeing some
of the healthiest growth we’ve seen in about 15 years. I think, and I’ve
got some stats here, if you’ll forgive me, but, in 2018, marked the
metro area’s fastest year of population growth
in five years, which was up .22%,
our population, was up .22% from 2017. So, that’s an encouraging sign. People aren’t moving out
to the degree they were, we’re actually making up ground, and net we’re growing as a
population for the first time in many years. Moody’s Analytics currently
forecasts our population growth in 2020 will exceed
the national average for the first time since 2006. So, we’re headed in
the right direction. We do have momentum. Is it as fast as
everybody wants? Is it solving all of the
problems of our community? No, but you had to get growing before you could really
address anything, as I pointed out
in the beginning. – When you talk about
moving and in-migration, you did move, you’re
moving FedEx Logistics, which, you were CEO
of FedEx Logistics? – I was the– – Or, trade networks,
is that right? – It was trade networks. – Okay. – We combined it with
FedEx supply chain, which was another smaller
operating company. It was a company called
Genco we acquired, and we put them
together and that became the newly rebranded
FedEx Logistics. – Okay. That decision to
move it downtown, I think most people liked that, if you like downtowns,
or if you’re a believer in the importance of downtowns. So, it felt good civically. But, what was the
business decision? What remains, ’cause the
move hasn’t happened yet? What is the business decision
behind moving downtown? – So, the business decision
was a very sound one for us. But, a lot of things
had to happen to make it a fiscally sound decision. A lot went into this. So, as we consolidate
these companies, as we basically take
FedEx trade networks, which had legacy
headquarters, operations in other cities, in Buffalo. We had Custom Critical,
which was a part of that, which will actually come
into the Express segment, but had headquarters,
operations in Akron. We had headquarters,
operations in Tampa, and supply chain had
them up in Pittsburgh. We basically said, “To make this one FedEx
operating company,” we were gonna make it a fourth
FedEx core operating company, we needed to have a
global headquarters. And, if you look at the trend, in terms of
attracting new talent, particularly
Millennial and Gen Z, they wanna be and live urban, live, work, and play
environments, in an urban core. Recently it was announced that, or right before I started
looking into this, actually it was announced
that Ford Motor Company was moving back into
downtown Detroit. And so, I had seen such trends
with other corporations, looking to take the mountain
to Mohammed, so to speak, in terms of going to
where the future talent is that you wanna attract. And I said, “Okay, if we’re
gonna pull this together, “and we’re gonna be able to
attract the talent we need “in consolidating these
legacy headquarters, functions in Memphis, Tennessee,
it needs to be downtown.” I loved the idea of the
Gibson Guitar Factory, I talked to Nick Vardy
at Service Master about the industrial
reclamation project that became their headquarters, which was the old
Peabody Place mall. He said it had been very
successful for them, and employees loved it. Obviously, there was a little
bit of noise from people whose commute got lengthened, but for the most part he
said it had been great for the employees, in
building a sense of community down there, attracting
new employees. So, I knew strategically it
was where I wanted to go. Your challenge comes in when
you take a facility like that, which is an old factory,
a guitar factory, which really has no other use, sitting right across
from the FedEx Forum, and to convert that into
Class A office space, you’re talking about
significant capital. Probably about $45 million
or so was what, I believe, we projected to retrofit that
into Class A office space. And, that decision came at
a very tough time for us, right when this global
economic slowdown because of the trade dispute
really started to hit, and we were taking
some other actions across other FedEx
segments to reduce costs. So, it was a very difficult
sell internally at FedEx, and we had to make
the numbers work. In fact, I could not
make them work initially, which is why we
walked away from it. And then, of course, we were
able to get the deal done, the state came through
with more in incentives, headquarters, credits and
things of that nature. – Yeah, and that’s the
thing where, I don’t know, you’ll get critics. There’s always a critic,
anything that happens. But, this gets into incentives, and incentives obviously
to the Chamber, and you’ve been involved
with EDGE and all… It’s always a big issue, right? And, people look from the
utside, and some say, “Look, FedEx is a
multi-billion dollar company, “they don’t need incentives, “why in the world would they
get any kind of incentive? They’ve got plenty of money.” What is your response
to those people? – You’d have to ask yourself,
in that particular instance, do you want me moving
my headquarters downtown and keeping 350
high-wage jobs here that are already in Memphis, and then bringing hundreds
of additional jobs, another about 350 net
new in that building, and then, of course,
there’s a phase two to that, which will bring even more
jobs to the Memphis area. In fact, more than we can
even fit in the Gibson. So, do you want all of that, all those jobs
coming down there, or would you rather have
your vacant guitar factory falling into disrepair
across from your NBA arena? That’s the only choice
you get. [laughs] – Right. And, how much
pressure do you have? I mean, I don’t know
if it’s analysts, if it’s shareholders saying, “Wait, why are you
guys doing this? “Why can’t you just
get cheap office space out in the suburbs?” I mean, do you get… You’re
a public company, so we– – That’s exactly the
conversation we have, yeah. That’s the exactly the
conversation we had, which is, “If I can’t make it
a financially good decision “for the company
and offset the CapEx “that’s gotta go in that
facility, then I would “have done something cheaper
in the suburbs, or I would’ve
shopped it around.” I mean, we could’ve gone to
one of those other cities I mentioned, we didn’t
have to be in Memphis. We could’ve gone to Pittsburgh,
we could’ve gone to Akron. – Right. And then, before
we go back to Bill, the other thing,
and this plays into the whole debate
about incentives. That is, cities are
competing against each other. And, I think that’s
a thing that, I’ve heard you make
this case before, and I’ve heard other people
on this show make the case, that it isn’t just
Memphis versus… Downtown versus suburbs, it is
Memphis versus Indianapolis, versus Pittsburgh,
versus other places. – Absolutely, 100%. – So, you all are in
many, many cities, right? Various parts of FedEx. Are there cities where
you just don’t get, when a company of your scale
just doesn’t get incentives? Off the cuff? – Not any cities that
we have any operations of any size in,
that I can think of. I mean, everybody plays this
game, in some form or another, but I think we have a tendency, and a lot of communities
have a tendency to look at it the
wrong way, right? So, go back to my
headquarters example. If I can’t justify that as a
good, sound financial decision, as much as I might like the idea and think we’re skating
to where the puck is going in terms of attracting talent, if it’s a bad business decision, our CFO at FedEx corp
isn’t gonna go for it. Our shareholders and investors
aren’t gonna like it. The analysts are
gonna scrutinize it. And, it’s not a good decision for longterm health
of the business if I can’t make it
work financially. So, when you look at that, we have a tendency
as a community to focus on the tax
break, or the tax revenue that’s quote, unquote,
“being given away.” But, remember what
I just told you. If I can’t justify it
financially, I’m not doing it. And, in that case, it
would’ve never happened. So, you’re worried
about tax revenue in that instance, because
it’s almost all tax breaks and incentives
related to the PILOT, or state headquarters credits, that you only get that tax
break if the jobs materialize. You can’t give away
what you don’t have. I mean, this is like
crying over spilled milk, when there was never milk
in the glass to begin with. I mean, that deal was
not going to happen. In fact, like I said,
we walked away from it ’cause I just
couldn’t make it work, it was bad timing for us. The financials weren’t
there to offset the capital. And then, the state
came back and we worked with the downtown Memphis
commission and others to make that happen. And, you look at the
multiplier effect that’s gonna be generated from
that for downtown businesses, all the economic activity the
headquarters itself spurs, when we move in
to that building, all the high-wage jobs
that are coming down there, the people that
are spending money. And then, look at the
additional benefit and the effect that
it’s had on downtown. I’m not gonna say that
move in and of itself was responsible for all
this growth downtown. I mean, there’s a lot of
things that went into that. St. Jude’s expansion,
Indigo Ag coming down there. – Service Master, as,
you mentioned. – Yeah. Service Master, all this
other stuff that went into it. But, having a Fortune
100 company set up shop in your downtown and say, “I’m gonna put a
headquarters here,” certainly doesn’t
hurt when it comes to accelerating the momentum. So, you get all that goodness
without the tax breaks, so to speak, none
of that happens. So, the only question
you have to ask yourself in these deals, and
they’re not all winners. We know that from some of
the ones we had in the past, Electrolux is the one
everybody points to. They’re not all winners, so you have to
scrutinize these deals, but the only question you
have to ask yourself is, am I better with this
deal or without it? And, you have to look
at the whole thing. And, you can’t assume, I’m
giving away too much tax revenue when a company’s sitting
there telling you, “I’m not gonna do this deal if I can’t make it
work financially.” – Right. Bill, four minutes left. – There’s this rivalry
you may have heard of between Memphis and Nashville. And, we look at what I think
everybody would describe as explosive growth
in Nashville. Is too much growth
something to be wary of? Or, is any growth under any
conditions ideal for a city? – Well, [laughs]
certainly too much growth is something to be wary of,
but let’s get real here. I just pointed to our population
growth, which was .22% the right way, as opposed
to going the wrong way as it has been for decades. I mean, we’re like a team
that’s scored a few touchdowns early in the game. We don’t need to drop
into defense here and try to ride out the
rest of the ball game. We’re a long way from
Nashville’s growth, so I think for us
to start worrying that we’re growing too
fast is a little premature. Having said that, the good
thing about growing more slowly is you can plan for it, right? And, you can start having
those community conversations about PILOTs and incentives. Are we giving away too
much in tax revenue? Now that we’ve
got some momentum, well maybe we
should dial it back. But again, you have to look
at each deal on the merits and say, “Am I better with
this deal or without it?” To sit there and
walk in and assume that the business
owner is bluffing, to assume that AutoZone, if
they don’t get this PILOT is gonna expand anyway, well, that can have bad
consequences for you, if you try to bluff
these companies. In my case, you would’ve
had an empty guitar factory sitting there across
from the FedEx Forum, which I don’t think
would’ve been good for downtown Memphis at all, certainly not that
end of downtown. – We talked about the
highrise jobs associated with the office jobs,
and more the tech jobs… But, the other side
of Memphis economy, very much the distribution
infrastructure. And, I’m not picking
on FedEx here, just the whole infrastructure. Some critics of incentives,
or critics of our sort of economic plan, as
it were right now, is that we’re too dependent
on those sort of low-skill, low-wage jobs. Do you see, one, us being
as an economy too dependent on those jobs? – Oh, I think we absolutely
are, in some respects, too dependent on them. But, the good news is, I
guess, for better or worse, that I don’t know that we’re
going to be too dependent on them for long because
you can’t find folks that want to do them. I mean, on any given
night, at the FedEx hub, we’re short 1,000 to
1,200 employees out there, on any given night. And, in terms of PILOTs
and things of that nature, well there’s a minimum
wage threshold of $13. They have to pay at
least $13 per hour to even qualify for a PILOT. And, I could tell you, a lot
of companies around here, including us, start
higher than that, and we cannot find
the employees. So, have we historically been
too dependent on those jobs? Yes, I think we have. Will we continue to be
so dependent on them? I think maybe less and less so, simply because you’re
finding less people who are willing to come
in and do the work, even as the wages rise. – Does that then get into, and we could talk for
25 minutes about this, but with a minute or
so, on automation? And, automation in FedEx hub and in other
distribution facilities, is that part of what
drives automation? – Oh, for sure. I mean, automation is
coming because it has to. So, in the trucking
segment, for example, there are a lot of companies
looking at autonomous or what they call platooning, where you have one tractor
trailer driven by a person and then one that
platoons behind it, where you’ve got
more than one load moving on the same lane. Because, they can’t
find the drivers. At the hub I just mentioned,
1,000 to 1,200 employees short on any given night,
so the automation we’re putting into the hub, it actually won’t reduce
staffing levels materially from where they are now. What it will do is allow
us to process more volume without having to
add more heads, because we already
can’t find the people to come perform those jobs. – And, do you see
reductions in labor, if you look 10 years out? This is, again, a big question. Does automation get into the existing workforce
at some point? – I think it does, but
it normalizes over time. Because, if you
look historically, any time there is some
sort of new technology that comes along, whether
it’s the cotton gin or the tractor in the
agricultural segment, there’s always workers that are
displaced in the short term. But historically,
other than periods like the Great Depression, we’ve always hovered around
5% to 10% unemployment. So, there’s new work
that comes along. – All right, we’re
gonna extend this. We’re gonna have
audio, a little bit, 10, 15 more minutes
with Richard. It’ll be on the Daily
Memphian website. Thanks for joining us right now, that will go up very soon. – Thank you. – Good night. [dramatic orchestral music] [acoustic guitar chords]

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