One of the feel-good stories of post-Katrina business life on the Gulf Coast has just taken a twist.
Vacuum maker Oreck Corp. said Dec. 12 that it is closing its manufacturing center in Long Beach, Miss., and moving production to Tennessee as it battles ``significant'' increases in the cost of doing business in the region in the wake of the August 2005 storm that devastated the area.
It was a very difficult decision, said President and Chief Operating Officer Tom Oreck, but it was one the company had to make for its long-term health.
``We love the area, we love the people, we love the relationship with the government there, but the business reality and the mechanics of our business make this a necessity,'' Oreck said during a Dec. 13 phone interview.
The company will begin laying off its Mississippi employees in February, with a complete shutdown set for October. It will move all of its existing production - which includes 30 injection molding presses - to a 300,000-square-foot site in Cookeville, Tenn. About 100 of the nearly 500 employees in Long Beach work in injection molding.
Oreck will retain its headquarters in New Orleans.
The decision caught nearly everyone by surprise. Oreck had been hailed as one of the heroes of the recovery following Hurricane Katrina. The plant is less than a mile from the Gulf of Mexico, and a third of its employees lost their homes and all of their possessions.
The company supplied food, medical supplies and gasoline from its building for its employees. It bought apartments and trailers to house displaced workers.
In exchange, workers committed themselves to getting Oreck back up and running, with production re-launched in Long Beach less than two weeks after the storm.
At the time, the firm had no plans to move, Oreck said. It wanted to remain committed to its facility even though it had taken a hit.
The building had $4 million in property damage. The company lost another $4 million worth of inventory to the storm, and conditions there remain difficult, he said.
Oreck bought the Cookeville building in July, with plans to employ 100 people there as an additional manufacturing center. At that point, the company and economic development leaders both in Tennessee and Mississippi expected Oreck would split its production between the two sites and keep Long Beach running.
But business conditions and the ``harsh reality'' of doing business in an area that could be hit by another devastating hurricane forced the company to think again, Oreck said.
Insurance companies are wary of doing business there, making property insurance hard to find and expensive to purchase for businesses and homeowners alike. There is a shortage of skilled labor available because so many people left after the hurricane - and the cost of living has increased for workers who are still there.
``It'll get fixed eventually, it has to be,'' Oreck said. ``But we had to make a decision.''
Oreck is not the only company looking outside coastal regions. Economic development groups throughout Tennessee are hearing from firms in Florida, Georgia, Alabama and all along the Gulf of Mexico that are considering a move, said George Halford, president of the Cookeville Area-Putnam County Chamber of Commerce.
Firms that otherwise might expand in their existing sites are taking a second look following 2005's devastating storms, he said.
``What's exacerbating this has been the cost of doing business and the continuing hurricane threats - things that are beyond [manufacturers] control,'' he said.
But no place is perfect, noted Larry Barnett, executive director of the Harrison County Economic Development Commission, which covers Oreck's home in Long Beach.
``We're not the only place with natural disasters,'' Barnett said. ``Other places have earthquakes or tornados or floods or fires.''
The Gulf Coast region is still rebuilding, Barnett admitted. There are issues with labor force, a shortage of housing and increasing insurance costs. But local, state and federal leaders are joining forces to solve those issues.
``These issues are temporary,'' he said. ``The people in Mississippi are hardworking individuals. We picked ourselves up and the people helped Oreck rebuild and start up again after the storm. As a result, I am disappointed that Oreck didn't stick by the county in the long run.''
And southern Mississippi has picked up new businesses that relocated after the storm. United States Marine Inc., a builder of composite military boats, moved to Gulfport, Miss., after Katrina destroyed its operations in New Orleans. Luxury civilian boat maker Trinity Yachts LLC also opened production in Gulfport since the storm.
Other plastics molders including defense contractor Northrop Grumman Corp. have expanded since Katrina.
``People recognize that our issues are temporary and we're going to work them out,'' Barnett said.
But for now, Oreck cannot afford to wait. It is doing all it can to help its workforce in Mississippi prepare for the change with retraining and giving it plenty of notice, Oreck said. But it also needs to take a long-term view of what the company needs for its own survival.
Tennessee, Oreck said, simply made better business sense while still allowing the firm to keep its manufacturing in the United States.
``It has been a very difficult time and a very difficult decision,'' he said. ``Many businesses will flourish on the Gulf Coast, but it didn't make sense for us.''