Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, June 16, 2011, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Leslie Combs, Chairperson, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Leslie Combs, Co-Chair; Senators Jared Carpenter, Julian M. Carroll, Julie Denton, Denise Harper Angel, Ernie Harris, Tim Shaughnessy, Jack Westwood, and Ken Winters; Representatives Julie Raque Adams, Royce W. Adams, Linda Belcher, John "Bam" Carney, Larry Clark, Will Coursey, Mike Denham, Myron Dossett, Ted Edmonds, Mike Harmon, Melvin B. Henley, Dennis Horlander, Wade Hurt, Dennis Keene, Thomas Kerr, Kim King, Martha Jane King, Donna Mayfield, Tom McKee, Terry Mills, Fred Nesler, David Osborne, Ruth Ann Palumbo, John Short, Fitz Steele, Wilson Stone, Tommy Thompson, Addia Wuchner, and Jill York.
Guests: Harold Workman, President and Chief Executive Officer, Kentucky State Fair Board; John S. Petterson, Senior Vice President of Operations and Michael Kane, Vice President of Manufacturing, Tiffany & Co.
LRC Staff: John Buckner, Louis DiBiase, Karen Armstrong-Cummings, and Dawn Johnson.
KFC Yum! Center
Harold Workman, President and Chief Executive Officer of the Kentucky State Fair Board, explained that the Fair Board manages the arena on behalf of the Authority. He said the arena’s success has exceeded all expectations. Since opening October 2010, the arena has hosted 38 basketball games, 79 practice season games, 28 concerts and family shows, and 136 miscellaneous events that include meetings, food functions, and various other activities. The arena is a magnet for downtown Louisville and has generated a great deal of economic development in the area. In addition to the University of Louisville’s basketball program, the arena has hosted a number of entertainers including sold out concerts by The Eagles, Lady Gaga, Kid Rock, and Elton John, along with performances by Georgie Strait, Michael Buble, and Justin Bieber.
Mr. Workman said the international trade publication Venues Today rated the KFC Yum! Center 42nd among the top 50 ticket sales venues worldwide. Following the arena’s one year anniversary, an economic impact analysis will be conducted. Media reports on development in the area have been positive.
Mr. Workman explained that the arena is supported by sponsorships. To date, with a value over $50 million, there are over 60 sponsorships with agreements ranging from 1-10 years.
With the opening of the area, new venues have come to the area. Eight new restaurants have opened nearby, including Bluegrass Brewing Company, Doc Crow’s Southern Smokehouse and Raw Bar, and Eddie Merlot’s. Prior to the arena being built, major conventions could not be held downtown for lack of a large gathering place. The Louisville International Convention Center has the capacity for meetings but not for large gatherings. Now, large conventions can be held in the new arena, which seats over 20,000, while break-out meetings and meal functions can be held at the convention center.
Chair Combs noted the committee’s interest in the economic impact report when it is completed.
Responding to Representative Denham, Mr. Workman said with most concerts now being held at the new arena, Freedom Hall Exposition Center has been affected. Through negotiations with the Arena Authority, beginning in 2011, the authority agreed to make up for any decrease in revenue at the Freedom Hall Exposition Center, using 2009 revenues as a base line because that was the Center's last full year of operation. Mr. Workman said once the newness of the area fades, some events will return to Freedom Hall. The Exposition Center has maintained many of its events, including the Kentucky State Fair and the National Farm Machinery Show. The Center is currently working with local athletic groups to draw sporting events to the center.
Responding to Representative Carney’s question, Mr. Workman said the Future Farmers of America National Convention will return to Louisville for three years in 2013. The convention rotates between Indianapolis and Louisville every three years. He said the major factor was the Kentucky Fair and Exposition Center.
In response to Representative McKee, Mr. Workman said contrary to earlier concerns, parking is a nonissue due to an excellent parking plan put together by staff, the university, and Louisville metro police.
Senator Shaughnessy asked for an update on Kentucky Kingdom Theme Park. Mr. Workman said the citizens of Louisville want the park open. The previous owners, Six Flags Entertainment Corporation, did not maintain the park and closed or removed some rides before deciding not to renew the lease. Based on an analysis of the park, a significant investment is required to return the park to good status. The Fair Board is working diligently to establish a public/private partnership. The Fair Board is also working with Louisville Metro Government to establish the funding needed to open the park in 2012. Mr. Workman said it would take $23 million in loans and assistance from Louisville Metro Government to open the park at 80 to 85 percent capacity in 2012. In 2012, the board will ask the legislature for the $20 million needed to bring the park up to 100 percent and to bring in needed additional rides. Mr. Workman said it is vitally important to reopen the park, which will create a minimum of 1,000 full-time jobs. If funding is not found soon, the park will be unable to open in 2012. The key to theme park success is the introduction of new rides and major experiences at least every other year. With the success of this plan, the park can return to 1997 income levels of $1.2 million.
Tiffany & Co., Lexington Manufacturing Facility
John Petterson, Senior Vice President of Operations, Tiffany & Co., said Tiffany & Company’s mission is enriching the lives of customers by creating enduring objects of extraordinary beauty that will be cherished for generations. He explained that while the company has some cutting-edge products, it is not a fashion house but rather a luxury house of jewelry. In 2012, Tiffany & Co. celebrates its 175th anniversary.
Mr. Petterson explained that for a period of time the company was owned by Avon Products. Avon advanced the company technologically by introducing new warehouse operations, point of service operations, and turned a one-store operation into a growth opportunity. In 1984, senior management orchestrated a leveraged buyout followed by an initial public offering in 1987. In 1997, the company eclipsed $1 billion in sales. 2011 sales will reach $3.5 billion. Key strategies include expanding multiple channels of distribution. Fifty-two percent of sales come from the Americas but international sales are growing rapidly. By the end of 2011, there will be 250 Tiffany & Co. stores in 24 countries. Although the company has moved to a regionalized approach, headquarters, merchandising, marketing, and supply management are still located in New York.
Mr. Petterson said high quality product is very important. The cornerstone is the shopping and customer service experience. Tiffany & Co. does not offer price promotions and only sells its products at full value. He explained that Tiffany & Co. has great control over its diamond supply by having arrangements with selected mines to buy all diamonds and then sell off those of lesser quality. Stones are cut and polished, and then delivered to manufacturing to be set. The company has taken a strong stance in controlling its supply chain. Mr. Petterson said Tiffany & Co.'s efforts on social and environmental practices are the best in the luxury industry. He explained that the famous Tiffany ring setting, which is now being made in Lexington, remains the number one selling product. Mr. Petterson noted that Tiffany & Co.'s “fashion forward” products have been hugely successful. He outlined the functions of each of Tiffany & Co.’s facilities. He said 60 to 65 percent of Tiffany jewelry merchandise is made by Tiffany & Co. employees in America.
Mike Kane, Vice President of Manufacturing gave a profile of Tiffany & Co.’s current facilities. The company leases or owns eight manufacturing centers—all in the United States. The 900 factory employees are mainly craftspeople. He expressed confidence in the Kentucky facility, which will help provide better results in quality, delivery, and the bottom line.
Mr. Kane said the new Lexington factory reflects the future of Tiffany & Co. In other locations, bench jeweler work is generational. The Lexington facility, however, is trend setting with the use of microscopes and high definition television to set diamonds and for polishing operations. The Lexington facility also houses computer programmers who program machines at other locations through networks.
Mr. Kane said construction of the new 25,000 square foot facility in Bluegrass Park has been hampered by the weather; however, it should be move-in ready by the end of July. Tiffany is pursing Leadership in Energy and Environmental Design (LEED) certification as well. Mr. Kane said the Lexington facility will include a training center for new hires and retraining, if necessary.
Mr. Petterson said consumer focus groups concluded that customers expect Tiffany & Co. products to be made in the United States. In 2009, Mike Mullis presented 50 locations for a new facility which were narrowed down to five. He said with every site having pros and cons, it ultimately came down to people. The company needed people who could be trained to preserve and cultivate the Tiffany & Co.'s culture. Mr. Petterson said Lexington’s arts, values, and the sincerity of its people brought it to the forefront. He noted the helpful and accommodating nature of state and local officials during the decision making process. Mr. Petterson said the 90 employees hired have done an excellent job. He noted that staff would increase to 125 once in the new facility. The Lexington facility can double in size if warranted. He said Tiffany & Co. views Lexington as a critical point of its operations.
Representative Palumbo thanked the representatives for coming to Kentucky. Responding to her question about the Tiffany’s sales chart in the PowerPoint presentation, Mr. Petterson said catalog and e-commerce sales, wholesale and emerging markets were six percent of total worldwide sales. Of this, e-commerce in Canada, the United States, Australia, the United Kingdom and eight other EU countries represent the majority of these sales. The company has high expectations for continued ecommerce growth.
Responding to Representative Palumbo’s question about retraining, Mr. Petterson said if the need occurs people can be pulled from their workbenches and then retrained and returned. There is no other jewelry company that manufactures to Tiffany’s extent that uses the approach of a training center centrally located in a production setting. The company is willing to stop manufacturing for retraining. He noted that the quality of Tiffany & Co. is too important to the brand to release substandard product.
In response to Representative Palumbo, Mr. Petterson said there are currently 82 Tiffany & Co. stores in the United States. Based on several factors, a Tiffany & Co. store is on the horizon for Lexington—the question is when and where.
Responding to Representative Stone’s questions, Mr. Kane said attributes of a Tiffany & Co. employee include dexterity, strength, hand/eye coordination, a willingness to learn, physical stamina, and being a team player. Employees are tested in these areas. The company is especially interested in those with a background in jewelry making and electronics. Employees come from varied backgrounds including sales clerks and truck drivers. Mr. Kane said while other training may be helpful, each employee is trained in specific techniques at Tiffany & Co.
Responding to Representative Kim King’s question, Mr. Petterson said Mr. Kane has moved Tiffany & Co. manufacturing to a sophisticated level. While it uses advanced technology in production, there will always be the need for bench jewelers to maintain Tiffany & Co. quality standards.
In response to Representative York’s question, Mr. Kane explained that discussions are in place to begin manufacturing some components in Lexington, but there are no plans for start-to-finish products in Lexington.
Responding to Representative Short’s question, Mr. Kane said bench workers make $18 per hour. Employees make less during training but, upon graduation, they receive a substantial raise with the ability to advance based on performance.
Other Business
Chair Combs announced that the August committee meeting will be held in Murray.
There being no further business, the meeting adjourned at 2:15 PM.