The first recession of the new millennium struck in 2001 — and nearly every sector of the economy nationally and in the Tristate suffered.

        Businesses slowed, corporations restructured, advertising dropped off the map, companies were acquired or shut their doors or laid off employees in droves. And nothing the federal government did, from tax incentives to an unprecedented 11 interest rate cuts, seemed to help.

        Instead, the story of 2001 reads like a tragedy. Consider this fair warning — read further and get depressed.

        Suffering the most in the recession were workers. They received thousands of pink slips as local and national companies scaled down their payroll and braced for an economy that was lurching through its first obstacles in a decade.

        Nationally, Delta Air Lines laid off 2,000 workers, which included 1,700 pilots. GE Aircraft Engines planned to cut 4,000 workers with 800 coming from its Evendale plant.

        Locally, Ford Motor Co.'s Sharonville transmission plant eliminated up to 300 jobs on its overnight shift because of slowing sales of its big sport-utility vehicles.

        Millennium Chemical Inc., whose polyethylene business once employed several hundred people in Sycamore Township, closed its remaining office here, eliminating 40 jobs.

        In one of the most extensive furloughs, the Procter & Gamble Co. said in March that it would cut 9,600 jobs internationally, which includes about 1,900 in Greater Cincinnati.

Troubled retailing

        Federated Department Stores ironed out its problems at its ill-fitting Fingerhut mail-order catalog subsidiary, only to be steamrolled by the recession and a post-Sept. 11 pullback in consumer spending.

        The downturn in sales didn't affect its department stores alone. In November, the Cincinnati-based company said it would substantially water down its Bloomingdales.com Web site by Feb. 1.

        About 60 jobs were marked for termination as a result. And the changes are expected to cost Federated between $50 million and $60 million in fourth-quarter profits.

        The other retailing giant in town, Kroger Co., also ended 2001 on a sour note.

        Although the company solidified its leadership spot among U.S. supermarket chains, it pared down its earnings outlook by year-end because of discount stores and drug stores are increasingly diverting away food sales.

        Adjusting for more competitive years ahead, Kroger eliminated 1,500 jobs. Investors ran for the checkout lanes, selling Kroger shares down to their lowest price in a year and a half.

Downward downtown

        Retail woes just added to the list of problems that hit every major aspect of downtown Cincinnati in 2001.

        Several retail stores closed. Vacant office space is on the rise. Hotel occupancy swooned. And the most promising activity of downtown development, new housing, suffered after April's riots with vacancies increasing sharply.

        All these sectors were harmed by recession, but other events such as the Sept. 11 terrorist attacks, the lengthy Comair pilots strike and a slumping convention business also took their toll.

        Perhaps the most desperate measure came late November when City Council approved a $6.6 million aid package to keep Saks Fifth Avenue downtown. The retailer vowed to gut it out another five years if the city gave it money to dress up its store at Fifth and Race streets with a new Art Deco motif, displays for designer labels and other improvements.

        The next year will be a pivotal test for downtown when two major housing projects are completed — the remodeling of the Krippendorf and Power buildings. Many see these projects and others in the planning stages as crucial tests of whether Cincinnati can become a “24-hour city” that supports small shops, restaurants and cultural offerings.

Business issues

        All of the problems stymieing downtown development are not unique to downtown. Small businesses across the Tristate — particularly service firms — have workplaces that have been hit hard by the recession.

        It may be a while before anything changes, too, as the dismal economy is likely to hang around for a while, said Peter A. Beck, partner with Umble, Gayhart & Jacobsen CPS, a West Chester firm founded in 1961.

        “I just hung up the phone with a client and we were talking about the recession. The sectors that are vulnerable are any service,” Mr. Beck said.

        “Some business owners in November 2000 started to see it, but nobody wanted to talk about it. Now they're concerned.”

        He does not expect to see any turnaround until the third quarter 2002.

        “There is a lot of inventories and a lot of uncertainties,” he said.

        “Business owners are afraid to borrow and expand because they are not sure what's going to happen with interest rates.”

        Inflation, too, remains a concern, Mr. Beck said, because previously lowered interest rates pumped money into the economy and that in turn can lead to the threat of inflation.

Rising costs

        The recession was just one of the problems companies faced.

        Business owners faced another tightening vice in 2001:

        Health insurance costs skyrocketed to a five-year high, according to Economy.com, a research and policy group based in West Chester, Pa.

        Though inflation kept costs for most goods and services in the low single digits, that was not the case with health care, which hit 15.8 percent in Greater Cincinnati in 2001.

        That rate led the nation in percentage of increase, though some in the medical community insisted that historically low rates in the region were only catching up with the national average.

        “It's a giant swamp,” said Linda Ray Rubel, president of Pete's PhotoWorld, a company with six retail stores and a commercial laboratory.

        “The answer is not to get sick, and that's no answer at all.

        “Even with changes we made, it was a double-digit increase this year,” she said. When told to expect a 25 percent increase, the company instituted changes and was able to hold the increases under a new plan to about 12 percent.

        “We increased co-pays. We increased deductibles,” she said.

        The rate increase came on top of two years of 19 percent increases.

        “We have a different plan,” she said. “I think it's going to be fine for my employees. They can keep the doctors they want and wellness benefits. But it's still a new plan and it's an increase.”

Lousy ad sales

        With declining revenue and rising expenses, who wanted to spend money on advertising? Not many companies.

        Nationwide, advertising was lousy in 2001, particularly when compared with 2000 and 1999, said Robert K. Riggsbee, president of Inside Media, a multimedia management firm based in Cincinnati.

        “One of the sharpest declines in the history of advertising,” he said. “Over the course of 2001, the media industry saw the biggest year-over-year decline in ad spending since the Great Depression.”

        The 4.2 percent year-to-year decline dwarfed the 1.2 percent decline from the last recession in 1991 and is far more than the 4 percent decline in 1942.

        Amy Jones, vice president/media at Freedman, Gibson & White, expects media outlets such as radio stations and newspapers to haggle for advertising next year, which could tend to hold down rates.

        “Companies will be able to take advantage of the competitive environment between mediums,” she said. “It's supply and demand.”

        Consumer spending will not be exactly care-free, which could lead to a decline in advertising for products that appeal to upscale consumers.

        “Products perceived as luxury items may see a decline in sales,” she said.

        The dot-com company implosion hit the advertising community like a ton of personal computers early in 2001; but many regions, including Cincinnati, apparently escaped the worst of the advertising down-turn in that sector, Ms. Jones said.

        “Locally, it wasn't a factor,” she said.

One firm's downfall

        Silicon Valley had the dot-com implosion. Greater Cincinnati had the Chiquita Brands International bankruptcy.

        Before 2001, the financial problems at Chiquita had been deepening for a decade. In January, they finally hit home when Chiquita was faced with millions of dollars in interest payments on $862 million in debt.

        The company defaulted on those payments, and set about trying to convince its major bondholders to accept common stock for the debt. That deal came to fruition this fall, and then Chiquita filed for a prearranged Chapter 11 bankruptcy just after Thanksgiving.

        The company will emerge next spring with a new class of stock. The biggest change: Reds owner Carl Lindner, who has controlled Chiquita since the mid-1980s, will no longer hold a dominant stake in the new Chiquita stock.

        Meanwhile, Chiquita shareholders are suffering. The company's stock, once worth $50 per share in 1991, fell this year to less than the price of two bananas at about 45 cents per share.

Other changes

        Chiquita was just the largest of Cincinnati's venerable firms that had to redefine itself in 2001. Some of the Tristate's oldest companies either disappeared or under went ownership changes this year.

        Perhaps the best known was Baldwin Piano & Organ Co. After being on the verge of extinction in 2001, one of Cincinnati's oldest companies got a new lease on life with new ownership.

        Baldwin, started in Cincinnati 139 years ago by piano teacher D.H. Baldwin, sought bankruptcy reorganization on May 30 after accumulating more than $17 million in losses, struggled just to keep operating through the summer, and was sold in November to Nashville's Gibson Guitar Co.

        The sale to Gibson, which itself was successfully revived by CEO Henry Juszkiewicz in the early 1990s, gave new hope to Baldwin's more than 300 dealers who had complained about the company's management under former CEO Karen Hendricks for several years.

        Gibson said it plans to continue producing Baldwin pianos at the company's two Arkansas plants and maintain a marketing office in Cincinnati, although some corporate functions will be relocated to Nashville.

        The sale to Gibson by GE Capital, Baldwin's largest creditor, ended efforts by a small group of Baldwin stockholders to refinance the company as an independent entity.

        Baldwin's name may continue, but one of the Tristate's best-known high-tech names disappeared in 2001.

        Structural Dynamics Research Corp. (SDRC), the Milford engineering software developer, was absorbed by Plano, Tex.-based Electronic Data Systems Inc., in a $950 million acquisition.

        Founded by a group of University of Cincinnati professors in the late 1960s, SDRC was a global supplier of software and services to help manufacturers design new products.

        With the acquisition of publicly-held SDRC and California-based Unigraphics, EDS merged the two companies and renamed them PLM (Product Lifecycle Management) Solutions. With the change, EDS also eliminated a several hundred jobs at SDRC in October.

        Companies that were lesser known — but just as core to the Greater Cincinnati historic business scene — were also shaken up this year.

        Hudepohl-Schoenling beer, the oldest surviving link to Cincinnati's German brewing past, ending a brewing agreement at Boston Beer Co.'s West End brewery. The parting meant that Hudepohl-Schoenling beers, including Christian Moerlein and Little Kings, are no long brewed in the Tristate. They are still sold here, though. Snyder International Brewing Group, which owns the brands, continues brewing the products at its Maryland brewery.

        Mosler Inc., a Hamilton safe manufacturer dating from 1867, shut suddenly in August after yeas of losses, putting 1,500 including 300 in Hamilton, out of work. Diebold Inc., a Canton, Ohio rival, acquired most of the company's assets in a bankruptcy sale and rehired many of the employees.

        Eagle-Picher Industries, one of Cincinnati's oldest companies dating from 1843, announced plans to move its corporate office, employing about 35, to Phoenix.

        Zonic Inc., a small Milford maker of computerized test and measurement equipment which struggled for years, shut down in June and its assets were sold to a Cleveland competitor.

        Several other long-time area companies got new owners in 2001.

        The Champion paper mill on North B Street in Hamilton, sold in 2000 to rival International Paper Co., was sold again in early 2001 to a Florida-based investment firm and reopened with a small staff and new niche orientation as Smart Papers LLC.

        The Joseph E. Seagram & Sons distillery in Lawrenceburg, Ind., was acquired by French-based Pernod Ricard as part of the $8.2 billion purchase of the Seagram wine and spirts business by Pernod and British-based Diageo Plc.

        Cognis Corp., the oleochemical business of Germany's Henkel KGaA, whose U.S. headquarters and largest plant is in Winton Place, was sold to Goldman Sachs Capital Partners and Schroder Ventures for just over $2 billion.

        Staff writers John Eckberg, Mike Boyer, Cliff Peale, James McNair and Ken Alltucker contributed.

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