NEW YORK (
) -- At least the Big Apple still loves the big banks.
Amid all of the controversy over egregious bonuses, questionable fees, and now even the appropriateness of certain businesses, like proprietary trading, it's easy to forget the positive impact a healthy Wall Street has on the broader economy. New York City is the quintessential example of this.
As Wall Street goes, so does it. A good portion of the money generated by the banks gets put right back into the city's economy in the form of job creation and tax dollars, fueling the engine that powers the biggest city in the country.
The Associated Press
estimates that New York City pockets $70 million in direct taxes for every $1 billion in Wall Street profits, and notes the financial services industry employs roughly 8% of the city's workforce while providing 40% of its tax base.
And the impact isn't just on big corporations or municipal tax coffers. Small businesses all over the five boroughs are entwined with the fat cats as well. Whether it's the tailor that makes custom suits for wanna-be Gordon Gekkos, the dairy product distributor that sells premium dairy and soy products, or the public relations firm that specializes in media relations for the financial services industry, the people who work in these places have a much more nuanced (and favorable) view of Wall Street than most because their very livelihoods depend on it.
They suffered right along with Wall Street during the crisis and many have had to make significant changes just to stay afloat.
"Law firms, consulting firms, restaurants, retail real estate, home goods, furniture, home improvements/contracting, jewelry district, ticket sales (sporting, Broadway, concerts) they all share in the profits of Wall Street as it trickles through the economy," writes Paul Sorbera, president of Alliance Consulting, an executive recruiting firm that specializes in the capital markets sector, in an e-mail.
"So the next time people criticize the bonuses on Wall Street, they may want to think again," he adds.
According to the U.S. Bureau of Labor Statistics, while the national average unemployment rate was 9.7% as of March -- slightly lower than in late 2009 -- the financial services sector is one area where jobs continue to decline. Last month, financial firms across the country shed 21,000 jobs, with the largest losses (9,000 jobs) occurring in insurance carriers and related activities, the agency said.
Most Popular on The Street
The immense influence of Wall Street on New York City's economy is not lost on Mayor Michael Bloomberg, who has been a vocal defender of the financial industry. He even sounded a warning in a speech last week where he commended President Obama's recent New York City visit to promote financial reform -- a controversial proposal that is likely to mean further sweeping changes to the financial services industry and possibly crippling profits not only of those inside the industry, but other businesses as well.
"There are main streets in every neighborhood across our city and to one extent or another they all depend on Wall Street's success," Bloomberg said according to a transcript of the speech. "The financial services industry is made up of people who live and work in our neighborhoods and who shop on our main streets. ... So if regulation and higher taxes lead to fewer jobs on Wall Street that will mean fewer jobs for middle class communities across the country."
Here are three small businesses that cater to that have felt the ripple effect of Wall Street's downturn:
Mohan's Custom Tailors: Midtown Manhattan
A tailor at work at Mohan's Custom Tailors.
KJ Singh, the manager of sales at
, says that when the market dropped, sales plunged 40%-50%. The store caters to white-collar professionals such as bankers, traders, accountants and lawyers and has served some high profile names including former Mayor Rudolph Giuliani, Knick legend Patrick Ewing and former United Nations Secretary General Kofi Annan.
"It was kind of like that for the rest of 2008-2009," Singh says.
As a result of the downturn in business, Mohan has had to lower prices on its suits and other retail apparel. "We had too many suits. We had to lower the prices. We cut our advertising
somewhat," Singh says.
Mohan's revenue in 2007 was approximately $4 million for the year. The company ended 2008 with revenue totaling roughly $3 million. Singh says the firm closed 2009 with a total of just $2.5 million in revenue.
Still Mohan was able to contain costs by the price reductions and negotiations with vendor. It did not have to do any significant layoffs. (The store currently has 12 employees.)
And now there are even signs of a rebound, Singh says, a trend that parallels, albeit from a great distance, the rebound in performance enjoyed by the big banks this past quarter when earnings for names like
Bank of America
blew past consensus earnings estimates, and the companies noted an improved (slightly) credit picture.
Mohan has been emboldened enough a pick up in sales over the past two months to embrace expansion. A second store is slated to open in Hackensack, N.J. next month, and roughly five people are expected to be hired to run the second operation.
Revenue for the New York City shop is projected get up between $3-$3.5 million in 2010.
"I don't think we will back to $4 million," Singh says. "We really rely on Wall Street guys. They get high bonuses -- they come and buy a couple of suits.
If they don't make that kind of money they wear their old suits."
Dukas Public Relations: Flatiron
Richard Dukas, President and CEO of
Dukas Public Relations
, whose clients are primarily hedge funds, mutual fund companies, exchange-traded funds providers and investment banks, says business remains strong since the financial sector is under fire by Main Street and regulators. He says more communication is always better than "hiding under a rock."
"People are looking for clarity and if a company can communicate through the media or more frequent communication with their clients that they have their finger on the pulse of what's happening, then that's really important," he says. Dukas Public Relations also serves several credit union organizations as well.
Still the firm has suffered in other ways as companies remain hesitant to engage in variable expenses these days. He acknowledges that fees being retained by companies are lower than pre-crisis fees as firms tighten the purse strings.
"We have to do more for less and we just have to constantly be in touch with our clients and we're always thinking of the value that were bringing them especially in a service business like ours," he says.
Companies are also taking longer to make decisions, which makes it easier for competitors to swoop in, he says.
"Almost every situation is a competitive one," Dukas adds. "When we are in the new business process typically were pitching against three to five agencies," compared to anywhere from zero to three agencies pre-crisis.
Mountainside Farms: Jamaica, Queens
was launched in 2006 by Cyrus Schwartz, the great-grandson of the founder of Elmhurst Farms, in order to manufacture and distribute natural and organic dairy products. As the subsidiary of New York City's largest milk supplier, Elmhurst Dairy, the company is able to take advantage of the extensive distribution capabilities in the New York metro area, quite extensively in Manhattan.
But since the financial meltdown in 2008, Schwartz says sales in super-premium products, such as organic milk and soy milk, have leveled off from the once robust growth as customers switching to store brand or lower quality brand products to save money.
"When people are making less money, they are more reticent to buy premium-priced products," Schwartz says. "We were growing at 20-25% a year for a decade overall and last year we had very anemic growth single digits. This year numbers are up 15% but some of that has to do with new lines rather than growth in existing lines."
Like Mohan Tailors, Schwartz does note that some rebound in sales is starting to occur, "but not to the level we had before."
While only a few of the stores that Mountainside distributes to have had to close or trim its offerings, Mountainside has had to consolidate somewhat with roughly a half-dozen layoffs.
Additionally, albeit reluctantly, Schwartz says that the company is also considering picking up more mainstream product lines, such as conventional cheeses or deli meats to help control costs "if there was a an opportunity to deliver those to the same stores they're going to and not add additional overhead."
Mountainside has roughly 100 employees, but partially from new businesses that were acquired to diversify and stable the company's product offerings.
Schwartz remains hopeful that the diversification and cost saves Mountainside is implementing will secure the firm through the rest of the recovery.
"We're going to try and be opportunistic and aggressive and pick up lines we wouldn't normally pick up and cut our overhead to make us a little more secure," he says. "We're not just going to wait for the economy to rebound. I am very concerned about whether we are in a real recovery now."
--Written by Laurie Kulikowski in New York.