The bad (and some good) of sequestration for the outdoor industry

The clock has struck midnight on the federal government’s across-the-board, so-called sequestration cuts, and while we bet Washington will find some excuse to extend its deadline (“the dog ate my spending bill”), the United States is coming to grips with the fact that spending cuts will be a reality for the upcoming years.

While businesses and private employers became very familiar with hiring freezes and furloughs, some say it’s now the government’s turn. Still, public and private business are intertwined, with no exception to the outdoor industry. Budget reductions to the military, National Parks (see below), and a plethora of federal recreation and conservation efforts will echo through.

How much harm the budget cuts will create for the outdoor industry will become evident over the next few years, but some claim the current sequestration is being overblown.

Take the proposed military cuts, for example. Some cite $1 trillion in defense spending cuts are ahead in the next decade, but that figure includes annual spending increases previously planned by the Pentagon. Take out those spending increases and the actual cuts are about $550 billion, or about $55 billion per year for the next 10 years.

With the defense budget at nearly $700 billion in 2012, future annual budgets would fall to below $650 billion per year. That’s still a big budget in historic terms, considering defense spending stood at $300 billion in 2001.

The military will continue to spend and spread its wealth to the outdoor industry, and even more funding might find its way to specialty brands working on special operation products, several companies claim. But ultimately history and logic foretell — whether it’s the end of the Korean War, Vietnam War, Cold War, and soon to be the Iraq and Afghanistan wars — when the fighting stops, military budgets get slashed.

The biggest problem facing outdoor manufacturers today, business owners tell SNEWS is an air of uncertainty, perpetuated by a gridlocked government on the left and right that seem more concerned with political posturing than they do about taking action.

“Everything is up in the air,” said Jeff Knight, CEO of pack maker Granite Gear. The Two Harbors-Minnesota based company estimates about 40 percent of its business comes from tactical and military orders. In a normal year, Knight said Granite Gear gets projections for defense purchase orders in January, and then the orders go through in February.

As February 2013 draws to a close, neither the projections nor the orders have come through yet. “I suspect the orders will be about the same as last year, but we just don’t know.”

Fortunately, Granite Gear is finishing a previous military order that has kept the business fully staffed, but that will last only about another month. “In about 30-45 days, if there’s still no answer, we’ll hit that point where we’ll have to start trimming resources,” Knight said. Because U.S. military contracts require U.S. manufacturing, the effect on in-house staff is more significant, he added. About 25 people at Granite Gear depend on those military contracts. He estimates another 30-40 people do work for Granite Gear through contract manufacturers.

Granite Gear likely isn’t the only outdoor company dealing with the uncertainty. Brands like Outdoor Research, Kelty, Gore-Tex, CamelBak, Princeton Tec, Johnson Outdoors, and plenty others do business with the military.

Some effects of previous military cutbacks, as the wars in Iraq and Afghanistan wind down, already have been felt in the outdoor industry, especially for those that supply general military orders. At Outdoor Retailer Winter Market, officials at both Polartec and PrimaLoft acknowledged reduced military orders. At one point, military accounted for more than half the business at PrimaLoft, CEO Michael Joyce told SNEWS. Now it represents just 16 to 18 percent.

But that’s not necessarily bad news for the outdoor industry. With the writing on the wall for military budget cuts, it’s evident that these companies are turning their attention back toward the outdoors with more ambition for innovation. Polartec’s new Alpha insulation, for example, was developed for the military before being transferred to an outdoor application.

Tactical- and military-focused companies also seem to be shifting attention to the outdoor industry, presumingly to make up for those budget cutbacks. Anecdotally, SNEWS has received increased requests for coverage from these companies touting their new outdoor categories. Last October, military gear supplier 5.11 Tactical purchased outdoor and wintersports custom apparel maker Beyond Clothing, in part to expand its reach into outdoor and beef up is custom-made gear, which might speak more to special op orders. At the same time, Wild Things Gear, another tactical brand, launched increased efforts toward outdoor consumers.

Finally, with many troops coming home from Iraq and Afghanistan, there’s opportunity for both outdoor and military companies to target these consumers as they re-assimilate into civilian life. Many might turn to the brands and gear they trusted on battlefield for a camping trip with the family.

“We’ve definitely seen some examples of that,” Knight at Granite Gear said. “One of our dealers likes to recount the story of a former special ops guy who was setting out for the Appalachian Trail and complaining of an uncomfortable [competitor brand’s] pack. He preferred the one he carried on duty, and once he found out that Granite Gear was the company who made it, he ditched the other pack and bought one of ours.”

National Parks face 5 percent budget cut
The National Park Service will have to cut 5 percent, about $134 million, from its budget due to sequestration, that could lead to seasonal staff reductions, hiring freezes and up to 22 days of employee furloughs, officials said in a statement earlier last week.

While some in Washington are threatening closed parks and campgrounds, NPS officials spoke only in general of how the cuts will affect visitors.

In late January, NPS Director Jonathan Jarvis put out the call and guidelines to NPS regional directors to submit reduction proposals.

“We are still finalizing our plans and assessing whether furloughs of NPS permanent employees will be required,” he said Feb. 26., after reviewing the proposed cuts. “We will have to reduce the level of direct services we provide to the American people in parks and communities across the country.”

Jarvis did call out a few impacts, including delays of snow plowing for the spring season at parks such as Yellowstone, delaying road openings for up to a month.

Other unofficial sources, such as the Coalition of National Park Service Retirees, claim to have more specific details of the proposed cuts at parks, outlining more delayed road openings and some visitor center closings, although no campground closings.

Outdoor Industry Association officials said they have no specific details of how the cuts will come through at the National Parks, but there is no doubt that visitors will see and feel the effects.

“I don’t think it’s grandstanding — these cuts are going to start to manifest themselves in real ways over the spring and summer, just as Americans head outdoors,” said Kirk Bailey, vice president of government affairs for OIA. “People need to understand that now, not just on July Fourth weekend.”

Bailey said OIA supports a balanced approach to Washington’s financial issues, including spending cuts and revenue increases. He added that any spending cuts should be balanced across all government programs. In the past, he pointed out, cuts have been unfairly levied on National Parks and public lands.

A day before making its statement on sequestration, the National Parks Service released its most recent economic impact report, saying it received 278.9 million recreation visits in 2011, which it estimated produced about $30 billion in total economic activity, including $12.95 billion in visitor spending and 251,600 jobs for the local communities that surround the parks.

–David Clucas