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Nichols Brothers of Freeland have been selected to help build the U.S. Navy X-boat prototype, a high speed helicopter, cargo and troop delivery system. Nichols is Whidbey Island's largest private company with as many as 350 employees. Work on vessel No. 1 began this summer and the hull is now nearing completion.
Overview. This article examines the business economy of Whidbey Island in terms of commercial retail activity, the general business environment, employment, incomes and consumption. Our intent is to provide those interested in business opportunities on Whidbey with a comprehensive picture of our internal economy.Our trade area profile includes all business activities that take place on Whidbey Island. We caution the reader to understand that there is enormous "leakage" in our trade and services sectors. As an example, many that reside on Whidbey purchase much of their food off-island, or in the case of Navy family members at a commissary. None of these trade dollars are calculated as local trade. Also, the U.S. Navy, local governments and local school districts make very few purchases into the local economy. Likewise many residents, since the advent of "e-commerce" and catalog shopping, create purchases that never show up as local sales. Notwithstanding these realities, the trade and service economy of Whidbey Island is booming by any reasonable measure.
Background. Whidbey Island businesses operate in two distinctly different economic patterns. The northern third of the island (primarily Oak Harbor) is a self-contained service economy "driven" by the large U.S. Navy air facility; NAS Whidbey. Net effective annual budgets have hovered between $270-$300 mil., for the past decade[1]. The southern two-thirds of the island is a different service economy, one supporting tourism, second homeowners and resident retirees, plus providing homes for mainland workers who commute each day to the job markets of greater Puget Sound. Both economies are sustained by money "imported" from elsewhere.
Scale of the market. The current population of Whidbey Island is 58,600 (Island County, less 16,200 on Camano Island) of a total county population of 74,800 (2004 update). Greater Oak Harbor, with a resident population of 41,100 (18,800 within the City limits) is quite typical of traditional military towns. The NAS Whidbey work force of 9,000 includes both naval and Department of Defense personnel[2]. Most live within but are not necessarily integrated into the local community. Military personnel everywhere have the privledge of remaining residents of the various states from which they come. Also, some live off-island to the north and commute daily to the base. The local economy is fiercely competitive for food and soft goods with the commissary and two Navy Exchanges[3]. Local businesses support the military and non-military population as well as visitors in food sales, eating and drinking establishments, overnight lodging and especially local housing. Navy spouses frequently work in these various service businesses. Coupeville and South Whidbey (area population 17,500) provide at modest scale most of the goods and services necessary to any small population: food, general merchandise, building materials, health services, financial services and some apparel[4]. Especially strong are businesses catering to our growing tourist trade: eating and drinking establishments, galleries and specialty shops, and our large inn/hotel/bed and breakfast industry. In general, this business activity is strong and has been for the past six to eight years.
Retail Trade. Retail trade activity is the most common measure of business activity. Businesses on Whidbey Island tend to be small. Larger market areas are easily accessible for major consumer purchases, cars, appliances, apparel and bulk commodities. Nonetheless, local retail trade figures best represent comsumer buying patterns. In our market area, the "key indicator" items are building materials, hardware, general merchandise, food, apparel, furnishings, eating and drinking establishments, miscellaneous retail goods and services, and financial services[5]. Total trade and service in 2004 (Whidbey Island, with Camano discounted) aggregated to $615.3 mil. When official Department of Revenue final data are released in April, our 2004 estimate will be adjusted somewhat. This is impressive growth when considering that our population grows by a mere 800 new residents per year. While Oak Harbor is our major trade center, it is interesting to note that Oak Harbor only accounts for 47.4% of total island business activity. Standard state data are collected by incorporated place and unincorporated county. Our three incorporated towns - Oak Harbor together with Coupeville and Langley aggregate for 2004 to about $350.8 mil., or 57.0% of total island trade. Oak Harbor is booming, Coupeville is experiencing some growth as commercial activity develops in new buildings south of the highway; only Langley languishes. The businesspeople of Langley appear to want visitor business, but a few galleries and shops aside, owners neither work, plan, advertise or market to encourage visitor sales. In consequence, gross retail sales appear to have declined for the past several years
Local buyers dominate the sales of food, building materials and hardware, general merchandise and apparel, and are an important segment of eating/drinking. Tourists dominate sales in inn/hotel/B&B use, such specialty sales as art and gimcracks, and share about equally with locals eating/drinking sales. In the Table below, we consolidated and reformatted some data for easier comprehension and segregated dollar flows into their significant components.
Incorp. Total............................330.0.....350.8.......6.3
Unicorp. Whidbey Island........246.7.......264.5.....7.2
Whidbey Island Total..............576.7.......615.3.....9.9
....Local Trade.........................145.2.......153.4......5.6
.......Food...................................34.8.........36.4......4.6
.......Build.Mtrls/Hardware........31.8.........34.3......7.8
.......General Merchandise........52.8.........55.3.......4.7
.......Apparel..................................4.2...........4.6.....9.5
.......Eating/Drinking(1/2)............21.6.........22.8....5.5
....Tourist Trade...........................33.4.........35.4....5.9
.......Inn/Hotel/B&B.......................9.1...........9.8.....8.0
.......Specialty Merchandise...........2.7............2.9.....7.4
.......Eating/Drinking(1/2)............21.6.........22.8.....5.5
..Eating/Drinking Total...............43.2.........45.6....5.6
Local/Tourist Total...................188.4.......199.0....5.6
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Our Labor Force. There have been dramatic changes in the makeup of Whidbey's labor force over the past decade. Even ten years ago we had hundreds of workers in forestry, fishing and agriculture. Now we have fewer than 100. Even excluding the 9,000 Navy and DOD personnel at NAS Whidbey, government labor dominates employment. There are approximately 14,500 local workers (excluding many small business owners), plus the Navy for a total of approximately 23,500[6]. We estimate that more than 55% of our local-employed labor force is government[7]. Otherwise our service sector is the largest area of employment with almost 5,000 "employees"[8]. Retail trade employs about 3,200 of these[9]. Government, services and retail together employ 88 percent of our work force.
Small Business. Major retail brands play a modest role in our local economy, except for food, food service, gasoline and general merchandise. Our economy is too small to be attractive to many "branded" businesses. Like politics, most business is local and small. We estimate that there are perhaps 4,000 such individual activities. Many are one-person businesses; often retail endeavors - coffee companies, bakeries, florists, specialty apparel, galleries, nurseries, restaurants, MLM products and so forth. The largest number are service businesses, contractors, attorneys, accountants, dry cleaners, financial services, computer consultants, etc. A very few are manufacturers. Our largest is a well-established boat building company that currently employs 300, but that averages over five year cycles fewer than 150. Fewer still engage in agriculture, timber/logging, extraction and other primary industries. Actually, in toto all our retail and service businesses generate substantial income for their owner/operator, perhaps $27,000 per year on average[10]. The small business owner is the key to Whidbey's local economy, just as she is the key to national economic growth.
Housing and Real Estate. Real estate has, like the rest of Whidbey Island's economy, undergone enormous change in the past decade. The "assessed value" of all real estate for the tax year 2004 is $6.3 bil.[11]. By this measure property values are increasing island-wide, for the past decade, almost 8% per year. The most common property, your home, has been increasing at about 7.8% per year for the past ten years. Annual sales of Whidbey Island residential real property now exceed $344.4 mil.[12]. In terms of dollar flows, real estate is by far our largest business. During 2004, $102.8 mil. represented new construction sales ($32.6 mil.) and home improvements. The business dollars represented by this service sector include an estimated $16.2 mil. in construction wages (not all local business dollars) and another $4.8 mil. in income or profit by local construction companies. Real estate, insurance and banking and finance, provided an additional $6.4 mil. in business profits.
The Future. There is little reason to believe that absent severe recession, the pattern of the past three to five years will not repeat itself into the foreseeable future. We have recently had a national election. The results suggest an improved political environment for business. On the other hand we remain quite vulnerable to continuing terrorist attacks that weaken consumer spending and business confidence. Still our island population is growing somewhat, but our 'wealth' is increasing far faster. Trade area dollar flows are increasing at about 6 percent per year, against less than two percent population growth. Home values are currently rising at more than 6 1/2% per year. By the time final 2004 year-end data are available, we will find business activity island-wide is up more than $38.6 mil. when compared to 2003, a significant impact given our small economy. Economic activity on Whidbey Island is rising rapidly. Rising incomes are accompanied by rising sophistication in buying patterns. This alone will provide new businesses with extraordinary opportunity to meet challenging consumer demand.
Notes.
Last Updated: January 23, 2005
Copyright 2005 by Regton Publications. All rights reserved
[1] Total (2004) payrolls are $399.1 mil. Substantial portions are "consummed" off-island. Military payrolls and their economic impacts are extremely difficult to analyze. In the first place the income recipient may receive pay at NAS Whidbey, whereas spouse and family reside (and consume) in another state. Otherwise, recipient might receive pay while deployed to the Gulf, whereas spouse and family reside (and consume) here.
[2] The complexity of military employment/payroll numbers are also challenging to analyze. We have chosen 9,000 as an appropriate estimate. On December 31, 2004 there were 9,940 total DOD with about 2,500 "deployed". Whidbey Island receives some economic influence from about 9,000 of the total and their dependents.
[3] According to one estimate, on-base retail sales currently "leak" $22 mil. from the local economy.
[4] The total "south-end" population has been calculated to reflect actual population patterns. The apportioned figures do not agree with County data based on Commissioner district boundaries.
[5] There are enormous challenges when using trade area data. In the case of Whidbey Islnad, we possess some highly confidential data on particular businesses that we must "disguise" for obvious ethical reasons. A further challenge is to estimate the economic impact of commissary and Navy Exchange sales as such dollars represent consumption not spent through local businesses. And last, to "discount" the retail trade impact of Camano Island (State sales data for Island County do not differentiate Whidbey from Camano). In this brief review we will forego explanation of the research methodology.
[6] Our first cue that many of us may have multiple jobs is the high ratio of workers, 23,500, of a total resident population of 60,700 (when considering the significant number of children), even if 2000-3000 workers came on island each day. Multiple jobs reported do NOT necessarily mean "multiple" people; two or more jobs can be held by one person.
[7] In this sector we are counting in addition to federal, State and local government employment, public school teachers and public hospital employees; all government workers.
[8] "Employees" here means "workers". Many of our employed are legally "independent contractors", or their own "employee" in a single proprietor business.
[9] We caution the reader against adding the "labor force" figures together to somehow reflect business activity. Many, many of us work "full-time" jobs plus part-time jobs, and have additonally a small business activity.
[10] These estimates are little more than intelligent guesses. Federal census data show high average incomes among Whidbey residents. Using only 2000 DIME census data and projections there is a large gap in "earned", as opposed to "unearned" income or retirement income, close to $100 mil., even after factoring for off-island workers and military personnel. This is income that has been declared and can only be reconciled by assuming that this is how to account for the "missing" $100 mil. otherwise unaccounted for.
[11] "Assessed Value" is the value of all real property as determined by the County Tax Assessor. The total county 2005 "assessed value" is $8.7 bil. ($2.17 bil. being Camano Island). The reader might ask how does this "value" compare with actual Fair Market Value? This is a somewhat complicated question. Discounting for a moment that there are State and federal properties with "values" that are enormously understated (because they are not sold and therefore not susceptible to market forces) the general answer is that in most cases homes are assessed at values below the marketplace. Small land parcels also tend to have lower values. Large land parcels, "farms", and timber lands tend to have very low assessed values relative to their current value in the marketplace. Contrarily, many waterfront properties and waterfront homes are assesssed at rates well above their Fair Market Value.
[12] Measured in industry sales. Additionally, there are a small percentage of direct seller to buyer "market" sales, and a large number of property transfers that are not monetary sales.