THE ORANGE COUNTY REGISTER
BUSINESS
T U E S DAY , J U N E 1 4 , 2 0 0 5
Precedent set on Web sales tax ‘Bricks-and-mortar’ retailers cheer the appellate-court ruling against Borders. By KIM CURTIS THE ASSOCIATED PRESS
FRANCISCO A littlenoticed appellate-court ruling against Borders Group sets a precedent that could enable California to force some major Internet retailers to start paying state sales tax for books,
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music and other goods sold online to state residents, analysts said Monday. Whether California tax collectors use the precedent to go after Borders, Barnes & Noble, Amazon.com and other online retailers remains to be seen. But independent booksellers and other “bricks-and-
mortar” retailers have been cheering, saying the ruling should remove what they say is their Internet competition’s unfair advantage. “There are a lot of online retailers who are watching this intently,” said Tom Dressler, a spokesman for the state Attorney General’s Office. “Clearly, online retailing is growing, so one would think the potential revenue problem is fairly substantial.”
414,000-square-foot distribution center in the state. Borders says it doesn’t have to collect California sales taxes because its online division – since outsourced to Amazon.com – doesn’t own or lease property in the state. All Web orders were received and processed outside the state.
Businesses can avoid paying sales taxes to states where they have no physical presence, according to a 1992 U.S. Supreme Court ruling. Borders says it has never collected sales tax for books and music sold over the Internet to California residents, even though the Ann Arbor, Mich.-based corporate parent operates 129 California stores under the Borders and Waldenbooks brands, as well as a
MORE ON BORDERS
RULING: Borders can’t separate
Web, retail stores. Business 3
THE $500,000 HOUSING MARKET
BUBBLE DEBATE TURNS FROTHY
SEE LANSNER
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Tell us your best Disney memory
Do you have a favorite memory of a visit to Disneyland? Write us a one-paragraph memory and attach a photo, and the Register will include it in our coverage of the 50th anniversary of the opening of Disneyland. Include your name and city of residence, and e-mail to: disneylandmemories@ocregister.com.
● O.C./REGION O UFW urges boycott of all Gallo wines Labor The United Farm Workers is asking consumers to stop buying Gallo wine, saying the California vintner isn’t treating workers fairly in contract negotiations. Business 3 ●
REP. LORETTA SANCHEZ TAKES BULLISH GREENSPAN BY THE HORNS. Bravo for Loretta Sanchez. The Santa Ana congresswoman last week wouldn’t let Fed boss Alan Greenspan slip off the bubble hook. Greenspan, the nation’s top banker, is attempting an improbable high-wire housing act. He’s warning folks about sky-high home prices J O N AT H A N and risky LANSNER lending pracREGISTER tices while COLUMNIST claiming the national economy is in near perfect condition. Like any observant Orange Countian, Sanchez knows the incredible wealth the housing boom created. She and her husband paid $208,000 for their Santa Ana residence in 1998, “and it’s probably quadrupled in value since,” she says. But a county’s worth of such easy money – no less a nation’s worth – would be badly missed in the economy if home profits evaporated. Last Thursday, Greenspan gave an economic pep talk to a congressional hearing, an event where he’s too frequently treated with kid gloves. Sanchez chose to confront the Fed czar on his seemingly conflicting views. In a Q&A session, she asked how slowdowns in some hot housing markets – Orange County, for one – could not have national implications. Greenspan replied by admitting that sluggish housing would translate to a “slowing of consumption expenditures” with even severe serious regional implications. But local pain won’t spread, Greenspan insisted. “Not that it will have no effect, but I don’t perceive it on net to be a major macroeconomic effect.” When I spoke to Sanchez by phone after Greenspan’s Capi-
O TALK TO US ●
O HOUSING ● SMARTS Buying can beat out remodeling
Ask the experts Better to move or remodel? In some cases, buying a home with features you want is cheaper, the founder of RemodelOrMove.com says. ●
Business 5
PHOTOS: CINDY YAMANAKA, THE REGISTER
HAUTE DOG: Dana and Melanie Harvey’s boxer Rocky models a Seatbeltbag.
Fine details
The Original Seatbeltbag by Harveys started in 1 996. Headquarters: Santa Ana Production: 1 00,000 bags per year Employees: 45 Annual revenue: $ 1 0 million Price range for a handbag: $66 to $ 1 50 Harveys (lingerie and apparel): Launched in 2002 Anticipated revenue (Harveys) for 2005: $2 million Sold at: Nordstrom and Girlshop.com Web sites: www.seatbeltbags.com and harveysboutique.com
The first Seatbeltbag was made from belts Dana was ready to scrap after pulling them from a Buick he
Business 1 0
● MARKETS O Indexes settle for modest gains
Stocks Indexes ended a volatile session moderately higher as investors eyed soaring oil prices and awaited inflation and retail sales figures today and Wednesday. Business 6 ●
B y C H A N TA L L A M E R S
M
elanie Harvey was browsing her e-mail last winter when she came across a letter from a Minnesota boutique owner. The woman chronicled the relentless wave of snowstorms that curtailed foot traffic around her modest boutique and how one product she stocked religiously was so highly coveted, customers braved bitter temperatures to acquire it. If it hadn’t been for The Original Seatbeltbag by Harveys, the woman wrote, her business wouldn’t have survived the winter. Dana and Melanie Harvey started their handbag business nine years ago, making a handful of bags each day. The durable, inimitable Seatbeltbag placed their brand over the shoulders of celebrities and then on pages of ●
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THE ORANGE COUNTY REGISTER
S E E S E AT B E LT B A G
Companies Morgan Stanley chairman and CEO Philip Purcell announced plans to retire after a series of high-profile departures. Business 6 Insurance One-fourth of U.S. residents without health insurance are immigrants, a study found.
Iconic handbag crafted from seat belts is about to go international.
A clutch Seatbeltbag
was restoring.
Belting out quality
● NATION O Morgan Stanley CEO plans to retire
Dow 30 industrials Close: 1 0,522.56 Change: +9.93 Nasdaq composite index Close: 2,068.96 Change: +5.96 O.C. Bloomberg index Close: 465.67 Change: +2.20 1 0-year Treasury yield Close: 4.09% Change: +0.04 Oil Nymex, per barrel Close: $55.62 Change: +$2.08
O COMING UP ●
PA G E 4
PA G E 5
GE to distribute Cardiac Science defibrillators Exclusive deal estimated to be worth up to $30 million. NEXT STEP:
Raymond Cohen, Cardiac Science CEO, is waiting on SEC approval of a merger with Quinton Cardiology Systems.
By BERNARD J. WOLFSON THE ORANGE COUNTY REGISTER
FILE PHOTO: PAUL E. RODRIGUEZ, THE REGISTER
Cardiac Science Inc. said Monday that the health-care division of General Electric Co. will become the exclusive distributor of its automatic heart defibrillators to hospitals in the United States and Canada – a deal that should help boost the Irvine-based company’s revenue as it prepares to merge with Quinton Cardiology Systems Inc. of Bothell, Wash. The deal builds on a previous agreement, in
which Cardiac Science makes defibrillators under the GE brand name for sale abroad. Defibrillators, which are used in schools, government buildings and other public places – including Disneyland – deliver electric shocks to revive victims of cardiac arrest. Raymond Cohen, the chief executive of Cardiac Science, spoke with the Register on Monday about the GE deal and the impending merger with Quinton. SEE COHEN
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PA G E 4
Small firm boosts its foreign trade
It’s your business Small-business writer Jan Norman tells how a Newport Beach company encourages foreign trade. Coming in Business Monday ●
How to reach us
Write: Register Business section P.O. Box 1 1 626 Santa Ana, CA 927 1 1 -1 626 Phone: (7 1 4) 796-498 1 Fax: (7 1 4) 796-3685 E-mail: business@ocregister.com Read the Register online at: www.ocregister.com/business
FROM PAGE 1
Business 4 | Tuesday, June 14, 2005
The Orange County Register
SEATBELTBAG: Home-based
business burst out of its seams F R O M PA G E 1
ADD-ON: Melanie
Harvey wears a Tote Snap Seatbeltbag and a top from her clothing line at her Santa Ana office. Making the bag created the leverage for Harveys to launch a clothing line.
CINDY YAMANAKA, THE REGISTER
magazines such as Elle and Maxim. Harveys is expected to belt out up to 100,000 bags this year from its manufacturing and distribution center on Santa Ana’s outskirts. Revenue from the bags is projected at $10 million. The success of the bag allowed Melanie the financial leverage she needed to launch a lingerie brand in 2002, followed by a women’s clothing line. Together the apparel lines, produced outside their Santa Ana facility, are expected to earn $2 million in sales this year. “When we first started out,� said Melanie Harvey, “our marketing strategy was to answer the phone.� Now the couple is taking a crack at answering international calls. Harveys is gearing up to hawk the Seatbeltbag overseas, working on licensing agreements with Japan, Germany, France, Canada, Australia, New Zealand and South Korea. It could mean another financial boost for Harveys, which started operations at home. For more than 18
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months, the nest was surrendered to eight employees, multiple phone lines and stacks of invoices. “Just so people thought our company was bigger, I’d use different names when I made sales or collection calls,� Melanie said. “My mother was the inspector.� Since the average bag takes about 10 yards of seat belt and a little less than three hours to
up all night, crafting the bag from a flak weave technique he learned from his grandmother when he was a child. In addition to a variety of totes, clutches, backpacks and messenger bags, Harveys created wallets (Lindsay Lohan owns one) and diaper bags (a pregnant Brittany Spears requested one). The 12,000-square-foot Santa Ana space Harveys oc-
Harveys is gearing up to hawk the Seatbeltbag overseas, working on licensing agreements with Japan, Germany, France, Canada, Australia, New Zealand and South Korea. complete, Harveys quickly outgrew its home turned warehouse. (Raucous big rigs that rolled up their quiet street to deliver supplies and take away shipments were wearing on neighbors, too). It rented two 900-squarefoot spaces in Orange, with beach cruisers used in between. But developing new products was challenging, especially considering manufacturers made seat belts in just five colors. The couple sweet-talked secretaries, scoring appointments with executives. When demand escalated and they could order in bulk, they got the colors they wanted – pink, green, purple and orange. Harveys carries almost 20 colors and designs now, including limited-edition checkered bags such as the greenand-white “Tennis Pro� and the pink-and-brown “Neapolitan.� Taxi Cab Yellow and Convertible Blue are recent additions to old favorites such as Pinto Orange, Race Car Red and the color that started it all, Buick Brown. The first Seatbeltbag was made from belts Dana was ready to scrap after pulling them from a Buick he was restoring. Melanie asked him to make her a bag, and he stayed
cupies filled up quickly. Harveys bought office space near MainPlace mall in Santa Ana. The 1,600 square feet of space will allow more room for creative teams to dream up new products and focus on design and marketing. Burgeoning Harveys merchandise includes Seatbelt gear for men and Seatbelt luggage. Harveys encourages consumers to write in about their Seatbeltbag. Melanie reads through hundreds of e-mails a week, posting the “Top 10� stories. One memorable letter came from a woman who was in a motorcycle accident. The woman skid across the road and suffered third-degree burns. Her Seatbeltbag separated her hip from the road, and her hip wasn’t injured. The woman said she still uses the bag today. Overseas companies hound Dana Harvey, insisting that they can make the Seatbeltbag faster and cheaper. But Dana Harvey won’t have it. “We want to keep it here,� Dana said. “We think it’s fun.� “They may be able to do it cheaper, but it’s important to us to maintain quality.� C O N TA C T T H E W R I T E R :
(7 1 4) 796-24 1 3 or clamers@ocregister.com
COHEN: Company
will become profitable F R O M PA G E 1
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Q: How big is this new deal for you? Put a number on it. A: Previously we had discussed the value of this GE relationship being something like $20 (million)-$30 million to the company over the life of the multiyear agreement. ... Suffice it to say that having the largest medical company in our business marketing these products exclusively in their primary markets, which is the hospitals, certainly is going to add value to Cardiac Science. Q: What impact does this deal have on your planned merger with Quinton Cardiology? A: I think it’s a very positive move because it helps to let our shareholders know that GE has in fact consented to assign the agreement to the new entity. That was a big concern that was in the market. The second piece is that this will contribute revenue to the new company postmerger, and in the short term, it means we won’t have to be putting a separate sales force in place to sell these products directly into these hospitals. Q: How much of your overall business will GE represent? A: Maybe it’s going to count for 5 to 10 percent. It’s not as if this is going to be 30 or 40 percent of our business. Also, the combined entity is expected to have revenue approaching $200 million a year. Q: Which is about three times
your current sales? A: Exactly right. Q: So where do things stand with the merger? A: Currently, we are waiting for the SEC to deem our merger proxy filing “effective.� As soon as we get the green light from the SEC, which is anticipated in early July, we will go to the shareholders for the vote. There’s typically a four- to five-week process to collect those proxies. Q: So you expect the deal to close in early August? A: That’s what we’re hoping. Q: My understanding is the new headquarters will be in Washington. Where are you going to be? A: I will be chairman of the board of the combined entities, and I will maintain my residence in Orange County, because I love O.C., man. We will maintain a reasonable presence here. We have all of our research and development for our defibrillator line in Lake Forest, and sales and marketing will continue to be here. Q: Cardiac Science is still losing money, as it has for the past several years. Why? A: In order to achieve break-even we need a certain amount of quarterly revenue to get there. At the end of the day, we feel the company can get to profitability sooner by doing this merger than it would as a standalone company. Q: Namely, instantaneously? A: That’s what’s being anticipated, yes.