Last fall, one of Kansas City’s iconic companies sold for $30 billion after a brief bidding war. It was a homegrown company with thousands of employees which was, in many ways, synonymous with the city but with a footprint that stretches across the country.
No, we’re not talking about Cerner—we’re talking about Kansas City Southern Railroad.
The railroad company, based here since its founding during the Grover Cleveland administration, was bought by Canadian Pacific for $31 billion. That news was buried on page six of the Kansas City Star and did not prompt a flurry of tweets from Mayor Quinton Lucas.
It’s a sign of how the discourse around the city’s economy is a bit skewed, according to Chris Kuehl, director of Armada Corporate Intelligence, which provides strategic advice, economic forecasting and business analysis for corporate clients.
“We often overlook some of the more fundamental, long-lasting things,” Kuehl says. “People forget that Kansas City is a huge auto manufacturing town. They forget about aerospace. They forget about the transportation sector. Strangely enough, they forget about agribusiness. How do how you forget about agribusiness in the middle of the ag sector? But, you know, we tend to overlook things like that because other stuff seems sexier.”
The sale of Cerner, a homegrown medical records tech company that was acquired by Texas-based Oracle for $28 billion, made headlines for weeks, while the sale of Kansas City Southern, for more money, went under the radar, because, as Kuehl says “it’s a lot less glamorous to be a shipping hub.”
Kansas City—like so many mid-sized cities—often boasts about loose ties to tech. You’ll often hear local bigwigs refer to the Silicon Prairie, just like bigwigs in other mid-markets who make dubious claims of tech ties using cringey self-applied nicknames like Silicon Forest, Silicon Swamp, Silicon Mesa and (woof) Silicon Holler.
Kuehl, whose opinion we solicited after noting the changing face of retail in Johnson County, says that despite all the gloom about the sale of two local tech companies, Cerner and Sprint, there are a lot of reasons to be optimistic about the local economy.
The strength of the KC economy is its diversity
While many cities seem to embrace being known for one dominant industry—steel in Pittsburgh or oil in Dallas—it leaves a place at the mercy of trade winds they can’t reliably predict let alone control. Kansas City has a lot of irons in the fire, which Kuehl views as a good thing.
“We’ve always been a diverse economy,” he says. “We get excited when we lose a Sprint or a Cerner through a merger, but we always tend to forget that we’re a regional headquarters city, and even as we lose some bigger company that’s headquartered here, we pick up six others that are going to have a regional headquarters here.”
While having a national headquarters is a feather in the cap, having a regional headquarters is better for having a dollar in the pocket.
“The headquarters are frequently here, almost out of a whim—somebody says, ‘Hey, I like it here,’” Kuehl says. “But with a regional headquarters, you sort of think it through and say, ‘I need something here, I’m always going to need something here.’”
The Cerner sale likely will work out well for KC
If Cerner had to be sold, the company that bought it could hardly have been better for KC in Kuehl’s view. Oracle is based in Austin, Texas, and has major operations there, in Nashville and outside San Francisco.
KC is close to its HQ and other operations and also centrally located, which is helpful since Cerner’s employees tend to travel to help sell their system and train new customers.
“Once it was thought of as being on the block, what was really worrying people was if a competitor bought Cerner,” he says. “That would have been a disaster because they would have moved all the operations to their home headquarters.”
Instead, Oracle, which had no existing products in the category, stepped in. “They’ve just bolted on a whole different business, which means they’re gonna leave it completely alone,” he says. “They didn’t buy Cerner to put them out of business. They bought Cerner to add to their business.”
The decline of retail is happening everywhere
We originally reached out to Kuehl to ask about the state of commercial real estate near Corporate Woods, around the former Spring campus in the center of Johnson County. The once-vibrant area has seen a lot of businesses leave.
That’s part of a national trend: Retail vacancy rates are at a seven-year high, according to Forbes, with shopping malls accounting for a huge chunk of that. But even the newest shopping plazas now look different, he says.
“Every time you look at a strip mall, you’re thinking, ‘Oh, wonder what store is going in there,’” he says. “There’s no stores. It’s gonna be an imaging center, an urgent care center, a dental center and a pet psychologist. There’s nothing to buy in there.”
KC is well-positioned for what’s booming: the warehouse business
Kansas City was already the nation’s second-largest rail hub after Chicago. The Canadian acquisition of Kansas City Southern Railroad will have a huge effect on the city. As a result of the merger, an estimated 800,000 to 2.5 million additional cargo containers per week will come into the middle of the country. “That won’t all come here, but it’s going to be all up and down the I-35 corridor,” Kuehl says. “The big change from a commercial real estate perspective is going to be warehouse and distribution.”