Economy's well-being hinges on consumers, something this Minnesota family business knows well

GRAND RAPIDS, Minn. - For 40 years, some of America's biggest brands have turned to the workers at Arrowhead Promotion & Fulfillment Co. to redeem coupons, dish out contest prizes and help with other special projects.

It's a good place to find out how the nation's economy is doing.

"When you see a little dip in consumer confidence, that's when our clients start asking, 'How can we encourage them to buy our product?'" Katie Prokop, the company's owner and chief executive, told me when I visited earlier this month.

"So, we're very busy today," she said.

With the nation having avoided defaulting on its government debt, investors and others who care about the economy can turn their attention back to the very important people who will really decide whether the U.S. tumbles into recession: you and me.

Personal consumption accounts for 68% of the U.S. economy and we consumers have created mixed signals this spring.

In the big data, retail sales were down in April, but overall consumer spending rose. That's a sign our spending is more heavily tilted toward services compared to goods.

Earnings announcements from retailers over the last couple weeks showed that Walmart cooked along this spring, but Target's growth lagged and Best Buy is hurting from what appears to be a cyclical downturn in electronics demand. Home Depot and Lowe's, which performed strongly in the pandemic and recovery, are also seeing drops in performance.

The business of consumer promotions isn't entirely countercyclical, Prokop said. But in the 20 years that she has led Arrowhead, she has seen enough ups and downs of the economy to be able to tell when her clients are getting nervous.

"These companies want to encourage the customer, when they're tightening their belt, to buy from them," she said.

Her father started the company in 1983 after working for a time at a firm in New Brighton that handled rebate programs for consumer brands. He initially opened in Walker, but outgrew the workforce there and moved to Grand Rapids.

Today, Arrowhead employs about 200 people but there are times when client requirements drive the firm to bring in more help. Prokop said that's when being in a small town — Grand Rapids has a population of around 11,000 — pays off.

Six years ago, General Mills hired the company to fulfill a giveaway tied to its Cheerios brand, which uses a bee in some marketing, of wildflower seeds favored by bees. Initially, General Mills intended to distribute 100 million seeds, but the consumer response was so great, it sent out more than 1 billion.

Arrowhead more than doubled its staff, to a peak of 430 people, to get the seeds out in little more than a week.

On its campus, Arrowhead has rooms to process large volumes of incoming and outgoing products, a call center and a warehouse to store goods that brands are giving out. The company operates a smaller site in Mexico that can also flex in size when needed, Prokop said.

Around 2006, she decided to create the call center, a move that took a lot of investment and time before it paid off.

"We developed it strictly because clients needed it," she said. "I used to call it the money bet. You have to invest so much money in technology for it. And when that person answers the phone they're representing the client, not Arrowhead. So it takes a lot of training."

In March, Prokop announced a new generation of leaders after the retirement of the firm's longtime president, Bud Schneider. She promoted her two sons and a third executive to new roles and told everyone she was taking a step back from the day-to-day operation.