Team effort involved in attracting Shutterfly to Shakopee

With manufacturing operations already established on both coasts, executives at the fast-growing Internet company Shutterfly Inc. decided that a Midwestern hub was needed to distribute its popular personalized photo books, calendar and cards.

But when the pin was ultimately stuck on a map by the $640 million Redwood City, Calif.-based firm, the city of Shakopee emerged the victor. On Sept. 10, ground will be broken to make way for Shutterfly's new $60 million facility in the Dean Lakes business park.

Why, exactly, Shutterfly chose the south-metro suburb with about 38,000 residents is a bit unclear. Shutterfly executives last week declined to discuss the corporate machinations behind their decision.

"We have a very large chunk of customers that are sitting in the Midwest, and so we evaluated a number of states, and we thought Minnesota was the best," Shutterfly CEO Jeffrey Housenbold told Wall Street analysts on a conference call earlier this month.

What is clear is that a consortium of interested public and private parties — including Gov. Mark Dayton, who flew to California in July with a small entourage to meet with Housenbold — joined together with the sole purpose of landing the deal.

They weren't the only communities attempting to recruit the firm. "They looked at pretty much every state in the Midwest from Texas to Minnesota, and 50 sites within the metro [area]," said Shakopee Mayor Brad Tabke. "It wasn't just a glance look, either, they toured 20 sites. It came down to the No. 1 and 2 sites, Shakopee and Appleton, Wis."

It helped that the recent $125 million reconstruction of the Hwy. 169-Interstate 494 interchange about 3 miles north of Shakopee is complete, offering companies easy access to Minneapolis, St. Paul and beyond. It also helped that Dean Lakes is an established mixed-use development, with a hotel, retail shops and restaurants, as well as land and infrastructure primed for new construction.

The project is expected to generate 329 full-time jobs in the next five years with an average annual wage of about $41,000. An additional 400 to 700 part-time workers will be hired during the busy holiday season. "If a stay-at-home mom wants to make a little extra money for Christmas, this is the perfect job," Tabke said.

Shutterfly's main business involves memorializing digital photos into custom-made photo books, calendars, greeting cards and wedding invitations. Core customers are women ages 25 to 40, who have a family and want to preserve their photos, according to Mitch Bartlett, an analyst with Craig-Hallum Capital Group.

The company's fiscal 2012 sales of $640 million were more than double the $307.7 million in fiscal 2010. Operating profits jumped from about $25 million in 2010 to $40.7 million in 2012.

Shutterfly has a strong customer base in the north-central area of the country, another reason why the Twin Cities proved an attractive choice, said Michael Langley, CEO of Greater­MSP, a regional development partnership that was involved in the recruitment process.

It's important for companies like Shutterfly to be close to their customers because Web-savvy consumers expect next-day delivery of their orders, said Casey Hankinson, vice president of development for Ryan Cos., which developed Dean Lakes and will build Shutterfly's new digs. "They're really interested in customer service and they want to get their product to customers faster."

A significant piece of the recruiting effort involved $3 million in economic incentives offered by the city, Scott County and the state. These involve abatements from paying city and county taxes for a nine-year period, fiber-optic infrastructure improvements, a state training grant and forgivable loan that can finance equipment.

State support also came when Dayton secretly flew to Shutterfly's Silicon Valley headquarters in late July to discuss a possible move to Minnesota with Housenbold, who is described by analysts as a hard-charging Harvard MBA who cut his career teeth at eBay.

"I heard [Housenbold] was blown away when he asked Dayton where he was going next, and Dayton said, 'I'm going home,' " Hankinson said. The chief executive apparently thought Dayton's sojourn would include recruiting other companies on the West Coast.

Earlier this month, the governor said, "I think [the trip] nudged it forward but I'm not claiming credit for it. The credit goes to the local officials and development people at Shakopee and at DEED."

Others say Dayton's trip was simply the icing on a process that began in earnest about six months ago.