A few years ago, when executives at DigiKey Electronics began to plan an expansion project, they looked at several possible locations in the Midwest. That wasn’t surprising, considering the Thief River Falls electronic parts distributor expected that it would need to hire another 1,000 workers but was, at the same time, located in one of the more lightly populated regions of Minnesota – one with a tight labor market to boot.
Ultimately, DigiKey decided to build its new distribution center right at home in Pennington County, in far northwestern Minnesota, where the company got its start in 1972 – decades before it became the mega-business that generated $3.1 billion in revenue last year.
The decision heartened the town of 8,600, whose identity has become increasingly tied to the fortunes of DigiKey.
Executives won’t reveal where else they looked, or say too much about why they chose to expand at home, but financial incentives certainly tell part of the story. DigiKey received $44 million in state tax breaks for its distribution center – a mammoth building that covers as much ground as the old Metrodome in Minneapolis and will have 2.2 million square feet of usable space. Moreover, the company also got some help from local government in the form of tax increment financing, a break on building permits and funds for new infrastructure.
DigiKey argued that the expansion would generate millions of dollars in tax revenue for the state in the long run, and on a recent trip to Thief River Falls, I heard few complaints about the public help. The shell of the new warehouse is largely completed and the company hired 330 more workers last year, bringing its workforce at its Thief River Falls campus to about 3,500. (The company, which has a smaller distribution center in Fargo and call centers in several countries, employs about 4,000 people in all).
“Their decision to grow their business here is really remarkable when you look at the size of the community and the population,” said Michelle Landsverk, a consultant recently hired to work for Advance Thief River, a local economic development group. “Their decision says a lot about their commitment to our community.”
DigiKey is located in an industrial park on the southwestern edge of town, right next to another iconic northern Minnesota company: the snowmobile and all-terrain vehicle maker Arctic Cat. “It is pretty phenomenal to have a company like ours and Arctic Cat right here,” Rick Trontvet, DigiKey’s vice president of administration, told me during an interview in his office. “It’s quite the company town.”
“We always worry about our workforce,” Trontvet acknowledged, “but we’re pretty confident that we can pull it off.”
Nearly 2 million parts
On a Friday morning in March, accountants and IT specialists worked in tight cubicles on the second-floor of DigiKey’s administrative wing. Against one wall, a digital screen displayed a running tally of the orders that were being processed on that particular day – a number that would climb to 19,715. (More than 17,000 of those orders would be shipped that day).
In an existing warehouse, workers stocked shelves (the company keeps about 1.9 million electronics parts on hand), connected various parts to complete special orders and maintained the equipment. Parts plucked from the shelves traveled through the center on conveyor belts, on their way to packaging and shipping areas.
Orders come from customers of all stripes – from basement tinkerers to, as Trontvet put it, “engineers at Apple who need semiconductors.”
Trucks loaded with packaged parts leave DigiKey all day long, some of them headed for Thief River Falls Regional Airport a few miles to the south, where about 10 planes leave each day for UPS and FedEx hubs in Louisville, Kentucky, and Memphis, Tennessee. (About 20 percent of DigiKey’s packages are shipped through the airport).
With a starting salary of $16.50 per hour and a salary-and-benefits package that can total about $60,500 annually, applications for DigiKey are steady. And no wonder: The median household income in the region is about $55,000, according to the state Department of Employment and Economic Development.
“The starting wage is very good,” Landsverk said. “That’s why they’ve been able to attract people living an hour away. It’s nice (for Thief River Falls), too, that you might have one person coming to DigiKey who has a spouse who may come for another job or another opportunity in the community.”
Rows of cars filled the employee parking lots the day I visited. The DigiKey campus covers so much ground that some workers ride shuttle buses between buildings on cold winter days. The company has a cafeteria, a convention hall and an on-site clinic. Groups tour the facility almost daily.
A steady workforce
Workers have long been in demand in many pockets of greater Minnesota, as chronicled in this MinnPost piece from 2017. The labor force in this region (seven counties that cover the northwestern corner of the state) has declined by more than 1,500 workers in the past decade, according to an economic report released by DEED analysts.
DigiKey does advertise some of its rank-and-file job openings, though word-of-mouth is probably its most effective recruiting tool, Trontvet said. Most of its engineers and executives, meanwhile, come from this region – people who grew up in Minnesota or eastern North Dakota and graduated from regional schools like North Dakota State, the University of North Dakota and the University of Minnesota-Duluth.
Cameron Macht, the regional analysis and outreach manager for DEED, said it was difficult to put his finger on the reason DigiKey has been so successful in attracting employees here.
“In economic development, we often talk about what comes first – the chicken or egg,” he said. “Do you create the business and then the jobs will come or do you have to have the workers first?” One thing the region has going for it, said Macht, is a high-quality labor force (which he defined as consisting of “people who are willing to work, can do the work and will show up to do the work”).
While the percentage of people 25 years old and older who hold college degrees in this region is lower than the percentage for the rest of the state, DEED statistics also reveal an interesting tidbit: a slightly higher percentage of adults living here who have two-year associate’s degrees compared with the statewide percentage. (While many DigiKey positions require only a high-school diploma, others require two- or four-year degrees).
“It could be that there’s just a good match” between what DigiKey needs and what the local labor pool has to offer, Macht said.
Along an aisle on the warehouse floor, longtime employee Mary Walsh sat at a desk assembling cables for orders. Walsh went to work for DigiKey 26 years ago to help support her family – which included seven children. She has been here ever since, commuting from her home in Red Lake Falls, a town of 1,400 people about 20 miles to the south. “The people are very friendly here,” she said. “It’s good pay – and the insurance! It’s very good insurance coverage. And, for the most part, most of the work I like.”
‘Engineer on steroids’
DigiKey founder Ronald Stordahl was a student at the University of Minnesota, where he would earn a Ph.D. in electrical engineering, when he invented a digital key that improved the transmission of Morse code. He called it the Digi-Key “keyer” and sold it to amateur radio operators.
Stordahl also realized around that time that it was difficult to buy individual electronics parts since most dealers only sold in bulk. His big idea was to sell parts in any quantity – even one. Stordahl founded DigiKey in Thief River Falls, his hometown, in 1972, selling parts to electronic hobbyists.
(Stordahl avoids interviews and, I was told, would not talk to me for this story. Trontvet, responding to my questions about what might have motivated Stordahl in those early years, described him as “kind of an engineer on steroids” who was looking for an entrepreneurial outlet).
In 1982, the company began selling parts to the commercial market. DigiKey moved into its current location in 1984 when it bought a building from Arctic Cat. Today, its customers can order integrated circuits, capacitors, fans, switches, transformers – and just about anything else they can think of, it seems – from the company’s website.
Last year was a particularly good one for the company, with sales increasing by about $800 million. It now ranks as the fifth-largest distributor of electronics parts in the world, according to the company.
Good time for development
As I approached Thief River Falls from the south, the snow-covered fields of Pennington County disappeared in all directions into a gray sky. Only scattered groves of trees interrupted miles of flat, white fields.
The city emerges out of that flatness – an old lumber-mill town with some still-standing classic buildings, including a restored Soo Line Depot (now City Hall) and a refurbished Carnegie Library. The high school hockey teams play at Ralph Engelstad Arena, a $15 million rink with wide concourses, a large hanging scoreboard and vintage black-and-white photographs that chronicle the region’s hockey past. (Engelstad is the locally raised hotel and casino magnate whose donations also paid for the hockey arena at the University of North Dakota, his alma mater).
Its challenges mirror those of similar-sized towns. The downtown commercial district, for instance, struggles to attract businesses and lost longtime anchor JC Penney last year. More child care options are needed, along with more housing – rental and family owned. And while the population of Thief River Falls itself is steady, the seven-county region lost 3.5 percent of its population between 2010 and 2017 (a loss that would have been even greater but for the arrival of nearly 600 immigrants).
Even so, Landsverk, the consultant, expressed the community’s optimism, calling it “a great time for economic development” in Thief River Falls.
“There’s a lot of development going on and a lot of fast-moving pieces, and a lot of it is related to DigiKey’s expansion,” she said. Some recent business additions include Thrifty White Pharmacy and L&M Fleet Supply.
Long-term presence
As DigiKey has grown, selling parts in more than 170 countries and opening call centers in Asia and Europe, it has attracted some international attention. In the past year, according to the company, reporters from Germany, Israel, the United Kingdom and Spain traveled here to have a look at this multibillion company in the most unusual of places.
As part of its expansion, DigiKey plans to hire another 600 workers. On a recent March day, the company advertised openings for an electronics technician, an associate designer, a temporary global sales representative and other positions on the combined website of the Thief River Falls Times and The Northern Watch, two local newspapers.
And with good reason. The economic profile published by DEED warns that a growing scarcity of workers is “now recognized as one of the most significant barriers to future economic growth” in the region. At the same time, the agency points to one sign of hope: an influx of immigrants in recent years. The report says that a more diverse workforce “will continue to be a vital source of the workers that employers need to succeed.”
DigiKey’s new distribution center, which could cost as much as $300 million when it is completed, is expected to open in 2021. During our tour of the campus, Trontvet stopped to show me a view of the building from a second-floor window. We looked at the structure for several moments, marveling at its size. Finally, he said: “I think we’re going to be here for a while.”
This report was made possible by a grant from the Otto Bremer Trust. MinnPost’s donors, foundation funders, and corporate sponsors support our work in the belief that promoting greater civic engagement and informed discourse is the surest path to a better Minnesota. They play no role in guiding the journalism produced by MinnPost.
