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Sales Outlook Cloudy As Retail Offerings Increase

Good news for consumers also means a smaller piece of the pie for retailers


June 7, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

LAS VEGAS, Nev.–After a slow Christmas 2000 retail season and even slower first quarter 2001, some industry sources are feeling more positively about the rest of the year and expect—or rather hope—sales will pick up during the fourth quarter. Others, however, see increased sales as a mirage and are not expecting any major gains this coming holiday season.

"We certainly hope sales will pick up, but I think sales this year will end flat at best," said Larry Campbell, president of L.S.C. Consulting Services Corp. "Things have been very slow for a long time and retailers will be very cautious in buying Christmas inventory. I don’t think they will be buying with the expectation that sales will pick up, even though there has been a slight increase in sales in the past 30 days," he said.

As previously reported (CB April 5) a usually optimistic local retail industry reported major reductions in sales. Citing economic slowdown, high energy prices, government transition, and added competition, the industry estimated the drop in sales at 8% to 15% compared to the same period in 2000.

One source mentioned the $4 billion boost Puerto Rico received from the Federal Emergency Management Agency (FEMA) after Hurricane Georges.

"I think the numbers in 1999 and 1998 were fictitious because there was still money from FEMA," said Mary Ann Savarese, vice president of RD Management, owners and operators of shopping centers in Puerto Rico and the U.S. mainland. "You have to look before FEMA money came. There wasn’t much more than a 2% growth."

"It is going to be interesting to see what happens this September and October after Back-to-School," she continued. "Last year we kept on waiting for October to be good and it never happened; November was very slow. We kept on hoping and sales never really took off the way we wanted them to," she said. "I feel we will see a stronger October and it is going to be a good barometer for how Christmas [sales] will wind up."

"Things are not bad, but nobody is desperate for new shopping centers space either," said Fano Fabregas, vice president of The Sembler Co. Puerto Rico. "There are many companies having problems in the U.S., but there are others looking to open and expand in Puerto Rico."

Retail consultant Atilio Zepeda said, "Things are not that good right now. I think they are going to start picking up by the fourth quarter."

"Sales are starting to pick up," said Mike Nolla, senior vice president of Manley-Berenson Puerto Rico, operators of Rio Hondo and Montehiedra Town Center. Even with the powerful Plaza del Sol shopping center that opened not too far from Plaza Rio Hondo, Nolla said that as of March, Rio Hondo was making sales of $603 per square foot. Montehiedra was making $581 sales per square foot and Las Catalinas, $585.These numbers are well above the average sales per square foot in the largest malls.

According to Dollars & Cents of Shopping Centers, considered the foremost authority of shopping centers, the largest shopping centers in the U.S. mainland [500,000 square feet to 2 million square feet] make an average of $115 in sales per square foot; the top 10% average $262 in sales per square foot; and the top 2%, $522.

"I don’t see any reason why things will pick up by the end of the year," an industry source said." Still, U.S. retailers love Puerto Rico. Even if things are not good in the States, their stores in Puerto Rico are often doing far better than stores on the mainland."

Prime Retail CEO Glenn Reschke confirmed that the U.S. retail environment is dim. "Retail in the U.S. right now is in a low period. It started during the Holiday season, which was not as strong as people would have hoped," he said. "Many retailers were flat or even down for the season and some of that has eroded to the first quarter. Some of the major chains that have driven this business in the last few years like Gap are actually reporting decreases in same-store sales. With the tax cut and interest rate cut, consumers will feel a little bit more comfortable. The fact that sales are flat is not a bad thing. There are still a lot of retail sales happening. Like every business, the retail business goes through cycles. Some of the leaders are planning exciting things. This is one of those cycles we are weathering."

Added Competition

Retail sales may be down, but competition is certainly up.

"Going back 10 to 15 years, local retailers were spoiled because of lack of competition, whereas in the U.S. they always had much more competition," said RD Management’s Savarese. "All of a sudden, there is more competition coming to the island, so the pieces of the pie have shrunk. And some of it is the retailers’ own doing because they opened in every center to protect their placement."

"The final test for retailers will be answering questions like how well do you stand up to new competition? Do you have the latest lines & styles? Are you up with the latest merchandising techniques?," said Rebecca Maccardini, past president of the International Council of Shopping Centers. "From another point of view, look at the selection Puerto Rico has in retail compared to five years ago. All in all, consumers get the better deal."

From the retailer’s point of view, more competition may translate into fewer sales. "There is still retail to absorb," Campbell said. "There are still many new retailers that are opening that will definitely make an impact. When the price-clubs open at the end of the year, they will also impact sales in shopping centers."

Economic Outlook

Puerto Rico’s economy will recover very slowly, according to economist Jose J. Villamil, president of Estudios Tecnicos.

Estudios Tecnicos estimates that economic growth for fiscal 2001 ending in June 30 will be 1.1%, which he refers to as bad. "A high unemployment and low average income per capita economy such as Puerto Rico should be growing at 4% to 5% every year," he said.

For fiscal year 2002, Villamil estimates the local economy will grow some 2.4%, followed by 2.8% in fiscal 2003, and 3% after fiscal year 2004.

"This scenario holds true if the U.S. economy doesn’t fall into a recession. The scenario can change in Puerto Rico if U.S. economic growth decreases significantly," said Villamil. In that case, estimates change to an increase of less than 1% of economic growth in fiscal 2002, less than 2% growth in fiscal 2003, and about 2.6% growth after fiscal 2004.

Villamil cited three reasons for the potential upward turn: the impact of the new fiscal year 2002 budget "although moderate it should have a positive impact," he said, the reactivation of new projects especially infrastructure projects (CB May 31), and the tax cut and interest rate cuts expected to be felt in the U.S. at the beginning of the third quarter.

This Caribbean Business article appears courtesy of Casiano Communications.
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