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Retail Roller Coaster

Bargains By The Bushel: Shopping malls aim to survive a slow economy by luring consumers with aggressive sales, promo activities, entertainment, and new services


October 18, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Now, to make matters worse, the economic recovery that was expected late this year will be further delayed following the terrorist attacks perpetrated against New York and Washington on Sept. 11. The horror has left consumers in suspense and shock, feelings that certainly do not inspire impulse-buying.

While this year may yield flat or lower sales in comparison to 2000 (which was not as great as 1999), retailers are positive –as is the government– that 2002 will bring a vibrant economy back to life. Perhaps not as vibrant as in 1999, but vibrant enough to keep everyone satisfied, considering the circumstances.

"The economy will definitely improve," said Jose Villamil of Estudios Tecnicos. Before "Black Tuesday" he said that he expected the economy in fiscal year (FY) 2002 to grow 2.4%. He has corrected his prediction in the aftermath of the event, but it’s still a solid 2%.

Executives from Puerto Rico’s most important shopping centers agree with him.

"We are positive that the economy will recuperate in 2002," said Miguel Gonzalez, operations manager of Caparra Center Associates S.E., the owners of San Patricio Plaza.

Manley Berenson President and COO Mike Nolla has a very positive prediction, supposing all out war never is never declared. "The U.S. and Puerto Rico are acting very aggressively, doing everything to stop the economy from sliding into a recession. We all have to do our part, and if we do, in two years no one is going to remember this slow economy we are experiencing in 2001."

Gray Christmas

Christmas, said Juliana Castillo, Plaza Carolina’s marketing manager, is always the season of greater sales volume. This year, the holiday season will help add a little spice to less-than impressive sales during the rest of the year, according to her. Still, most shopping mall managers foresee more or less flat sales in comparison to last year.

"I expect Christmas sales to be better in comparison to last Christmas, but not significantly better," said economist Villamil.

Ilsa Vidal, leasing director for the Sembler Co., was of the same opinion, saying that she expects this Christmas season to be good, but not much better than last year.

Jorge Fournier, director of the International Council of Shopping Centers for Puerto Rico and the U.S. Virgin Islands and executive vice president of Real Investment S.E., managing company of Santa Rosa Mall in Bayamon, also expects Christmas sales to be flat in comparison to last year. "I don’t see a turnaround in the economy yet, we’ll just have to sit tight and wait."

Martha Hermilla, Plaza del Sol’s marketing manager, also told CARIBBEAN BUSINESS that she expects Christmas sales to be flat, although there is opportunity for a slight increase.

Humberto Charneco, president and CEO of Caparra Center Associates S.E., said that he expects sales at San Patricio Plaza and Galeria San Patricio to be equal to or better than last year.

"This Christmas season," said Manley Berenson’s Nolla, "we don’t expect to see much growth. Sales will probably remain flat or may grow 1% or 2% in comparison to last year, which was soft compared to 1999."

Franklin Domenech, general manager of Plaza Las Americas, told CARIBBEAN BUSINESS that he foresees a difficult Christmas season. "But we are well prepared, holding special sales and events to attract people to Plaza." Domenech added that the opening of new stores will allow Plaza Las Americas as a whole to grow 25% by the end of this year, but he said it’s hard to predict how the season’s sales will fare in comparison to last year.

As was the case last year, the consensus is that discount stores will be the winners this Christmas, although they are not expected to have really significant increases in sales revenue in comparison to last year (CB Dec. 14, 2000). On the other hand, many expect full-priced stores to see flat or lower sales in comparison to 2000’s 4Q. This means that shopping malls with discount stores may fare better than those that don’t have one.

According to the National Retail Federation (NRF), general merchandise, apparel, furniture, home furnishings, electronics & appliance stores (known as GAF) sales growth for the fourth quarter has been revised to 2.2%, compared to the previously forecasted 4%. In addition, NRF is predicting 2001 holiday retail sales to increase 2.5% to 3%. These numbers are specific to the U.S. mainland, but as the saying goes, ‘when the U.S. gets the flu, Puerto Rico gets pneumonia.’

A new dawn emerging

Things may very well pick-up in 2002, according to local retailers. One of the first positive signs is the number of new stores opening in local shopping malls, reducing the amount of space available and increasing competition.

Plaza Carolina’s Castillo said she expects a boost in sales by the second quarter (2Q) of 2002. "I expect an improvement in sales by Mother’s Day."

Nolla is even more positive. He also expects business to liven-up during 2002 and maybe even return to levels seen in year 2000.

Charneco said that no spaces are available at either San Patricio Plaza or Galeria San Patricio. "In fact, we have a waiting list of stores that want to open in our malls," he said.

Shopping mall executives to whom CARIBBEAN BUSINESS spoke said vacancies generally do not surpass 10%. In some cases, those spaces that appear available are already spoken for and will be occupied shortly.

Such is the case in Plaza Carolina, which, according to Castillo, has integrated about 10 new stores in the past year. Three more –Bijoux Terner, All Ways .99, and Pequeña Ola– are about to open very soon there, pushing occupancy beyond 95%.

Plaza Las Americas will be welcoming The Bombay Co., a furniture store, in November. Domenech also listed other stores to open soon in Plaza including: Zara, The Sony Store, Constellations, and restaurants Margarita’s, Oriental Palace and Ciao Mediterranean. More are planned for 2002, he said.

Manley Berenson’s malls –among them Plaza Rio Hondo– are all 95% to 100% occupied, according to Nolla, who said no new stores are planned to open in the remainder of the year.

2000, the year of over estimating

Many factors contributed to the spectacular economy enjoyed in 1999. Among these was the extra disposable income many families obtained as a result of damages caused by Hurricane Georges.

"In FY 1999 we felt the impact of the Federal Emergency Management Agency (FEMA) funds. This had a positive effect on the economy because the funds were used to repair damage and replace furniture and equipment destroyed by Hurricane Georges," recalled Villamil. That year, the economy grew 4.2%. "According to the Planning Board," he said, "1.5% of the 4.2% was a result of the influx of FEMA funds."

"Although Hurricane Georges was an unfortunate event, the money that was injected into our economy generated a lot of economic activity. Construction is a good example. After the hurricane, homes had to be repaired or rebuilt, so construction activity increased, creating many jobs and boosting the economy," said Atilano Cordero Badillo, CEO of Empresas Cordero Badillo.

In 2000, several events cooled-off a once scorching-hot economy. Charneco told CARIBBEAN BUSINESS that some of those events were the government’s transition into a new administration, increasing oil prices, and a general slowdown in the world’s economy.

Now, after the terrorist attacks on New York and Washington D.C., we may see the same thing happen in those areas, according to Cordero Badillo. This means that getting back to normal after witnessing the worst catastrophe to take place on U.S. soil may actually spur some economic activity in the long-run, instead of precipitating a recession, which many predict will be the short-term effect.

Still, the weekend after the attacks was a fairly active one for shopping malls, at least here in Puerto Rico, where it seems local consumers went out shopping after spending that week at home, watching the news coverage.

Meanwhile in the U.S., consumer spending is returning to normal. The trend there is expected to catch on here, as the nation’s largest chains, including Wal-Mart Stores, Kmart, and Sears have reported that spending patterns returned to near normal levels over the last weekend.

Meanwhile, both the Bush and Calderon administrations are scrambling to inject billions into the faltering economy. As soon as that tap opens and the money begins to flow, the ripple effect should become evident.

But until an economic recuperation occurs, we will all just have to sit tight and wait, according to industry leaders. Those who can are encouraged to participate. Above all, they emphasized the importance of not creating panic, as panic will only shatter consumer confidence and make the economy react in a negative way.

This Caribbean Business article appears courtesy of Casiano Communications.
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