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The Sweet Smell Of Confidence

Although consumer confidence is on the rise on the U.S. mainland, shoppers in Puerto Rico await more signs that the economy will improve


February 21, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Mixed signals at the malls: Economists and store managers see a recovery underway, but local consumers are still holding back

If retail consumer confidence is a weathervane of economic recovery, there’s still no consensus among consumers on the island on which way the wind is blowing.

An informal CARIBBEAN BUSINESS survey of 72 consumers and 33 storeowners, managers, and mall operators around the island revealed mixed opinions, ranging from fear to cautious optimism.

But judging by the opinions of the storeowners, managers, and mall operators, the winds of recovery are blowing steadily from the U.S. mainland and will pick up strength as early as Mother’s Day.

There’s probably no contradiction. Consumers react more immediately to what they know is still happening: bad news, possible layoffs, etc. Business people, who are more informed about the economy, have already pinpointed the unmistakable signs of recovery on the U.S. mainland, as revealed by encouraging signs of stronger and healthier consumer confidence there.

In line with trends on the mainland, local consumers have been returning to malls after halting discretionary spending due to the weakening economy throughout 2001 and the further downturn caused by Sept. 11.

And although January was typically a bit slower than the better-than-expected Christmas season for most retailers, consumers are still visiting the island’s shopping malls. Furthermore, most retailers are confident that by Mother’s Day consumers will return to discretionary spending rather than sticking to necessity spending as they are now.

On the U.S. mainland, consumer confidence is climbing, according to research conducted for The Conference Board by NFO WorldGroup, a member of The Interpublic Group of Companies. According to this data, consumer confidence rose for the second consecutive month by almost three points in January to 97.3 (1985=100). The Expectations Index rose from 92.4 to 96.9, and the Present Situation Index remained flat at 97.8.

The research also found that stateside consumers are now more confident that the economy will make a comeback soon. They are also confident that employment conditions will improve within the next six months as factory orders and the need to increase inventories accelerate.

Although similar data is unavailable for the local market, consumers here are following a comparable trend, according to economist Heidi Calero.

At a recent International Council of Shopping Centers conference, Calero said that although Puerto Rico’s economy may only grow by 0.8% in 2002, better times lie ahead and consumers are already going back to shop. In fact, while spending for the entire year 2001 rose by only 4.9% in the States, it rose by 5.4% in Puerto Rico during 2001, up from 2.9% in 2000. For 2002, Calero expects spending to jump 6.1%.

Low interest rates, low oil prices, and a healthy construction industry are some of the factors that will help next year’s economy grow between 3% and 4%, according to Calero.

However, consumers CARIBBEAN BUSINESS spoke to did not express this confidence.

Consumers are still waiting for a sign

Consumers, who play the principal role in an economic recovery, are still cautiously waiting for local tangible signs that the economy is improving. Through an informal survey of 72 shoppers in Carolina, Caparra, Hato Rey, Cayey, Mayaguez, Hatillo, and Ponce, CARIBBEAN BUSINESS found that in many cases, those who were not optimistic about an economic recovery cited the negativity portrayed in daily newspapers as the basis for their opinions.

The survey showed that 17 of the 72 people interviewed lost their jobs in the past year. Meanwhile, 51 fear they could lose their jobs, 55 are controlling costs by sticking to necessary items, and 22 are optimistic about an upcoming recovery.

Store managers see cautious consumers, some expect improvement

CARIBBEAN BUSINESS also interviewed various store managers throughout the island and found that although they generally agree with Calero’s statements, they are currently seeing slow sales but are expecting an improvement later this year.

Of 33 store managers interviewed, 17 had equal or better sales in comparison to Jan. 2001, and 16 said January sales were lower than Jan. 2001.

For 16 of the managers, traffic in January was slower compared to last year, while four saw greater traffic, and 13 said traffic was equal to last year. The four that saw greater traffic attributed the surge to consumers searching for discounts.

The survey found that 22 of the 33 managers planned to purchase an equal amount of inventory for the upcoming Mother’s Day and Back-to-school sales as last year for the same periods. Only three said that they were increasing inventory, while eight would decrease.

Of the 33, 11 said they had increased advertising and promotion efforts to attract traffic, three kept it the same, and two decreased advertising budgets. The remaining 19 said they do not advertise.

As for discounts, 18 said they are discounting as they did last year, while 15 either gave larger discounts or discounted a larger portion of inventory.

One thing most of them (30) agreed on is that consumers are sticking to basic necessity items, while three said consumers are beginning to spend a bit more freely. Sixteen of them said they expect to see the economy recover by mid-year. The other 17 looked to the second half of the year.

Mall managers more confident than consumers

"Consumers are still cautious, but they realize that there’s no need to panic. They keep coming to the malls and parking lots are always full. Although they’re controlling their expenses after Christmas, they will start spending more for Valentine’s Day. We expect Mother’s Day’s sales to be greater than those registered last year. January sales were in line with Jan. 2001," said Mike Nolla, president and COO of Manley-Berenson Puerto Rico, the company that manages Plaza Rio Hondo, Montehiedra Town Center, and other malls on the island.

"Traffic at malls is normal for January. It’s the same as last year. But people are coming back to malls," said Martha Hermilla, marketing manager for the northeast region at PMI Inc.—mangers of Plaza del Sol and Plaza Escorial.

"January has been pretty conservative, in line with last year. People are shopping for the items they need. Traffic at malls is increasing this month, mainly due to special offers related to Valentine’s Day and other activities," said PMI Northeast Region General Manager Ramiro Caamaño.

Mary Ann Savarese, vice president of real estate for RD Management—which manages Western Plaza in Mayaguez, and Plaza Centro Mall in Caguas—joined the consensus saying that sales in January were even with sales for Jan. 2001.

J.M. Zayas, president of Professional Consultants Group Corp., which manages both Plaza San Miguel and Lago Alto Plaza strip malls in Trujillo Alto, told CARIBBEAN BUSINESS that traffic is already improving. He attributes increased traffic to the presence of a Grande Supermarket at Lago Alto and to the services (banks, video stores, etc.) offered at San Miguel. The strip malls are across the street from each other.

Local vacancy trends at malls point to healthy economy

Industry analysts had anticipated that many retailers suffering slower sales in 2001 due to the recession might hold on through Christmas and then close their doors. But many of the much-dreaded closures will apparently not occur.

Information supplied by local mall managers and trend data regarding the stateside retail industry indicate that shopping malls in Puerto Rico have less vacant space than their U.S. mainland counterparts. These sources state that average occupancy rates in U.S. shopping malls range from 87% to 89.3%, while local malls are more than 90% occupied.

Finard & Co.’s third annual study of enclosed malls in Massachusetts, Connecticut, and New Hampshire—conducted in October 2001 and based on 37 malls representing 25 million square feet of retail space—saw a marked decrease in occupancy attributed mainly to closings of anchor stores measuring more than 50,000 square feet. According to its results, mall occupancy in those three states dropped from 95.1% to 89.3% during the year.

Meanwhile, the Crown American Realty Trust portfolio of regional shopping malls ended 2001 with a mall shop occupancy rate of 87%, an increase of 1% over the previous year, according to company sources. The company operates and develops regional shopping malls in Pennsylvania, Maryland, West Virginia, New Jersey, North Carolina, Tennessee, and Georgia.

Nolla told CARIBBEAN BUSINESS that nearly all the malls operated by Manley Berenson in Puerto Rico are 99% occupied.

Lorraine Vissepo, director of communications and public relations for Empresas Fonalledas, said that Plaza Las Americas, Puerto Rico’s largest mall, is 95% occupied and that this number may reach 100% soon.

Ilsa Vidal, leasing director for The Sembler Co., said that University Plaza in Mayaguez is fully leased and that there is a list of potential tenants waiting to open shop there. The average occupancy rate of their other two malls—Juncos Plaza Shopping Center and Manati Plaza—is at 94%.

Western Plaza in Mayaguez is also 100% occupied, according to Savarese.

Advertising and activities at shopping malls lure consumers

Discounts are the driving force behind January sales judging by the way retailers are slashing prices. But this is not the only strategy retailers are implementing to attract shoppers.

Ventas de pasillo (hallway sales) can be seen at many malls, among them Plaza Carolina and Plaza Del Sol, which is holding this activity for the first time, according to Hermilla. During these sales, retailers place heavily discounted merchandise in the hallways of the malls.

Entertainment activities are also popular traffic magnets. Plaza Carolina is preparing to welcome a second presentation of <I>La casa de cristal<I> (The glass house). This television-based activity gives shoppers the opportunity to observe a contestant who lives inside a small glass-walled structure that has the amenities of a house for two months. First held at Montehiedra Town Center, the activity drew great traffic, judging from its coverage on television and the results Montehiedra merchants experienced.

Promotions are another key strategy to attract shoppers. "We’re marketing more aggressively this year compared to last year. We are not increasing the amount of money we spend on advertising, but we are refocusing efforts and investment and holding more activities to increase traffic," said Nolla.

While heavy discounts attract shoppers, they lower profit margins. In many cases, mall managers prefer to hold entertainment events and advertise aggressively and not drop prices as much.

This Caribbean Business article appears courtesy of Casiano Communications.
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