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Retailers Still Await The Economic Recovery Process
Consumer confidence is not at its best, but expansions continue
BY TAINA ROSA
August 15, 2002
Retail industry insiders are not all smiles when talking about sales, consumer confidence, or the anxiously awaited economic recovery. Still, many are doing the best they can to stimulate sales, including proceeding with expansion plans, expecting that next year the industry will fare a little better than it has since late 2000.
Many point out that a shift in government strategies could greatly relieve the slow economy. More than one insider said it is extremely important that the government fix the permit process and do whatever else it takes to get public-sector construction going, which would set off a chain reaction of economic recovery that touches every segment of the economy. CARIBBEAN BUSINESS has reported on more than one occasion how the virtual paralysis in government construction is hurting the economy, in particular hindering sales and the expansion plans of the retail industry.
Sales & traffic increase bit by bit
For the month of July, most retailers are reporting an increase, albeit a slight one, in both traffic and sales in comparison with last year. These gains can be attributed in part to the Back to School season.
"Sales are up after having been flat during the past few months, and this is mainly because of Back to School sales," said Mike Nolla, president of Manley Berenson Puerto Rico. "Parents in Puerto Rico take pride in preparing their children as well as they can for school, in educating them, and in providing them with all the necessary school materials."
"The local economy is already recovering," said Martha Hermilla, marketing manager for PMI Inc.s northeast region. "We have seen impressive sales increases in our malls for the last four months. Consumer confidence has grown as well, as evidenced by that sales growth. Sales for that period are higher than the sales decreases we experienced after 9/11, and we are certain the trend will continue," she said. "We project that we will beat our original projections."
Kattie Martinez, manager of public relations & marketing at J.C. Penneys local headquarters, agreed with Nolla, saying, "Sales have been mostly flat, and we are seeing an upsurge now with Back to School sales. Back to School traffic has even helped our sales in the home furnishings department."
Angelo Mercado, local corporate affairs director for Marshalls, reported that sales have been in line with last years, which is to say they have been good. "Our stores are always full, even last year we had full stores," he said. "If you go to our store in Montehiedra, youll see it packed with shoppers and youll see people lining up at the cash registers."
Some retailers, however, note an improvement over last year. "We are doing better than last year," said Victor Gonzalez, manager of La Defensa shoe store in Plaza Carolina, "but only because the economy was very bad then. Were just not doing as badly as we did last year."
Jorge Fournier, executive vice president of Commercial Centers Management Inc., told CARIBBEAN BUSINESS that sales for this year are up only 1-2%. "Our main industry problem for 2002 is low retailer demand for new stores, not necessarily retail sales," he said.
Michael Silva, president of mens apparel chain Jeans.com, said sales dropped 11% earlier in the year. This month, however, comparable-store sales have risen 15%. "Business is still difficult," he said. "Consumer confidence has not been good since 9/11. It has improved a bit, but not significantly."
Yesenia Acevedo, manager of casual apparel store Sporto in San Patricio Plaza, said business has been mostly flat since 9/11, increasing only during holidays and for special occasions such as Back to School season. "I see traffic and sales even slower than last year; people come to buy only when theres a special event going on," she said.
"The projected trend is sour," added Fournier. "Retail sales will stay flat or increase a little, maybe 1% or 2%, conservatively speaking, as economic uncertainty lingers and consumer spending drifts lower. Neighborhood shopping centers," he predicted, "will lead the retail sector due to strong supermarket sales thanks to new residential-complex developments."
The most positive note came from Novus Inc. executives Antonio Perez and Carlos Castellon. "During the past four months," they said, "we have seen sales experience double-digit increases because we offer the merchandise shoppers want."
Acevedo said, "I hope 2003 will see a stronger economy and a boost in consumer confidence." Nolla believes that will happen. "Im seeing an improvement in consumer confidence," he said. "They are spending more because they know things are going to get better soon. As Ive said before, everything is a cycle. Many people dont remember past recessions, and like those, the current slowdown eventually will disappear."
Getting ready for Santa Claus
Some retailers expect this Christmas shopping season to be equal to or better than last years. Manley Berensons Nolla expects a satisfactory season. "Last Christmas sales werent better because 9/11 provoked many retailers to cancel inventory," he explained, "but the demand was there. If they hadnt cancelled inventory, they couldve sold more."
"Inventory levels are more or less the same as last year," noted La Defensas Gonzalez. "We plan to be about even with last year," said Silva of Jeans.com, "although we closed two stores, which means that we will have a small increase in inventory." Sportos Acevedo concurred with both Gonzalez and Silva: "Our inventory is the same as last year."
Castellon said that although Novus Inc. has already ordered about 70% of the inventory it will need for Christmas, it is too early to tell how this years inventory level will compare with last years as it can order additional merchandise if needed.
Marshalls situation is different from that of other retailers, explained Mercado, because it doesnt have what he called a perpetual inventory. "Our inventory depends on the availability of brand-name products," he said. "It changes every day. One day you may find a Ralph Lauren shirt, but it may not be available the next. I can tell you, however, that at least the availability of the brand-name merchandise we look for is the same as last year," Mercado said.
"There is still uncertainty in the local and mainland economies," he added, "but theres no indication that we will have a bad Christmas season. Last years Christmas sales were good and we expect the same this year."
"Christmas sales are going to be very good," said Castellon. "Last year, especially after September, was very difficult for business, but we expect the trend of increasing sales to continue and to have a successful year-end if nothingsuch as a hurricane or the collapse of yet another companydisrupts business." As long as stores offer what customers want and provide excellent customer service, he said, everything will work out.
Silva also has high hopes for 2003. "Sooner or later," he said, "people are going to start spending again and this Christmas season, somewhere around mid-December, I feel we will start to see consumer confidence grow."
Advertising is key to survival
One might think retailers current slogan is "When the Going Gets Tough, the Ads Get Going." Although some are not increasing their advertising budgets to attract shoppers, they are looking for ways to raise brand awareness.
"It is not that we have increased spending on advertising, its just that we have increased in-store promotions," said Silva.
Martinez said J.C. Penney has added two advertising circulars (or shoppers) specifically to help Back to School sales. Marshalls published a Back to School shopping guide as it did last year.
Gonzalez said La Defensa is advertising more than it did last year. "We are placing more ads in magazines, in newspapers, and on billboards, but we are also trying to revamp our stores to make them more attractive to shoppers."
Novus Inc., which includes Wild Pair, La Favorita, Novus, and Bakers, has not changed its advertising budget, said Castellon. "We will continue advertising on billboards, using direct marketing, and more. The company has also reinforced its customer service to attract shoppers.
Expansions continue despite tough times
Retailers and mall managers to whom CARIBBEAN BUSINESS spoke, including Manley Berensons Nolla, said they arent halting or modifying expansion plans.
Silva said he is on the way to fulfilling his goal of having a total of 50 stores on the island in five years. Jeans.com has 28 stores at the moment and is eyeing five more sites on which to build stores.
La Defensa is also expanding, said Gonzalez. The chain currently has 32 stores in Puerto Rico and will open at least one new location by years end.
Marshalls is expanding its store in Carolina. "It is being converted into a Marshalls Megastore thanks to the great demand we see from shoppers. This will be our third Marshalls Megastore on the island," said Mercado.
Novus is actually boosting expansion plans. "We had plans to open two or three stores, but now we have decided to open four to six. The biggest obstacle to expansion right now is the high rents imposed by shopping malls."
At press time, Office Max announced plans to open six new stores on the island in the next two years.
"Expansions for new developments and new capital improvements will be more tenant-driven," said Fournier. "Therefore we should achieve an equilibrium between supply and demand."
This Caribbean Business article appears courtesy of Casiano Communications.