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Retailers Hope To Ring In A Happy New Year

The first half of 2004 spelled relief for many local retailers as consumers regained some confidence and hit the stores. Here is how retailers are preparing for the holidays.


August 19, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

‘Tis the season to be shopping

Retailers hope Christmas shoppers will do just that. Election campaign spending will stuff the economy’s stockings with some extra cash, but a flat job market and sky-high oil prices might bog down consumer confidence and knock the cheer out of retailers’ holidays.

‘Tis the season for the retail industry to get its wish for healthy Christmas sales, and they are doing everything possible to get ready for the shoppers. The retail executives and economists CARIBBEAN BUSINESS interviewed all agree that sales will surpass those of last Christmas season.

Last year, holiday sales (or December sales) in Puerto Rico amounted to almost $1.8 billion, according to statistics from the Puerto Rico Commerce & Trade Co. This year they are expected to be somewhat better, though not much.

One forecast pins at 5% the real growth in holiday sales expected this year compared with last year’s, provided economic trends stay on track.

"Sales during the Christmas season [December 2004] should be higher than those for the same period last year as consumers’ [financial] situations seem to have improved already. We expect sales to increase about 5% after factoring in inflation," said economist Juan Lara of Estudios Tecnicos.

Vicente Feliciano, an economist with Advantage Business Consultants, agrees that the growth in holiday sales compared to last Christmas may be less than 10%.

The positive forecasts are based on the moderate improvement retail sales have experienced so far this year.

According to the Puerto Rico Commerce & Trade Co., accumulated retail sales from January to May totaled $7.2 billion, up 7.5% from sales reported for the same period in 2003, when sales totaled $6.7 billion.

In May alone, retail sales jumped to $1.5 billion, up 7.3% from the same month in 2003, when sales totaled $1.4 billion.

Not only have sales been on the rise since before last year’s holiday season, some of the retail categories with the best performance include high-ticket, nonessential items, showing that consumers are once again betting on positive economic trends.

But the overall improvement in retail sales reflected in official government statistics doesn’t necessarily jive with the reality confronted by many retailers who haven’t seen better sales so far this year.

A flat job market that still hasn’t recovered from the almost 45,000 jobs lost from 2000 to 2003 and constant increases in the Consumer Price Index (CPI) driven by rising gasoline prices continue to put a damper on the consumer spirit.

However, some are hoping that election campaign spending could stuff some $30 million into the economy’s stockings before year’s end.

Deck the stores with variety

Retailers, expecting sales to beat those of 2003, are increasing holiday-season inventories over last year’s with the aim of offering a wider variety of products.

Wal-Mart Corporate Affairs Director Frances Rios said the megaretailer’s Christmas inventory purchases have exceeded last year’s and it will stock up on more entertainment technology and home accessories than in previous years. "Trends show that entertainment items—big-screen televisions, personal computers, and videogames—sell better during the holiday season, so we will have more…available."

Rios added that Wal-Mart expects Christmas sales this year to top last year’s if the sales performance continues as it did in the first six months of 2004.

Sears Roebuck Puerto Rico wants to boost sales in categories that have shown the best performance throughout the year. To do so, it is making some changes in parts of the store before Christmas, said President Carson "Ted" Wells. "During the year we have re-arranged our apparel sales floors, including all of the ladies’ and children’s [sections], and we will be rearranging the men’s [section] in September…to make sure we give adequate space to high-performing lines and brands. This will all come to life for our customers during the holidays," he said.

In addition, he said, "We reworked our home fashions floors and our consumer electronics floors will be next in August. Both these categories will offer wider variety as we are striving to provide customers with the best bedding, TV, and video options in the industry. Cosmetics will launch the Fall Festival in late fall to ring in the holidays for these categories, and fine jewelry will be competitively priced."

Angel Ramirez, communications director of Clubman, said the chain will have more apparel brands for the Christmas season. He said, "We are diversifying by adding more lines of women’s apparel," as it did earlier this year when it introduced the Spanish line of blouses called Mirto. It will also offer Tommy Bahamas and Lacoste women’s fashions this Christmas. "About 60% of Clubman’s clients are women," said Ramirez.

However, Clubman’s focus continues to be men’s apparel. "This year, designers have designed very attractive fashions, increasing the likelihood customers will buy clothes," said Ramirez. "This Christmas, we will have a wider variety of colors, designs, and materials than last holiday season."

Ramirez has noticed his clients are spending their money on the more expensive suits and apparel and no longer bargain-hunt for formal wear.

Futones por Sangit President Frank Crescioni said the furniture company will open a store in Hato Rey in September and will begin importing the European furniture lines Innovation and Club 8 to satisfy customers’ demand for more variety in contemporary furniture. "I do believe sales this Christmas will be higher than last year’s. Our sales have steadily increased by 20% in the past three years," he said, adding that the holiday season may see even steeper increases.

The jewelers CARIBBEAN BUSINESS interviewed also see current sales as a good omen for the holiday season. A source at Murano in Plaza Las Americas said 2004 sales are much better than 2003’s, and added that Murano will also increase its holiday inventory, even more so than last year.

Toy distributor Suarez Toy House has been getting ready for a very active holiday season, said President Roberto Chaparro, who began preselling Christmas merchandise to retailers back in March. "This Christmas will be better than last Christmas, which was very good for us. Last year was so good for retailers that this year they are buying more merchandise. They are very optimistic and very aggressive," he said.

Chaparro agreed that sales have been healthy throughout the year. Back-to-school sales, in fact, topped last year’s. "We began preselling merchandise for [back to school] in February. This is only our second year dealing with back to school. We were unsure what to expect last year and so we purchased conservatively. This year, we are increasing our inventory, especially licensed products from such brands as Barbie, Spiderman, and Strawberry Shortcake," said Chaparro.

Retailers on the move

Retailers expect healthy trends from the first half of the year to continue. Translation: Christmas sales should top those of the past two seasons. Retailers and shopping mall executives are getting ready for the onslaught.

To do so, numerous retailers are opening more stores or revamping existing ones. The Children’s Place is an example of this trend. One store opened in the spring at Plaza Carolina; two more stores are in the pipeline to open before Christmas in San Patricio Plaza and Plaza Rio Hondo.

Rent-to-own furniture retailer Rent-A-Center also has plans to open two stores before year’s end. "We plan to open a store in Cabo Rojo Plaza and another in Rio Grande Shopping Center," said Regional Director Angel Cruz.

Bed, Bath & Beyond will open a third local store later this year. It will occupy 30,000 square feet of space at Los Colobos shopping center in Carolina. The company opened its first local store in Plaza del Sol in 2001, and a second in San Patricio Plaza in 2003.

Also before the end of the year computer retailer CompUSA will open its second local store at Plaza Rio Hondo. Its first, occupying 22,000 square feet, is in Guaynabo’s Plaza Caparra.

A 55,000-square-foot MegaMarshalls will open at Plaza Rio Hondo this year. Another, measuring about 40,000 square feet, is scheduled to open at Yauco Plaza.

Electronics retailer GameStop is also expanding aggressively this year. It recently expanded its Plaza Rio Hondo store and will open locales in Plaza del Atlantico and Plaza Isabela, both in the municipality of Isabela.

RadioShack, meanwhile, is one of the chains revamping its stores. It has unveiled its new store image in six stores, and will extend it to other locations. Its Cabo Rojo and Yabucoa stores, to open before year’s end, will sport the new look, said Kay Jackson, senior director of public relations.

Blockbuster Video, whose Cabo Rojo store was the latest to be remodeled, is revamping others as well.

Meanwhile, other retail chains are on the comeback trail in the local market. Esprit has just opened in San Patricio Plaza, as has Benetton in Old San Juan, where a second location is in the works. "Our first store on San Francisco Street surpassed all sales expectations," said owner David Gonzalez. "In only three weeks it sold three times what we expected."

Shopping malls in action

Shopping malls won’t be left behind. Construction or expansion will start on numerous malls and strip malls soon, and many are undergoing remodeling.

For example, BV Properties will build a 120,000-square-foot strip mall called Plaza Guanica and will expand Yauco Plaza by about 100,000 square feet, according to President Frank Bragan Jr., who estimated the total investment for these developments to be $40 million.

Bragan’s prediction for the holiday season is as optimistic as many other retailers. "Christmas sales this year will be the best in years. There is more competition and sales dilution, but still sales are steadily increasing," he said. To make sure his forecast comes true, the marketing department has already devised an aggressive promotional strategy to target families. "We will have activities for the whole family—fairs, exhibits and more," he said.

Epifanio Fabregas, vice president of Sembler Co. in Puerto Rico, said healthy sales reported during the back-to-school season suggest that Christmas sales will improve upon last year’s numbers. "Last Christmas was good, but this Christmas will be even better. Back-to-school sales are higher than last year. Consumers are full of enthusiasm," he said.

Fabregas, too, wants to be ready. His company will begin construction of Añasco Plaza in October. Located in the municipality of the same name, the small strip mall will occupy 148,600 square feet and will have more than 1,000 parking spaces. "We already have all the necessary permits," he said.

Construction of the 22,000-square-foot Galeria del Sur strip mall has taken off, said Jorge Galliano, president of Gatsby’s parent company Komodidad Distributors. At an investment of $9 million, the mall will have 18 spaces averaging 900 square feet each.

Galliano, however, said he senses that consumers haven’t completely regained their faith in the economy; he expects healthy sales this Christmas nonetheless. "It would be reasonable to forecast a sales increase of about 6% to 8%, which is definitely better than last year," he said.

New York-based RD Management intends to develop two more shopping malls in Puerto Rico soon, bringing the total to 11. "We plan to build one mall in Humacao and another in Arecibo," said Vice President Mary Ann Savarese. She couldn’t provide details, however, since negotiations are ongoing and no contracts have been signed.

Besides building new malls in Puerto Rico, RD Management is improving the look of its existing locales. "We just finished remodeling our mall in Trujillo Alto," said Savarese. Plaza Trujillo Alto has 190,000 square feet of gross leasable space.

Next in line is Plaza Centro in Caguas. The company plans to freshen up the mall’s upscale image.

Plaza Rio Hondo will grow by some 20,000 square feet and its interiors will be fully revamped. "It is going to be a major renovation," said Vice President of Marketing Martha Hermilla. Although she said all construction is to begin in the next few months, she couldn’t say when the projects would be completed. Plaza Rio Hondo, an enclosed regional mall, occupies 461,989 square feet and has more than 90 stores.

Hermilla added that Plaza del Sol will also begin construction on a multistory parking lot. "It will add 400 parking spaces to the 3,400 we already have." Two hundred of the 400 new spaces are expected to be ready by Christmas.

Savarase expects 2004’s upbeat sales trends to pick up even more for Christmas. Plus, she added, the flow of money from elections will help bring 2004 to a positive close.

The year retail sales got back into shape

Judging from economic reports and statistics, 2004 is shaping up to the year retail sales got back into shape, although hints of recovery were already present last year, according to local economists.

"After two very difficult years (2001 and 2003), the economy is finally showing positive signs. During 2003, the Gross National Product increased 1.9%. For fiscal year 2004, it is estimated that it may increase between 2.5% and 2.7%," said Estudios Tecnicos economist Luis Rodriguez Baez.

"We can conclude from retail trends that local consumers feel pretty confident about the economy’s future, and so they are willing to purchase relatively expensive products, such as motor vehicles and other indispensable items," he added.

Consumption rates are also up. "The salient feature of the consumption index is its upward trend," said economist Heidie Calero. "Although the consumption index posted growth of less than 1%, retail sales were up by 7.7%, and car sales rose by 7.9% [in May 2004 compared with May 2003]."

Speaking of cars, several top luxury brands reported booming sales increases during the first six months of 2004 compared with the same period last year. BMW sales, for example, shot up 14.5%, Acura increased 58.8%, Porsche 119.6%, and Jaguar 23.6%. During the first half of 2004, car sales in general were up 7.8%, compared with the same period a year earlier (CB July 22, 2004).

Calero added that as long as consumers have access to competitive prices and a wide variety of products, consumption will continue thriving.

Sales are good, but what about jobs?

Another positive sign is a slight increase in total employment and, as the theory goes, if more people are employed, more shoppers are willing to spend money. In fact, according to Feliciano, consumer spending is the principal factor driving the economy. But how much did the number of people employed really increase?

Statistics from the Department of Labor show that the number of nonagricultural jobs in May 2000, was 1.23 million. However, that number began to drop and almost 45,000 jobs were lost by May 2003, when things began shaping up again. By that time there were slightly over a million people employed.

Although the number has continued climbing, it has done so very slowly. In fact, from May 2003 to May 2004 a grand total of only 2,800 nonagricultural jobs were created. Out of those, 1,300 were government jobs. Meanwhile, manufacturing lost 1,400 jobs.

But the slow growth in employment has been countered by low interest rates, said Feliciano. "Consumers have been able to increase their amount of disposable income by refinancing their mortgages."

Could it go sour?

Estudios Tecnicos’ Lara said rising gasoline prices are the main obstacle to the predicted 5% sales increase this Christmas. "If the price per barrel of oil increases to more than $30 and stays that high, it could weaken sales. The price per barrel has decreased somewhat, and if it stays the course, there won’t be any meaningful change in trends," he said.

However, as of press time, the price of oil had exceeded $40 a barrel, according to Feliciano.

In addition, Lara forecast that the economy will grow 3% in fiscal year 2005, which began in July. However, if oil prices shoot up and stay up, growth could slow down to around 2%.

Still, today’s gasoline prices aren’t as high as during the 1970s energy crisis. "In relative terms, gas prices aren’t increasing as much as they did back then. Also, consumers view this issue as temporary," said Rodriguez Baez.

In addition, the CPI in May increased almost 11% compared with the same month in 2003, according to the Labor Department. However, Rodriguez Baez said these statistics don’t paint a real picture of the situation. "These calculations are based on 20-year protocol that is bound to have a high margin of error," he said.

Also to be taken into account, said Lara, is that inflation today is lower than last year, alleviating the price index.

Stateside retailers enjoy similar upbeat business as locals

Higher employment levels, strong back-to-school sales bode well for holiday sales

The States’ consumer confidence index inched upwards in July, in part thanks to rising employment figures. Stateside industry sources said if the trend continues, consumers are likely to spend more this holiday season than last.

Mainland U.S. consumer confidence hit a two-year high in July, rising for the fourth consecutive month, according to the International Council of Shopping Centers’ (ICSC) Conference Board. The index increased to 106.1 from June’s 102.8.

"The spring turnaround has been fueled by employment gains," said Lynn Franco, director of the board’s Consumer Research Center. "Unless the job market sours, consumer confidence should continue to post solid numbers."

Of the 5,000 people surveyed for the consumer confidence index, only 7% said they expect conditions to worsen, down from 9% in June; consumers who anticipate a decrease in jobs declined from 16.8% to 13.1%.

The number of respondents describing the job picture as plentiful climbed from 18.3% to 19.8%. However, 19.1% complained that conditions are bad, up from 17.4% in June.

Upbeat back-to-school shopping has reflected rising consumer confidence. The Retail Forward Index of Future Spending jumped from 101.9 in June to 104.1 in July.

ICSC studies have shown that back-to-school sales can be a good indicator of how sales in general will perform later in the year. ICSC statistics from July to September 2003, the heart of the back-to-school season, showed month-by-month increases. The ICSC correctly extrapolated that 2003 Christmas sales would top those of the previous year.

With stateside back-to-school sales just beginning, observers are seeing a repetition of last year’s trend, which points to a successful holiday season for retailers.

This Caribbean Business article appears courtesy of Casiano Communications.
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