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The future of this years Holiday shopping is uncertain as consumers bear the burden of higher energy prices, a change in government, and a soft-landing economy.
BY LUCIENNE GIGANTE
December 14, 2000
Is Santa Claus coming to town?
[Is Santa coming to town, after all?]
[Will Santa Claus be coming to town, after all?]
[If Santa comes to town, will he bring goodies or ashes to the retailers?]
[Whats in Santas pack?]
Price driven consumers promise to spread holiday cheer among value retailers like Wal-Mart, while the rest battle it out with special sales, promotions, and mass advertising.
After almost a decade of retail blitz, the 2000 holiday season is building up to a nail-biting suspense that might result in a turnaround from recent years champagne toasts.
Of Christmases past, none were better than the last two, with record Christmas sales of $1.4 billion in 1998 and $1.5 billion in 1999, both fueled by the $4 billion influx of recovery money after Hurricane Georges hit Puerto Rico.
And while the spirit of Christmas is very much alive, the future of this years holiday sales for retailers remains uncertain.
Santa Clause will not have the benefit of Hurricane Georges relief funds. And OPEC oil producers threaten to play the Grinch, stealing Christmas by sucking millions out of our economy. With their drastic increases in oil pricesfrom $10 to about $30 a barrelthey are filling our Christmas stockings with higher electricity and gasoline bills that may knock the cheer out of holiday retail sales.
Consumers are being more cautious because 2000 is a government-transition year and there are signs of a stateside economic slowdown. Baffled by unusually aggressive promotions, consumers are closely watching their spending and will most likely shop for discounts.
"This Christmas I am not going to buy anything at a regular price," Mara Rodriguez told CARIBBEAN BUSINESS while shopping at Plaza Las Americas. "Im going to save what Ive been spending in electricity bills."
The two extra days of shopping this Christmas, compared to last year, keep retailers hopeful. Last season, Dec. 25, 1999 fell on a Saturday; this year its a Monday so retailers can take advantage of Saturday and Sunday last minute salesa must-do activity for locals. Experts sales estimates are all across the board, but none are as positive as last year.
"The economy has shown signs of slowing down. This year, if not a slowdown in sales, we will certainly not experience much growth," economist Jose Villamil, president of Estudios Tecnicos Inc. told CARIBBEAN BUSINESS. "Consumers this year will be very price conscious. In a transition year, consumers tend to hold up on spending, however, new players in the retail field might compensate for the down turn."
This Christmas gloom-and-doom scenario is more evident in the States. Don Barry, chief retail economist at Merrill Lynch, predicted in a recent New York Times article that this holiday season would be the "worst Christmas for sales and profits since 1995." The International Council of Shopping Centers (ICSC) reported mall sales down 6.9% for the first full week of the present holiday season, compared to last years numbers.
In Puerto Rico the buzz is equally blue. "The word is that retailers are barely hoping to match last years sales. I dont think there are plans for any total sale increases," said a retail industry expert.
Its not 1999
Retailers arent partying like they were in 1999 or 1998.
Soaring gasoline and electricity prices have taken a bite out of consumers expendable income. Banco Popular de Puerto Rico Economic Progress Report for first quarter 2000 estimates the increase in the price of oil to be costing consumers an additional $95 million per month. That translates into an additional bill of $1.14 billion per year sucked out of Puerto Ricos economy and going to oil producing countries. The individual consumers shopping budget will certainly be affected.
Puerto Rico is in the midst of a major government transition. That process creates uncertainty in tens of thousands of central and municipal government-workers and government-related job holders. Due to the change of political party in power, thousands of employees are uncertain about their future. Many will stay away from shopping splurges.
"I would say the average retail sales increase will be minimal if any at all, compared to last year," said Mike Nolla, senior vice-president of Manley-Berenson Associates Puerto Rico, operators of Rio Hondo, Montehiedra, and Las Catalinas shopping centers. "The fact is that a change in government, as well as high electricity and gasoline prices affect consumers, I would say especially those in the $50,000 family income bracket and lower."
When asked if elements such as high gasoline and electricity prices affect sales at Plaza Las Americas, president Jaime Fonalledas remained upbeat. "Plaza should not be affected," he said, "but I am not the one buying the [stores] inventory. I dont hold inventory. The only thing I can say is based on this years sales trends so far, I project a healthy increase in retail sales for Plaza Las Americas this year."
With early signs of economic slowdown, the retail industry has already suffered most of this year. "Sales during the year have been slow. I believe this is the beginning of a small recession in retail," said Jorge Fournier, executive vice president of Commercial Centers Management, owners and operators of Santa Rosa Mall and Plaza Caparra, among others. "In the States, the Consumer Confidence Index is also at its lowest levels."
Conducted by the New York-based Conference board, the Consumer Confidence Index is based on a monthly survey of some 5,000 households in the States. According to their report, the Consumer Confidence Index in November fell to its lowest level in more than a year.
"In total sales we will stay pretty much flat compared to last year. Same store sales results will probably be in line with last year," Fournier added, also citing high electricity prices and government transition as reasons for the downward trend.
"Its been very soft so far, its like a February," said Larry Campbell, president of L.S.C. Consulting Services Corp. "If not flat sales, I would say it will be 5% to 7% less than last year. Many retailers are backing out from previous expansion plans. But there are two extra shopping days this Christmas were hoping will help the numbers to pick up."
This year it has been slow for retailers in the U.S., as well as in Puerto Rico. Developments in the industry have been marked by high-executive turnover in major stateside retail chains. Retailers which appointed a new CEO or COO this year include Wal-Mart, Wal-Mart.com, Sears Roebuck, Kmart, JCPenney, Toys "R" Us, Nordstrom, and Polo Ralph Lauren. Many of these retailers have a strong presence in Puerto Rico.
Merrill Lynchs Barry predicted comparable same-store sales at major retailing chains in the U.S. would increase a "paltry 2.5%." High gasoline prices, stock market volatility, and higher interest rates are cited in his recent New York Times article "New Retail Chiefs Face Ghosts of Profits Past."
But most importantly, competition in Puerto Rico is fierce. Much-awaited Macys is expected to lure many customers and even affect other tenants sales at Plaza Las Americas. But competitors are fighting back big-time.
Long gone are the days of JCPenney vs. Sears. Add Macys and Wal-Mart to the list, Prime Outlets in Barceloneta, and millions of additional square feet of retail space islandwide and Puerto Ricos so-called retail paradise is now starting to look more like a retail war zone.
"Retail sales have been very powerful in the past four to five years. But the heavyweights are all here already and competition is brutal," said Erasmo Don-Zabala, president of Centro Gran Caribe, which added 38 tenants this year alone.
Triggered by the intense competition, shopping centers and individual retailers have been significantly aggressive in advertising and promotions to lure customers in. "It is notable that this is going to be a very competitive Christmas season. People are looking for specials," said Miguel Gonzalez, operations manager at Caparra Center Associates, owner and operators of San Patricio Plaza.
"Higher than desirable inventory levels will likely create a highly promotional environment," Fournier said, adding that for the first time Santa Rosa Mall has been advertising on television. Plaza Carolina also for the first time will issue a shopper-style catalog featuring its stores, promotions and gift ideas, according to marketing manager Juliana Castillo. The shopping center is expecting overall sales to increase a mere 2%.
Meanwhile, Sears tried a different advertising medium. The company placed an advertisement in local daily newspaper El Vocero, Jose Burgos, vice president of marketing, told CARIBBEAN BUSINESS. "We wanted people to get a look at our low prices," he said. It worked. "The line of [wall] paint we advertised registered a 145% increase in sales the day following the ad."
"This will be the Christmas of specials," said Mike Nolla of Manley-Berenson. But specials dont necessarily translate into profits. "Everyone went wild on Friday [after Thanksgiving] giving stuff away," said a retail expert. "Even if they make the numbers, its not going to be profitable. Its easy to produce sales but not profits," adding that retail space recently added on the island will only spur cannibalized sales.
Shopping centers keep expanding, but none has equaled Plaza Las Americas, which this year concluded its $250 million dollar investment with the opening of big-hitters Macys, Borders Books & Music, Ann Taylor, and Old Navy and more than 50 other new retailers. Plaza added a total of 705,000 square feet to the 1.3 million square feet it already had, strengthening its position as of one of the best-performing shopping centers in the world.
"There is an influx of retailers on the island and during the absorption period, retailers will get hurt," said Maryann Savarese, vice president of RD Management Corp. owner and operators of Plaza Centro, adding that although there are many new stores, there isnt an "it" itemsuch as last years pashmina shawl that sold like hotcakes. "I dont see anything exciting going on in womens fashion, for instance."
In a recent editorial of The Dealmakers weekly national publication, publisher Ann ONeal states, " Its the retailers cannibalizing themselves by over-storing to keep out competition. Buyers are running scared these days and its obvious you can buy ladies apparel in any color of black, house wares are exactly the same from store to store and the only exciting impulse buying is being done by teenagers."
Masters of their domain
While department stores face Macys new competition this Christmas, discount stores are taking advantage of the savings-conscious environment.
Although acknowledging its power, the retail industry hasnt exactly given Macys arrival to the market a standing ovation. "Macys is definitely hurting retailers. But what Ive heard is that Macys is not making the sales theyve expected," Nolla said.
"Macys had the worst promotions. They are overstocked. Their assortment is wrong," said another expert. They have projected numbers way beyond the capacity of this island to produce. But since they are a powerhouse, they will quickly learn."
Macys executives dont seem to think that way. "We are meeting expectations," Peter Sachse, vice chairman and director of stores, Macys East told CARIBBEAN BUSINESS, adding. "And we had very high expectations."
"People have responded very nicely to our store," he continued, mentioning the cosmetics, shoes, and sportswear as favorite areas for locals. When asked about what they could improve he demurred, "Its really mostly about color and size issues."
Meanwhile, Wal-Mart, the biggest retailer in the world, is already celebrating. "Historically, whenever the economy tends to tighten up a bit, people tend to look for more value driven merchandise and theyve taken advantage of our everyday low prices," said Bill Cahill, president of Wal-Mart Puerto Rico. "We are optimistic and are shooting for a double-digit increase compared to last year. And weve had a good start."
"We were expecting single-digit increases in the Thanksgiving weekend but weve experienced double-digit increases [compared to last year]. People are shopping in Wal-Mart because they are looking for savings. Weve noticed that more so this year than any other. People just want to save money," added Wal-Mart spokesperson Federico Gonzalez Denton.
Sears Roebuck Puerto Rico has been particularly keen preparing for Macys arrival. In terms of sales estimates for Christmas 2000, Burgos remains optimistic. "Right after the election we took a downward trend. November was a soft month. But we experienced double-digit increases in sales during the Thanksgiving weekend compared to last year. We are very pleased."
Sears experienced double-digit increases even at its Plaza Las Americas store, which Burgos confessed to feeling a bit "surprised," given the intense competition provided by Macys. He expects low double-digit increases at the end of the season.
Marshalls also plans to cash-in on this years savings-mood. "Consumers are being very price conscious and they know other stores have the same items we have but at a higher-price," said Angelo Mercado, spokesperson for Marshalls, which has 13 stores locally, including two superstores averaging 45,000 square feet. "The local consumer at the moment is looking for specials to save money. Sales are good," he said. They expect single-digit increases, "we dont expect an increase of just 1% but not 9% either."
At the end of the game, "Consumers are the ones who benefit. Competition brings better selection and prices," said Mercado. "I know that I, as a consumer, have saved money compared to years past and I bet everyone is also saving money as well."
This Caribbean Business article appears courtesy of Casiano Communications.