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Este informe no está disponible en español. CARIBBEAN BUSINESS Dreaming Of A Green ChristmasLocal Retail Sales This Holiday Season Could Reach $1.7 Billion, Up 8% From 2002 By LORRAINE BLASOR November 20, 2003 Shopping spree: Cutthroat competition among a larger number of retailers will give consumers more shopping options and better pricing Plaza Las Americas swarmed with people on Saturday Nov. 8, the kind of crowd that at this time of year, so close to Christmas, must warm the heart of any retail executive. At Borders, packed with young and old, the purchase of four books got customers a fifth for free. At J.C. Penney, tags in the clothing section promised all sorts of discounts and Banana Republic buzzed with female buyers snapping up clothes for bargain prices. It remains to be seen whether growing optimism over the economic recovery, the ebullience that accompanies the Christmas season, and a veritable smorgasbord of gift choices will translate into a jolly season for commerce. One thing is certain, however: Consumers this Christmas will continue benefiting from the sales and discounts to which they have become accustomed thanks to cutthroat competition among an increasingly larger number of players. "The competition is great, and the one who benefits most is the consumer," said Atilano Cordero Badillo, chairman of Supermercados Grande & president of the Chamber of the Food Marketing & Distribution Industry (MIDA by its Spanish acronym). Jorge Laboy, chief economist at the Commerce Development Administration, said he expects retail sales in December to grow 5% to 6%, continuing the trend seen in July, August, and September. Sales were up over 2002 by 7.8% in July, 5.3% in August, and 7.3% in September. Overall, retail sales between January and September 2003 are 6.1% above those in the corresponding period last year, he said. The Puerto Rico Chamber of Commerce, whose 2,000 members represent a cross section of the island’s commercial and service sectors, expects Christmas sales this season to grow 6% to 8% to reach $1.7 billion-plus. This compares with a 2.1% increase in 2002, when Christmas sales reached $1.62 billion, up from $1.59 billion in 2001, according to the Commerce Development Administration. The forecast echoes similarly positive projections for the retail industry on the U.S. mainland. In its Oct. 6 issue, Crain’s Chicago Business said, "Retailers are preparing for a rebound in the crucial November-December selling period, with sales increases ranging from 4% to 6%, outpacing last year’s dismal 2% gain." The Wall Street Journal reported on Nov. 7 that economists expect sales this Christmas to gain between 3.5% and 7%, compared with a 2.2% increase last year, making it the best in the past three years. Hector Mayol, president of the Puerto Rico Chamber of Commerce, said a good Christmas season will jump-start 2004. Already, there are indications the Puerto Rican economy is on the mend. Figures compiled by the Chamber of Commerce indicate that in fiscal year 2003 (ended June 30), employment in Puerto Rico rose 2%, based on a survey of businesses, and 3.5%, based on a survey of households; construction permits and the value of those permits increased 5.6% and 22%, respectively; and retail sales gained 5%. Also, the value of imports and exports grew 16.4% and 17%, respectively. Mayol spoke to CARIBBEAN BUSINESS at an impromptu roundtable with Chamber of Commerce Executive Vice President Edgardo Bigas Valladares and Luis R. Benitez Hernandez, president of the Puerto Rico Economists Association. Jorge Galliano, president of the Chamber’s retail commerce & franchise committee, joined the discussion via speakerphone. There are negative factors as well, mostly having to do with the performance of the manufacturing industry. Employment, payroll, and hours worked in manufacturing dropped 2.7%, 0.1%, and 2.5%, respectively, in fiscal 2003. Bigas Valladares said the job losses weren’t substantial, but they were detrimental because manufacturing jobs are high-paying. Other negative indicators: New-car registrations dropped 12.4%, and the consumer price index shot up 8.1%. Still, there is reason for optimism, said Galliano. He noted the U.S. economy grew 7.2% in the third quarter, leading some economists to believe the worst is over and this improvement will translate into renewed hiring, the linchpin for sustained recovery. Puerto Rico is expected to follow suit. Galliano said it is reasonable to expect sales growth of 6% to 8% for Christmas, with one caveat: Factoring in inflation brings the actual increase to between 3% and 4%. Jose Joaquin Villamil, an economist & president of Estudios Tecnicos, concurred, noting holiday sales should increase 6% to 7%, or 2% to 3% above the current 4% inflation level. Villamil said he expects consumers to gravitate toward nondurable goods such as shoes, clothing, and jewelry because consumer debt is high and people probably will postpone buying big-ticket items until the economy rebounds fully in 2004. Galliano suggested the commerce sector is in a stronger position this holiday season, having had to compete fiercely for the consumer dollar this year. "Commerce has improved its offer of products and services," he said. "Even though it has been a challenging year, consumers are more satisfied because there are more alternatives and better values." Retailers While executives from some of the larger retail chains on the island preferred to keep mum about their sales expectations for Christmas, a few were more forthcoming. Gary Salvatore, president of Sears Roebuck de P.R. Inc., recently told CARIBBEAN BUSINESS he expects single-digit sales gains—he hopes in the high range. Marshalls District Manager Radames Lopez said as much, noting that a single-digit increase in the prevailing retail scenario is good. Over at discount retailer Topeka, President Julio Estrella said he hopes for a better Christmas than the one last year, when his company, which operates seven stores including a wholesale outlet, experienced a 10% decrease in sales. This has been a difficult year for Topeka. Estrella said sales have been down an average of 7%, although 2003 got off to a good start, at least through May. Sales are now picking up and he is hopeful that a good selection of Christmas articles, particularly holiday lighting, basic consumer electronics, and toys, will generate traffic. "I’m an optimist," he insisted. Puerto Rico’s food industry should experience sale gains of 5% this Christmas. However, deflation will bring that figure nearer to 3%, said Cordero Badillo, speaking on behalf of MIDA, which represents 90% of the players in the island’s $3 billion-plus food industry. He noted several trends are working to contain significant increases in food sales. For one, food overproduction in the U.S. and competition have caused prices to drop, which prevents retailers from experiencing significant sales growth even if more people are buying. Cordero Badillo said deflation has been around for some time but has been felt more keenly this year. The other is that consumers, ever watchful of their budgets, are substituting more expensive food items for lesser-priced selections. Nevertheless, Cordero Badillo said he feels confident. "I see a resurgence in the economy; it has been coming slowly, but we’ve seen it in the third quarter," he said. "I hope November and December, the months of greatest consumption in Puerto Rico, will be better than they were last year." As for Supermercados Grande, the fourth-largest supermarket chain on the island, this Christmas season should be a fitting end to a year in which, according to Cordero Badillo, the company increased sales and margins. Restaurant franchises predictably do well at Christmas. Ivette Lizardi, marketing manager for KFC (Kentucky Fried Chicken), said the company is expecting sales to increase 10% over Christmas 2002, which, she said, was excellent. "My goal is that sales [this Christmas] will be even better," said Lizardi. KFC, Taco Bell, and Pizza Hut are owned by Tricon Restaurants International (P.R.) Inc. The franchise chain operates 172 restaurants in Puerto Rico, of which 87 are KFC, said Lizardi. Not unlike other years, this Christmas shopping season probably won’t kick off until next weekend, when stores launch their first salvo: the post-Thanksgiving sales that have become part of local holiday tradition. "Thanksgiving weekend is the biggest in terms of sales," said Benitez Hernandez, who also works as an economist for Estudios Tecnicos. "I am sure we will see people standing in line at 5 a.m. to go in to buy gifts." Early-bird sales have gained ground in the past three or four years, according to Benitez Hernandez. Local shoppers, ever eager for a bargain, have embraced them enthusiastically, as seen recently when scores of consumers camped out overnight outside the new CompUSA Store in Plaza Caparra to have first dibs at electronic equipment for rock-bottom prices. Enid Toro, president of the United Retailers Association of Puerto Rico, said that based on reports from association promoters around the island, the holiday season has yet to produce any palpable "effervescence." The association represents 15,000 retailers with more than 500,000 people on their payrolls. This comes as no surprise to Toro. After all, she said, Puerto Ricans wait until the last minute to do their Christmas shopping. On the other hand, she reported, retailers are feeling more optimistic about the economy, and while 2003 has been a difficult year, the sales have held fairly steady. "They [sales] are more or less on a par with last year; they have neither dropped nor increased notably," said Toro. She credited the performance on the resilience of the island’s small and midsize businesses amid an increasingly competitive climate, overshadowed by the presence of giants like Wal-Mart. Consumers A special Christmas gift awaits the two children of economist Benitez Hernandez: a trip to Disneyworld. Of course, this means he will be spending more this Christmas, since air travel tends to be more expensive at this time of year. He said he hasn’t taken his family to Disneyworld since 2000 because of the economy and personal commitments. Mayol, who is president of Santander Asset Management, recently became a grandfather for the first time, and Bigas Valladares also has a new grandchild. Both men said they plan to buy extra gifts this year to celebrate the new family additions. A recent poll by CARIBBEAN BUSINESS and PuertoRicoWOW found that out of 276 respondents, half said they plan to spend about the same on Christmas gifts as they did last year. Regardless of whether they spend more or less, consumers can expect to find lots of gifts and plenty of discounts to make shopping all the more tantalizing. "The consumer is in an advantageous position this year," said Cordero Badillo, promising that Supermercados Grande would be aggressive in terms of pricing in December. Without a doubt, a plenitude of gift choices and competitive pricing will be a strong magnet for buyers this Christmas season. After all, Puerto Rico, though a small island, is a voracious market for consumer goods. A sales & marketing executive recently told CARIBBEAN BUSINESS that the turnover of products is three times faster here than on the U.S. mainland. Executives interviewed for this story acknowledged the consumer in Puerto Rico has evolved into a more astute, more demanding buyer. "They want better quality at a lower price because they are defending their money," said Benitez Hernandez. Consumers have learned to compare prices, he said, and the proliferation of mass media makes comparison-shopping easier and accessible to all. While consumers are buying, the economic troubles of recent years have made them more careful about what they buy. Topeka’s Estrella said people are holding off on replacing things until it is absolutely necessary. For example, he said, a man might postpone buying shoes if the pair he is wearing is still in good condition. A similar trend is occurring on the U.S. mainland. "There is a seismic shift in how consumers are shopping. People are buying closer to need, and they’re not going crazy for the holidays," Howard Davidowitz, chairman of New York-based consulting firm Davidowitz & Associates Inc., told Crain’s Chicago Business. Other consultants on the U.S. mainland have also noted consumers are more discriminating about what they buy and are questioning each purchase with "Do I really need this?" Gustavo Orozco, vice president of client services at advertising agency McCann-Erickson Puerto Rico, went even further in dissecting the evolving nature of consumers. He said that the frenetic pace of modern life is taking away people’s enjoyment in buying. This puts the onus on retailers to work harder to make the shopping experience more pleasant by placing greater emphasis on customer service that is personal and professional. Christmas forecast for island shopping malls: jingly good Plaza Las Americas, Puerto Rico’s biggest mall, has experienced sales growth of between 6% and 10% this year, said Communications Director Lorraine Vissepo. "We expect this growth will hold during the Christmas season," she said. With 2.1 million square feet of space and 300 stores, Plaza Las Americas has the designation of a super-regional center. It is one of approximately 122 shopping centers operating on the island. Malls should perform well this Christmas season, although sales increases will vary from one center to another, according to Jose Enrique Ortiz, the International Council of Shopping Centers’ state director for Puerto Rico and the U.S. Virgin Islands. Plaza Las Americas is investing $700,000 in advertising for the holidays, including publicity for its gift card, currently accepted by more than 150 stores at the mall, among them Sears, El Amal, and Guess. More than 5,000 of these cards were sold last Christmas, and Vissepo said the company hopes to surpass that number this season. Plaza also will spend more than $500,000 on its annual program of holiday activities. This year’s program, dubbed "Christmas Tradition," kicks off at 5 p.m. on Saturday, Nov. 22, with a parade of 10 illuminated floats. The caravan of floats, musical bands, baton twirlers, and traditional cabezudos will ride along Roosevelt Avenue and wind up at Plaza, where the lighting of the mall’s 40-foot-tall Christmas tree, the singing of Christmas carols, and the arrival of Santa Claus will wrap up the event. Vissepo said the floats, which have eight sponsors, were designed by Party Floats, the company responsible for the floats in the famous Rose Parade in Pasadena, Calif., and the 8th Street Parade in Miami. Ortiz, vice president of PMI Retail Property Management Corp., a company that manages 16 shopping centers in Puerto Rico, including Plaza del Sol in Bayamon (which Ortiz manages), said a mall’s decor and activities during the Christmas season play an important part in luring crowds. For example, he said, Christmas represents 25% of yearly sales at Plaza del Sol and management has invested more than $150,000 to beef up the Christmas decor and make the mall more attractive to visitors. Categories Expected to Report Highest U.S. Sales Growth in 2003 Holiday Season Smallest numbers indicate highest sellers Category: Average Rank Digital electronic products (excluding gaming): 3.1 Video game software: 3.9 Clothing, shoes & accessories: 4.2 Jewelry: 4.7 Books, CDs, Movies (VHS / DVD): 5.1 Furniture / Home Furnishings: 5.3 Computers, Computer-Related Products: 5.8 Video-Game Hardware: 5.9 Toys / Hobbies: 6.1 Sporting Goods: 7.7 Source: International Council of Shopping Centers Based on annual survey of 44 leading retail & real-estate analysts. 2003 Holiday Sales Forecast The International Council of Shopping Centers asked 44 leading retail & real-estate analysts to predict which retail formats in the U.S. will capture higher, equal, or lower holiday sales than last year. % of Respondents* Higher / Equal / Lower Department Stores: 23.3 / 20.9 / 55.8 Discount Stores: 83.7 / 11.6 / 4.7 Specialty Stores: 39.5 / 51.2 / 9.3 Factory Outlets: 20.9 / 39.5 / 39.5 Warehouse Clubs: 58.1 / 34.9 / 7.0 Big Box-Category Killer: 54.8 / 42.9 / 2.4 Online (Multichannel & Pure-Play) Retailers: 86.0 / 11.6 / 2.3 Mail-Order Catalogs, TV Shopping Channels: 9.3 / 41.9 / 48.8 *Rows may not add up to 100% due to rounding. Source: International Council of Shopping Centers How Will Your Spending This Holiday Season Compare With Last Year? Will spend about the same 50.0% Will spend much less 21.7% Will spend less 19.2% Will spend much more 4.7% Will spend more 4.4% Source: CARIBBEAN BUSINESS / PuertoRicoWOW poll for a two-week period ending Nov. 14; a total of 276 people voted. Local Retail Sales in December (In Millions) 2001: $1,588.6 2002: $1,621.5 2003: $1,751.2* *Projected figure. The Puerto Rico Chamber of Commerce predicts sales will be 6% to 8% higher than in December 2002. Source: Commerce Development Administration This Caribbean Business article appears courtesy of Casiano Communications.
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