Puerto Rico remains a retail mecca
Those who really know Puerto Ricans or have visited the island at least once, will agree: shopping is the local favorite pastime.
Evidence of that is the impressive $35 billion in average annual sales generated through local retail activity, nearly four times what it was only 20 years ago. Presently, Puerto Rico’s locally-owned retailers represent little over 15% of CARIBBEAN BUSINESS’ Top 400 Locally Owned Companies.
Notwithstanding, the recent difficult economy has taken its toll, claiming many retail casualties, mostly small to midsize businesses in the restaurant, women’s clothing, furniture segments and even some small shopping centers.
The year 2010 marks the fifth consecutive year with no growth for the local retail sector, which after a lackluster holiday retail season, will manage to remain at the $35 billion sales mark.
The January-September Infoventas report from the Puerto Rico Trade & Commerce Company (CCE by its Spanish acronym) shows retail sales totaling $25.65 billion, a 1.18% increase over 2009’s $25.34 billion during the same period—a modest improvement over the .08% increase over 2008.
Consumers and retailers adjust
In response to shrinking consumer budgets, island retailers have adjusted their inventories down 15% to 25%. Overall, retailers are concentrating on must-have merchandise across retail segments, from food to clothing, explained Mike Nolla, veteran retail industry consultant.
“Consumers have gotten used to—and have made the necessary adjustments for—living with considerably smaller family budgets. The average spending budget for families whose head of household is still working is estimated to have shrunk by 25% to as much as 35% during the past couple of years.”
Sectors such as paint and hardware stores and men & women’s clothing stores, typically affected during economic downturns, have continued their decline. For the first time in many decades, the island’s food retail sector, which yields approximately $6 billion in total annual sales, is posting negative retail sales as a result of consumers not only switching to buy more affordable food products, but also actually buying fewer of them.
Ever-increasing operational costs, full implementation of the minimum federal wage, increases in Christmas bonuses and special property taxes continue to put significant pressure on profit margins.
Interestingly, the jewelry segment, which had been lagging behind its stateside counterparts during the past couple of years, posted a modest 1% retail sales increase in 2010. Rising auto retail sales have been the biggest surprise in 2010, with the industry on track to reach 90,000 total units sold by year’s end, a vast improvement over 2009’s 79,000 new units sold and closer to 2008’s 93,000-unit mark.
P.R. food sector remains resilient
At a glance, Puerto Rico’s $8.5 billion food and beverage industry was a bit shaken up in 2010, but remains solid. Total food sales represent about one-fourth of the island’s $35 billion annual retail sales and 15% of total local consumer expenditure in a marketing process that includes food industry importers, distributors, retailers and wholesalers, restaurants, convenience stores and colmados.
For Plaza Provision President Ángel Torres, “Competition to lure consumer traffic has been fierce, with strong pressure on pricing and special deals. It is estimated that there has been a 1% deflation on food products because of these price wars.”
More federal Nutritional Assistance Program (PAN) money has been put in circulation as part of the federal economic stimulus packages; however, higher unemployment has reduced many households’ purchasing power. Low-price and private-label products have gained share, but national brands that have invested in advertising and promotion also have been able to maintain and even improve market share. “This trend is expected to continue over the next couple of years or until the local economy begins to show signs of improvement,” Torres warned.
Also in 2010, Puerto Rico’s supermarket industry unsuccessfully fought legislative initiative spearheaded by House Speaker Jenniffer González to allow chain restaurants to vie for a supersized chunk of the $2 billion in federal PAN benefits the island receives.
During the extended recessionary period, consumers have changed their purchasing patterns for good, being more conscious of value propositions—price, quality, benefits—and of managing their consumables, purchases and in-home inventories. Therefore, Torres said, the pressure on pricing will continue, and food retailers will have to get even better at improving productivity, efficiencies and customer service as to protect their bottom lines.
There have been many significant changes in the food-retail sector driven by the closing down of Supermercados Grande, followed by the corresponding growth of other locally owned supermarket chains, such as Selectos, SuperMax, Econo, Mr. Special, Hatillo Kash & Karry, Plaza Loíza and Pueblo.
Empresas Cordero Badillo filed for Chapter 11 bankruptcy, as founder Atilano Cordero Badillo sold off the pieces of his once mighty Supermercados Grande grocery store chain.
Despite Cordero Badillo’s tireless efforts to reduce the company debt that totaled $258 million—including $183 million owed to suppliers and the remaining $75 million to Citibank—the individual sale of its Grande stores didn’t yield the cash flow he needed to finalize the restructuring plan. At the time of filing for bankruptcy, two locations, Orocovis and Coamo, were still under negotiation. Their combined sale is expected to yield approximately $4 million.
Additional food-retail industry consolidations are expected in 2011. Econo, the island’s largest supermarket chain of independent owners, reached its $1 billion sales mark in 2010.
P.R. catches celebrity chef fever
The island’s restaurant industry, which pours an additional estimated $3 billion into the local economy, has also been affected by the economic recession, accounting for the largest number of bankruptcies recorded to date. Among fast-food franchises, the trend is still price-driven, while innovative smaller formats like The Taco Maker Xpress, Coffee Xpress and City Dogs gain popularity.
Franchise expansions include four additional Denny’s locations and two new Romano’s Macaroni Grill restaurants. Also, Encanto Restaurants, parent company of the Yum! Brands roster of eateries on the island (including Pizza Hut, KFC and Taco Bell), is moving forward with a $50 million islandwide investment to expand and remodel the three chains.
Despite challenging economic times, or perhaps as a result, one in five Puerto Ricans eats at fast-food chains three or more times a week.
The middle and high-end segments of the restaurant sector also welcomed important changes with the opening of Chef Roberto Treviño’s new Bar Gitano and the arrival of two signature concepts from celebrity chef Alain Ducasse, who established miX at the beach at the new W Retreat Spa in Vieques and Fern, a Caribbean fusion experience from celebrity chef Jean-Georges at St. Regis Bahia Beach Resort in Río Grande.
Retail heaven
With a roster of some of the world’s leading retailers, trend-setting designers and one of the most sophisticated consumer markets around, Puerto Rico’s retail industry is no longer a best-kept secret.
“The arrival of TJ Maxx, Marshalls’ sister company, and PetSmart, among others, reconfirms Puerto Rico’s still thriving retail sector,” Nolla said. “Retailers like the Novus group, which operates Novus, Galería, La Favorita and Florsheim; Euromoda, with its new concept store in Hato Rey’s Roosevelt Avenue; and the new Design 123 furniture concept store are good examples of how local entrepreneurs can not only grow, but also thrive in this market as long as they stay ahead of the curve by reinvesting in their businesses, reinventing themselves, delivering value for price, listening to their customers and constantly finding ways to innovate across every aspect of their business.”
Walmart, the island’s leading retailer, with estimated total sales of $2.5 billion from their combined Walmart, Walmart Supercenter, Amigo supermarkets and Sam’s Club stores, had yet another growth year, according to Iván Báez, Walmart’s vice president of corporate communications.
Walgreens, the island’s leading retail drugstore chain, marked the 50th anniversary of its local operations in 2010.
Meanwhile, Larry Merlo, president of CVS/Pharmacy, visited Puerto Rico for the much-awaited opening of the Rhode Island-based chain. CVS/Pharmacy was slated to wrap up 2010 with five new locations and plans to invest an estimated $400 million over a five-year period as it vies for a rapid market-share acquisition in the island’s $4 billion retail pharmacy sector.
Also, a 100-plus group of independently owned community pharmacies that operate under Coopharma are doing well and continue to grow in markets where large chains may not want to go.
On the shopping center front and generating estimated annual sales of $1.1 billion, Plaza Las Américas ranked among the 15 largest shopping centers in the U.S. and a major economic engine within the local economy.
Remaining the island’s retail mecca with more than 70,000 visitors daily, Plaza welcomed a total of eight new high-end tenants and three seasonal retailers this year. Chief among them are: Lola (a BCBG group store), BCBG Generation, Totto, Pandora and Abercrombie & Fitch (A&F).
