Friday, December 14, 2018

Economists, Retailers See Sales Spike on Horizon

By on November 26, 2018

Editor’s note: The following originally appeared in the Nov. 22-28, 2018, issue of Caribbean Business.

As the words of the traditional Christmas carol go, “It’s the Most Wonderful Time of the Year” for many people during the holidays because of all the presents, family gatherings, parties and other seasonal activities. However, after last year’s Christmas season, just months after Hurricane Maria had struck the island, it was not that wonderful at all for most in Puerto Rico. Recovery efforts left many consumers unable to celebrate their usual traditional Christmas holiday festivities because of the economic challenges on the island. In addition, businesses had a difficult time because of the lack of electricity to maintain sales and operations.

This year, consumers appear to have more enthusiasm to acquire Christmas decorations, presents and other holiday items. On the other hand, stores have registered greater sales as a result of the chain effect from all the federal funds recently injected into Puerto Rico, along with insurance payments, loans and other recovery investments.

“We are going to have a very strong and positive Christmas. We are still in the aftermath of Hurricane Maria, but from the point of view of money injection, $10 billion has already been disbursed after the catastrophe,” economist Gustavo Vélez said in an interview with Caribbean Business. “That money created a sales dynamic until August 2018 when they increased by 10.9 percent year to date, compared to the previous year. This Christmas, we will be seeing a growth of 8 percent to 10 percent compared to last year [2017],” he stressed.

So far, this trend can be observed in the increased sales recorded in the most recent InfoVentas report from the Trade & Export Co. (CCE by its Spanish initials) for 2018. The executive director of the CCE, Ricardo Llerandi Cruz, explained in a release that “definitely, small and midsize businesses [pymes by the Spanish acronym] have projected an increase in their commercial activity.” Cumulative sales in this important sector increased $1.7 billion from January 2018 to August 2018, compared to the same period in 2017, which reflects a 26 percent increase. He also indicated that total sales for this period was $8.2 billion, while from January 2017 to August 2017, it was $6.5 billion.

Meanwhile, total 2018 retail sales from January to August increased 15.7 percent, with sales for this period amounting to $22.8 billion, while for the same period in 2017, it was $19.7 billion.

The sectors that reported the greatest sales increases were yard & gardening equipment up 37.6 percent; furniture stores growing 36.3 percent; and gas stations & convenience stores expanding by 29.1 percent. On the other hand, the sectors that reported sales reductions were jewelry stores, luggage & leather goods, down minus-19.7 percent; sports stores, musical instruments & entertainment with a minus-7.4 percent drop; shoe stores sinking minus-5.9 percent; and cosmetics, beauty products & perfume stores at minus-5.6 percent.

Looking to the future, the expectation is that 2019 will be a better year and there is certain optimism, and that makes people spend more, according to Vélez. Projections indicate there will be 7 percent growth, although in the economist’s opinion, it may be lower.

Economy on caffeine?

On the other hand, economist Vicente “Chenti” Feliciano told Caribbean Business that “fund transfers, claims payments from insurance companies, and out-of-pocket money spent to rebuild have been helping retail sales and have been performing well. “The outlook for retail sales is positive; however, a word of caution: This is an economy on caffeine, and the positive outlook relies on the economy staying caffeine-high. How long this caffeine lasts, however, is an open question,” he said.

According to Feliciano, retailers expect the caffeine will last through the Christmas season. Although all that is possible, by no means is it certain. “This would last as long as the money keeps flowing and it could last longer if we perform the structural reforms we need to implement, such as privatization of the Puerto Rico Electric Power Authority, charter schools, income-tax credit and the like,” Feliciano noted.

“So, the future could be quite optimistic, but the uncertainty, such as the timing of the permanent construction work and execution of the structural reforms, as long as we do those changes while the money is flowing, we are going to be great because, when the money stops flowing, we will have already performed the reforms and the economy would be sustainable,” he emphasized.

Another important factor Feliciano mentioned is that everything must be tempered with enthusiasm. “When talking about retail sales, it’s about the demographics because there was an outmigration [of residents] after Hurricane Maria. That reduction in the population must have an impact on sales. Now, the population that has stayed has more disposable income than it used to, so that’s positive on retail sales. There are fewer people, and that is not positive for retail sales,” Feliciano stressed.

However, according to economist Gustavo Vélez, of the 400,000 people who left after Hurricane Maria, 80 percent returned, according to figures provided by the Puerto Rico Ports Authority. Therefore, he understands this repopulation should help the retail sector this Christmas.

Unlike the United States, where there is a report on consumer confidence, that statistic does not exist in Puerto Rico. Some observers say that using automobile and real-estate sales figures as a metric represents an investment commitment for several years, and it can provide a good indication of consumer confidence.

According to Vélez’s projections, car sales are growing. For 2018, 100,000 to 110,000 units are expected to be sold, surpassing last year’s nearly 85,000 cars sold. As for sales of existing homes, according to the economist, there has been an notable increase in this market.

‘Tis the season’ for malls

Although Puerto Rico shopping centers were affected by the 2017 hurricanes, this year they have experienced increased commercial activity, sales and consumer traffic, which is why they are prepared for the Christmas holiday season.

For example, occupancies in shopping centers such as Plaza Las Américas and Plaza del Caribe are at 93 percent and 91 percent, respectively. Both malls have more stores open than they did last year. Plaza Las Américas has opened 20 new stores and is expected to open an additional eight stores by the end of this year. In terms of sales, in the 12 months that ended June 2018, Plaza Las Américas had increased sales of 29 percent, while Plaza del Caribe’s increased 21 percent, stated Lorraine Vissepó, spokesperson for Plaza Las Américas and Plaza del Caribe, in a written statement.

In the meantime, this year’s total number of visitors to Plaza Las Américas reflect 12 percent growth through June 2018, compared to last year. At Plaza del Caribe, although specific figures were not available, the Ponce mall assured the increase in visits is equally remarkable. “We hope to sustain this sales growth this Christmas season because, last year, due to the island’s special circumstances and the large number of stores and shopping centers that remained closed due to damages from the hurricane or a lack of electricity, sales were significantly higher than normal for this date,” Vissepó said. “The traffic in visitors should be maintained at more than 10 percent growth due to the island’s special circumstances last year when we received even greater numbers of visits,” she added.

Meanwhile, the general manager of the Mall of San Juan, José Ayala Bonilla, pointed out in an interview with Caribbean Business that with a total of 106 occupied commercial spaces, the luxury mall is happy to be in better condition compared to last year. Now that most of the space is available, the mall also has more stores open than before hurricanes Irma and Maria struck last year. As for sales per square foot, the Mall of San Juan is very pleased because, compared to last year up to August 2018, the mall has seen a 30 percent increase. Therefore, although it had been the trend until August, it is understood that this growth will continue during the Christmas season.

“We understand that the offer is still a very good one, which adds to what already existed in the past in the market. We continue to focus on having brands that are not available at other shopping centers because 60 percent of the brands at the Mall of San Juan remain unique to this market, inviting customers to look for offers they had previously seen in other jurisdictions, and now they are available in Puerto Rico,” Bonilla emphasized.

The Mall of San Juan is making a comeback with such anchor tenants as Nordstroms reopening just in time for the holiday rush.

“We’ve seen growth in overall customer traffic as well as total sales, and we’ve seen that the customer is responding to the offers we have at the Mall of San Juan, and they continue to sponsor us, so it has been growing,” Bonilla noted. “People are very happy and eager to celebrate a ‘normal’ Christmas period compared to last year. It can be seen in the activity and traffic in the shopping center and the spirit of this Christmas season. For the moment, stores are commenting that activity has been quite active over the past weeks,” Bonilla stressed.

Beyond the shopping centers, activity can be seen with people decorating, buying and making plans to have their gifts ready for Christmas. Although typical during this season, executives say it is even more evident this year because of the cash flow that came in after Maria, so money is flowing into the economy.

On the other hand, black-friday.global/es-pr—part of the Picodi.com smart shopping platform designed to help shoppers around the world save money online for this year’s Black Friday shopping event—surveyed 12,000 participants from 55 countries. Results reveal that the percentage of what they call “bargain hunters” will increase to 65.63 percent for the 2018 Black Friday in Puerto Rico, after reaching 42.94 percent last year. In addition, 74.41 percent of consumers would prefer to make purchases in both physical and online stores, compared to the 44.94 percent who participated in 2017.

The survey results also highlight that an average Puerto Rican will spend about $210 during Black Friday, mostly on clothing, electronics and footwear. The average discount available in Puerto Rico stores is about 60 percent, while savings will be about $315.

In addition, the organization Empresarios por Puerto Rico, or Businesspeople for Puerto Rico, celebrated on Nov. 21, the 2018 edition of “Miércoles Naranja,” or “Orange Wednesday,” when more than 1,000 local businesses joined together to offer discounts on products and services along with a campaign to raise awareness about the importance of supporting Puerto Rican trade, services and products.

The initiative involved pharmacies, hardware stores, florists, supermarkets, wholesalers, savings and credit cooperatives, and other businesses as well as a wide range of services. “In a country where 96 percent of companies are local, we are convinced the ‘Miércoles Naranja’ event should become a commercial tradition,” said the president of Empresarios por Puerto Rico, Enid Monge de Pastrana, in a release.

Monge de Pastrana also announced the launching of the educational campaign “Dale fuerza a Puerto Rico,” or “Give strength to Puerto Rico,” in both traditional media and social networks, explaining the reasons for supporting local commerce and what it means for the local economy at this time. Founded four years ago, the entity brings together various local products and services companies from a wide range of sectors. Together, their partners employ more than 50,000 people.

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