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Despite A Sluggish Economy, Puerto Rico Is Still A Piece Of Retail Heaven
New chains entered, others expanded, and competition became fiercer in 2002
By TAINA ROSA
December 26, 2002
Prompted by the past performance of so many stores that usually do better in Puerto Rico than on the U.S. mainland, several new retail chains set up shop on the island while others with established operations here expanded in 2002. In line with local retailers expectations, total sales for the year should be more or less equal to last years.
The most publicized expansion effort in 2002 was the purchase of Supermercados Amigo by megaretailer Wal-Mart. The deal spurred intense public debate and lawsuits in both federal and local courts.
The increase in excise taxes on tobacco and alcohol and the economic problems caused by an inefficient permit system also made headlines in 2002.
Wal-Mart & Amigo
When Wal-Mart announced its intention to buy Amigo, the islands largest supermarket chain, local wholesalers and retailers joined other concerned businesses in a coalition to oppose the deal. They worried that the megaretailers ability to import directly in huge volumes for direct sale at retail, bypassing local distributors, would bring about the collapse of Puerto Ricos current distribution industry.
They also said that upon completion of the sale, Wal-Mart would dominate more than 30% of the market, which they argued would constitute a monopoly.
The Puerto Rico Manufacturers Association and the Puerto Rico Products Association didnt oppose the acquisition, pinning their hopes on being able to sell their products to the megaretailer. They argued that Wal-Marts huge national and international distribution system offered great potential for the export of products made on the island.
The deal, valued at $225 million, was approved by the Federal Trade Commission Nov. 21 and closed by the parties Dec. 5. The next day the local Justice Department sought an injunction in the local courts to stop the deal. Wal-Mart countersued in the federal courts on several grounds, including the preeminence of federal law in matters pertaining to interstate trade and the unconstitutionality of the conditions that the local Justice Dept. attempted to impose on Wal-Mart in order to approve the transaction.
Excise tax hike
The Wal-Mart/Amigo acquisition wasnt the only worry on the minds of wholesale industry insiders. Distributors of alcoholic beverages and tobacco products have been increasingly challenged since the Puerto Rico government increased the excise taxes on these goods in mid-2002, causing sales to decrease.
The 40-cent tax hike imposed by the local government on cigarettes actually raised the price of each pack to consumers by 75 cents. That is because of the cascading effect, referring in this case to the price markups a product experiences as it goes through the distribution chain, from distributor to retailer to consumer.
A bottle of wine that cost $5.34 before the tax increase now costs 20% more, or $6.41. In addition, the 50% tax hike on wines & spirits and the 78% higher tax on beer caused the consumer price index (CPI) to rise 0.8%, according to industry sources.
Many local and stateside retailers have also stressed that the islands permitting process is a serious impediment to investing here. "Dealing with the [local] government is a major hassle. It says it wants to attract investment to the island, but then the government permitting agencies put all sorts of obstacles in your way when you want to set up stores," said one top stateside executive at an industry convention as locals nodded in agreement. "Just getting the Puerto Rico Electric Power Authority to power up a building takes forever, and no one wants to do business under these conditions. It seems the governments solution to eliminating permitting problems is simply not to give any permits. Thank goodness sales are great in Puerto Rico."
Hanging in there
Despite these new challenges, however, examples of how Puerto Ricos retail industry has stayed healthy abound. In fact, local retailers expect this years sales to be comparable to those of last year. Figures offered by the local government show that total retail sales were at about $15 billion in 2001 and that retail sales had reached about $7.5 billion by mid-2002.
RadioShack recently announced that its best-selling store in the world is the one at Plaza Las Americas, with $6 million in revenue for fiscal year 2002. According to industry sources, Kmart is also doing well on the island, despite the massive store-closings in the States since it filed for bankruptcy.
Some of the chains that have recently entered the local market or have announced their intentions to do so are Bed Bath & Beyond, Best Buy, Cold Stone Creamery, Johnny Rockets, Ebel, Limited Too, Roche Bobois, Starbucks, and Taco Time.
Other chains are in expansion mode. Among them are Blossoms, El Amal, Home Depot, Marshalls, Mueblerias Berrios, One Price Clothing Store, Ponderosa, Pueblo Supermarkets, Sams, Supermercados Grande, Walgreens, and Wal-Mart.
This Caribbean Business article appears courtesy of Casiano Communications.