Puerto Rico’s holiday sales are faring better than expected but the island’s retailers face $15 billion in losses from Hurricane Irma and the much more devastating Maria, experts said.
At the same time, merchants are struggling with jammed ports, roads and other damaged infrastructure from the twin storms, just as 60 percent of the island remains in the dark after the storms left nearly $100 billion in losses.
Despite the gloom and doom, retail associations and executives have adopted a sanguine no pasa nada [“nothing’s wrong”] attitude, insisting retail sales have been strengthening in the run up to Christmas.
“Our sales have been very good,” claimed Limares Soto, executive director of top retail lobby Asociacion de Comercio al Detal de Puerto Rico. “There are many [reopened] shopping malls and less stores [as many remain shut] which have been very crowded. People are looking for basics, for home products and clothing so those that are open are very happy with traffic and volume.”
Sales began inching up after Thanksgiving, buoyed by San Juan’s decision to extend consumer credit payments for three months, providing a boost to cash-strapped families struggling to rebuild their homes or regain shelter. Help from the U.S. Federal Emergency Management Agency and the Red Cross also finally kicked in, ushering a wave of “crisis shopping” to replace essentials, according to Soto.
Last year, recession-hit Puerto Rico sold $413.7 million during December. Of this, $182 million was clothing, $173 million footwear, $22 million beauty products and $18 million jewelry and leather goods, Soto said.
She would not venture a 2017 sales forecast but stressed turnover could decline slightly as soaring demand for basics offsets losses in the premium and luxury categories, which are suffering from a steep decline in tourism. Profits will fall, however, as rising fuel and transport costs squeeze margins, she conceded.
According to Soto, 75 percent of retailers have reopened for business but have retailored their offer to draw crisis-hit customers.
One such merchant is J.C. Penney, which is working to reopen three stores by mid-2018, said district manager Susset Reyes. She claimed the department store’s holiday sales are also picking up as rivals Sears, Nordstrom
or Saks Fifth Avenue
stores remain closed. This year, sales could exceed $130 million compared with roughly $145 million in 2016, she said.
Like rivals, Penney’s has rushed to bolster its mass-market offer: “We are selling more basic merchandise for kids, men’s, women’s as well as underwear and bras,” Reyes explained, adding that basics now account for 60 percent of the portfolio versus 40 percent last year. “Shorts, jeans, athletic wear and basic home goods like sheets, pillows and towels are selling very well.”
Penney’s outlets in the towns of Hatillo, Humacao and Carolina were hit hardest, Reyes acknowledged, though she would not disclose figures for damages.
Alicia Lamboy, president of the Puerto Rican Chamber of Commerce, estimated retailers could lose $15 billion in the 12 months following the storms, considering both damages and lost sales.
She noted the hurricanes hit many malls – including the flagship San Juan, Plaza las Americas, Plaza del Norte and Carolina malls – which remain partially shuttered and are home to hundreds of specialty retailers including Nordstrom
, Saks, Carolina Herrera, Forever 21 and Michael Kors.
Major mass and department store retailers such as Wal-Mart
, K-Mart, Macy’s, T.J Maxx and Marshalls also took a big hit, Lamboy added, with many shops closing for five to six weeks after Maria made landfall on September 20, according to Lamboy.
“Puerto Rico’s reality has changed,” she said. “Twenty percent of retailers [operating before Maria] may not come back and 20 to 40 percent of small and midsize retail may also not operate again…There is a possibility that Nordstrom or others won’t come back if the situation doesn’t normalize…
“The future looks difficult, especially when you consider that the economy has been declining for the past 10 to 11 years and the hurricane has only aggravated the situation,” she added.
A Nordstrom spokeswoman could not immediately comment and said there was no opening date for its severely damaged outlet in San Juan Mall, where rival Saks also reportedly suffered heavy damages. An H&M store operating in the luxury center lost its entire inventory to flooding, one insider said.
Evan Gold, executive vice president for global services at weather damage forecaster Planalytics, agreed retailers face at least $15 billion in losses and more if the frequency and severity of storms continue to worsen, accelerating the population’s exodus.
“There are lots of sales that are not coming back with the amount of population leaving Puerto Rico,” he said. “Last I read, it was over 200,000, which is close to one half and 1 percent of the population. Since the storm hit three months ago, it’s been absolutely crazy, not like what we saw in the U.S. where people can move and then return a few days later or move somewhere else in the economy.
“At the end of the day, everyone selling apparel will be hard hit,” he added. “The logistics are going to be very challenging. The entire infrastructure has been impacted, roadways, power lines etc. It’s new territory for some of these guys [retailers].”
Interestingly, some merchants appear to have bucked the crisis to improve employee retention and boost their profile.
T.J. Maxx – which is part of TJX that also owns Marshalls and Home Goods Associates – has been paying employees despite closing dozens of stores, Gold said. “This is very unique but it’s a business that has done very well and it’s hard to find good employees. This is a way to ensure the associates stay with you.”
Letty Gonzalez, owner of La Boutique fashion store in San Juan, said the island’s logistics nightmare is hurting sales. “It’s been hard. It’s been two and a half months and I am still not getting my UPS packages. UPS is no longer guaranteeing second-day deliveries.”
She also cancelled buying trips to Los Angeles to buy collections for her store – which is focused on contemporary fashion and streetwear – in order to cut expenses after losing nearly thee months of sales.
Gonzalez said Christmas trade is going well but expects the hike will be short lived. Come the New Year, “when people have to start paying their bills, credit cards and mortgages, you are going to really see the effect of what happened,” she noted.
Meanwhile, retailers are scrambling to move merchandise through cluttered ports and damaged roads in time for Christmas. Much of the clothes Puerto Rico imports come from Jacksonville, Miami and Philadelphia warehouses.
“There are problems with the ports. Hundreds of containers have been stuck for weeks,” said Wal-Mart
spokesman Ivan Baez. “Merchandise is not flowing” rapidly enough for the season.
The company is struggling to deliver goods to its 48 Puerto Rico stores, which are fully operational except for a shattered Wal-Mart hypermarket and Sam’s Club under repair. Wal-Mart’s outlets shuttered for four days after Maria’s landfall, he said. Baez said Maria levelled Wal-Mart’s Puerto Rican headquarters in the central-east town of Caguas, forcing it to shift operations further south to Humacao near the coast, where the damaged Wal-Mart Supercenter is located.
To meet the challenge, the retailer is rushing to negotiate better terms with shipping companies Crowley and Tote to speed clothing, footwear and home product deliveries from its main Jacksonville, Fla., distribution center. “Carriers have agreed to make more special spaces for us but the main challenge is to move trucks to our stores. We need more trucks and more truck drivers,” Baez said.
Despite the challenges, the merchant has “been improving sales very fast and we don’t foresee a severe decline in sales” this year, Baez said, adding that turnover was rising before Irma and Maria hit Puerto Rico.