HAWAII’S August 1998

ECA Report from the Department Nof Business, EconomicO DevelopmentMY & Tourism

In This Issue Retailing and Hawaii’s Retailing and economy page 1 Retailing and tourism page 4 Hawaii’s Economy Hawaii’s retailing timeline page 10

Retail evolution in Hawaii his issue of Hawaii’s Economy gling with weak sales and sometimes page 12 focuses on the retailing sector going out of business. The answer to Hawaii’s retailing revolution and its important relationship to this paradox lies in the current dynam- page 13 T Hawaii’s economy. Retailing has been in ics of the retailing industry. Hawaii re- Emerging trends in U.S. the news frequently over the last couple tailing is currently in the process of retailing of years, often in regards to stores going revolutionary change in which new page 20 out of business or poor sales volume in forms of retailing are replacing old The language of retailing the industry. ones, with most players working hard page 21 On the other hand, there have also to stay competitive in a tough retail been stories about impressive new re- environment. The way successful stores State of the economy page 22 tail development plans and renovations. stay competitive in such an environment For instance, the Ala Moana Center re- is to continually change and update Selected statistics cently announced a new round of ex- themselves and their product lines to page 23 pansion for the keep and ex-

Hawaii’s Economy State’s largest Hawaii retailing is currently in pand their par- is published by the Department of Business, shopping center ticular markets. Economic Development & Tourism; Research including a new the process of revolutionary The effort the & Economic Analysis Division hotel, entertain- change in which new forms of industry is put- BENJAMIN J. CAYETANO ment facilities ting into reno- Governor and additional retailing are replacing old ones. vations and retail space. The expansions is SEIJI F. NAYA Director announcement of this new 12-acre ad- actually a vote of confidence in the fu- dition comes as work is continuing on ture of retailing in Hawaii. It suggests BRADLEY J. MOSSMAN Deputy Director the most recent expansion of the Center that retailers expect things to get better which will add new stores, an additional and want to be prepared to earn their PEARL IMADA IBOSHI floor of shops and expanded parking. share of an expanding market. Division Head Other shopping facilities around the state ROBERT SHORE are upgrading and expanding, including The Retailing Revolution Editor the Windward Mall and Ward Ware- It is difficult to miss the changes that Direct Inquiries to: house. Numerous other projects are in have been taking place in Hawaii’s stores Hawaii’s Economy DBEDT the planning stages particularly for the and shopping centers in recent years. For P.O. Box 2359 Waikiki and nearby areas. most residents, retailing is the most vis- Honolulu, Hawaii 96804 It would seem a contradiction that ible industry in Hawaii’s economy. More- Fax: (808) 586-8449 the industry could be renovating and over, the industry provides 20 percent expanding while many stores are strug- of all jobs in the state (about 112,000

Hawaii’s Economy /August 1998 1 in the first half of 1998) and is instrumen- a huge number of specialty catalogs. mainland-based retailers into Hawaii over tal in funneling $16 billion worth of In tourism-oriented retailing, the most the past decade has probably reduced the goods per year to Hawaii consumers. significant factor recently has been the need for local wholesaling services. In During the last ten years, the makeup of contraction in the number of Asian visitors fact, wholesaling wage and salary jobs the retailing industry in Hawaii has been to Hawaii and reduced spending by those have declined by about 8 percent since transformed by what many observers who do come. This is forcing adjustment 1991. Thus, even though increased re- have called a “retailing revolution.” by both the specialty retailers in upscale tail competition has been good for con- Hawaii has actually experienced two goods and even the more diversified stores sumers, some retail and wholesale jobs parallel retailing revolutions—one in the that have become heavily dependent on that would have been created in Hawaii local consumer market and another in the Asian market. were probably filled elsewhere instead. retailing geared toward serving the visitor market. In the local consumer market, Retailing and the Economy Retailing and Tourism the revolution appears to have begun with As these changes are taking place in Another reason that retailing is earn- the opening of Costco in 1988, the first retailing, there is developing an increased ing more respect is the growing realiza- membership store in the islands and a vig- appreciation for the industry’s role and tion that the industry may be an important orous price discounter. Since then, many value to the economy. Retailing has his- factor in the growth of tourism. About more discount retailers have entered the torically had the image of a secondary, 40 percent of all visitor expenditures are Hawaii market, while a number of long- “housekeeping” type of industry. It has made in the retail sector. Moreover, fac- time Hawaii retailers like Gem Department been viewed as an activity that moves tory outlet centers such as Dole Cannery Stores and Arakawa’s General Store have goods along from producers to consumers Square and Waikele Outlet Mall in lee- closed. A greater amount of island retail- but not one that helps “drive” the economy ward Oahu have become particularly pop- ing is now focused on the large mainland like visitor attractions, export products or ular among Japanese visitors. The Waikele chain retailers such as Wal-Mart and K- even locally produced goods. Mall is even the focal point of some Mart, and giant This view of Hawaii tour packages sold in Japan. category retailers Hawaii has actually experienced retailing as a Even merchandise chain stores such as like Toys R Us, beneficiary of K-Mart, Sports Authority and Eagle Hard- Sports Authority, two parallel retailing revolutions economic devel- ware may find themselves as tourist at- Eagle Hardware opment rather tractions for foreign visitors who are and Borders - one in the local consumer than as a con- unfamiliar with such facilities. Books. market and another in the tributor is, how- The retailing ever, beginning Rethinking Retailing’s Role revolution in the tourism sector. to change for a Thus, as retailing enters a new phase visitor market couple of rea- of expansion, renovation, and competi- also began in the late 1980s as Japanese sons. First, even though it does not ex- tion, it is an appropriate time to review visitor arrivals and spending surged port a product, local retailing has a major and possibly rethink the way we view thanks to the strengthening yen. This impact on how long dollars stay in retailing in the economy and its contribu- new affluence generated strong demand Hawaii to create jobs and income. The tion to jobs and economic development. for high-quality, designer fashions and more stages of retailing that are con- In particular, we need to better under- attracted a host of upscale merchants to ducted in the state, the greater will be the stand the relationship between retailing Waikiki and the Ala Moana Center. number of jobs created and the eco- and our number one industry, tourism. Other factors besides the influx of new nomic impact of the retailing activity. Hopefully, this report will provide the ba- retailers have helped shape the retailing We are beginning to realize, however, sis for accelerated cooperation between revolution in Hawaii. One factor has been that the 112,000 jobs and $1.8 billion retailing, the visitor industry and the the flat economy the state has experienced payroll in Hawaii’s retail sector are not nec- public sector to bring about the full po- over the last several years. This has forced essarily guaranteed to Hawaii, and can- tential of this sector’s contribution to eco- retailers to compete head-to-head for a not be taken for granted in the future. This nomic development. nearly fixed level of total consumer dollars is because new, more direct ways of sell- Unfortunately, in order to focus on the after inflation is accounted for. Another ing to the consumer require few if any em- major issues involved in the transforma- factor has been the growing sophistication ployees on site and little or no investment tion of retailing, some areas of retailing, of consumers who are more aware of the in physical facilities. These new shopping such as the restaurant segment, could many shopping choices that are available alternatives include specialty catalogs, TV not be addressed in detail at this time. to them today. Still another factor has been shopping channels and increasingly the Also, details of the Neighbor Island retail- competition from the new world of “vir- internet, which absorb sales that would ing environments could not be fully ad- tual shopping.” This includes the expand- have otherwise gone to a local retailer. dressed in this report. DBEDT intends to ing opportunities for consumers to make Even among retailers with local fa- develop a follow-up report focusing spe- direct purchases from their homes through cilities, the need for labor may not be as cifically on Neighbor Island retailing. the internet, TV shopping channels, and high as previously. The influx of large,

2 Hawaii’s Economy /August 1998 Selected Statistics of Hawaii Retailing

Table 1. Labor Indicators, Sales and Contribution to GSP Retailing Gross State Jobs Ave. work Ave. weekly Taxable Product GSP3 Percent of week earnings sales Percent of Year number all Jobs1 (hrs.) (dollars) ($mil)2 ($mil) total GSP 1980 86,700 20.9 31.7 162.30 6,109.6 1,392 10.4 1981 86,750 20.8 31.4 174.27 6,700.8 1,544 10.6 1982 86,300 21.0 31.8 189.85 6,875.0 1,646 10.6 1983 88,450 21.2 31.9 199.69 7,438.2 1,805 10.6 1984 91,900 21.7 31.3 198.13 8,111.9 1,992 10.7 1985 96,100 22.0 31.3 200.95 8,499.3 2,135 10.7 1986 98,400 21.9 31.0 200.26 9,239.4 2,253 10.2 1987 103,400 22.0 30.7 206.30 9,449.7 2,529 10.9 1988 106,750 21.9 30.6 216.04 10,386.0 2,860 11.1 1989 110,700 21.5 30.4 228.30 11,607.8 3,247 11.3 1990 113,450 21.1 30.9 251.84 12,827.9 3,570 11.0 1991 113,700 20.7 31.0 269.70 13,398.4 3,630 10.7 1992 113,250 20.5 28.1 229.86 13,846.3 3,804 10.8 1993 111,100 20.3 28.5 245.10 13,976.0 3,926 11.2 1994 111,750 20.5 28.6 252.54 14,569.8 4,096 11.6 1995 114,250 21.2 28.9 257.50 15,050.1 4,131 11.5 1996 113,850 21.2 28.9 267.33 16,091.4 4,192 11.5 1997 113,600 21.1 29.1 273.83 15,713.6 NA NA 1 Includes agricultural and nonagricultural wage and salary jobs. 2 Sales subject to the General Excise Tax. Excludes Duty Free and Military PX/BX system. 3 A measure of the value added to products by retailing activity. NA: Not Available Sources: Labor data; Hawaii Dept. of Labor & Industrial Relations. Taxable sales; Hawaii Dept. of Taxation. GSP; U.S. Dept. of Commerce, Gross State Product series.

Table 2. Retail Jobs by Activity and County, 1990 & 1996 Number Percent of 1996 Percent of sector or all Jobs activity by County Sector or activity 1990 1996 1990 1996 State Honolulu Hawaii Maui Kauai All wage & salary jobs 532,927 533,310 100.0 100.0 100.0 75.6 9.4 10.5 4.6 Retail 113,537 113,882 21.3 21.4 100.0 73.3 9.6 11.8 5.3 Building & garden 2,042 2,101 0.4 0.4 100.0 65.4 12.2 13.4 8.9 General merch. 12,079 12,664 2.3 2.4 100.0 71.4 11.9 10.7 6.0 Food stores 14,415 14,234 2.7 2.7 100.0 65.6 14.9 13.4 6.1 Automotive 9,341 9,067 1.8 1.7 100.0 70.6 13.3 11.6 4.5 Apparel 9,737 9,247 1.8 1.7 100.0 79.0 6.0 11.1 3.9 Home furnishings 3,658 3,352 0.7 0.6 100.0 75.7 9.7 9.3 5.2 Eating & drinking 46,806 47,049 8.8 8.8 100.0 74.6 8.0 11.9 5.5 Misc. retail 15,459 16,169 2.9 3.0 100.0 76.8 7.3 11.6 4.4 Source: Hawaii Dept. of Labor & Industrial Relations, Employment and Payrolls in Hawaii, 1990 & 1996.

Table 3. Census of Retail Establishments, 1958 to 1992 Employees Payroll Number of Establishments Sales ($millions) (mid March) ($millions) Year Total With payroll Total With payroll 1958 4,760 3,130 522 491 25,263 61 1963 4,578 3,353 751 726 33,845 99 1967 5,212 3,537 1,084 1,042 41,347 148 1972 6,392 4,491 1,865 1,820 59,887 270 1977 7,388 5,273 3,294 3,223 72,098 459 1982 8,917 6,139 5,193 5,102 81,979 696 1987 11,143 7,195 8,267 8,084 101,969 1,016 1992 13,185 7,807 11,510 11,250 110,411 1,481 Source : U.S. Bureau of the Census, Census of Retailing series Note: Job counts for retailing vary somewhat among the sources due to slightly different definitions of employment and the time periods chosen for the surveys.

Hawaii’s Economy /August 1998 3 n addition to a retail revolution in of locally made products to tourists who Hawaii’s local consumer market, are visiting for reasons other than shop- IHawaii has experienced significant ping. Many small towns in the U.S. and changes over the past decade in retail- abroad survive through souvenir sales to ing that primarily serves the visitor mar- Retailing passing tourist traffic. At the other end ket. The most visible examples of this of the spectrum are destinations in which change have been the large number of shopping plays a prominent role in the upscale retail stores that have come to and tourist’s decision to visit. These tend to be Waikiki and Ala Moana Center since the major centers of commerce or manufac- late 1980s. Catering mostly to high- turing, where price, selection or both are spending Japanese visitors, such upscale Tourism an attraction for visitors. Hong Kong, New establishments as Christian Dior, Emporio York and Paris may fall into this category, Armani, Gucci, and Chanel settled into although they certainly have other assets this market niche in the early 1990s with that attract visitors. considerable fanfare. The frenzy to serve Hawaii appears to fall between these Japanese visitors’ demand for shopping It turns out that beyond the depressing two extremes. Few visitors come to has extended well beyond the traditional news of downsizing and layoffs, there is Hawaii for the sole purpose of shopping, Waikiki-Ala Moana district to encompass strong optimism among major retailers but when they get here, shopping be- the factory outlet and specialty retail and developers for the long-term future of comes an important activity. stores as far away as the Waikele shop- retailing-tourism. A number of developers The close relationship between tourism ping center in leeward Oahu. are poised to bet hundreds of millions of and retail activity is indicated in figure 1, Of course, retailing directed mainly dollars on major expansions of retailing, which overlays the trend in average daily towards the visitor market has slowed which count on visitors as a major market visitor census since the early 1980s onto over the past couple of years, due in large component. Moreover, there is reason to the trend in retail sales adjusted for infla- part to the softening of the Japan market. believe that retailing-tourism contributes tion.1 The two series have followed a re- While the Asian retailing-tourism boom to the growth of the visitor industry and markably similar course since 1990. This was clearly lucrative, it was rather nar- may be important to Hawaii’s transition is not surprising since visitors are respon- rowly based on the Japan segment and the into the era of 21st century tourism. sible directly and indirectly for about a long climb in the value of the yen against fourth of all economic activity in the state. the dollar. The yen value peaked at about Retailing’s Role in Tourism Other data show that Hawaii retailing 83 yen per dollar in 1995 and has since The base of research on retailing’s role clearly benefits from tourism. As figure 2 depreciated to above 140 yen per dollar, in tourism is not extensive. Much of the interest in what might be called “retailing making U.S. travel and purchases much 1 Deflated by applying the Honolulu Consumer Price Index for more costly. Estimates of Japanese visitor tourism” has been focused on the selling All Urban Consumers (CPI-U). spending per day by the Hawaii Visitors and Convention Bureau (HVCB) showed a decline from $356 in 1995 to $280 in Figure 1. Trends in Retail Sales and Visitors 1997. With the softening in Japanese tourism and spending, many of the retailers who 180,000 $18,000

became overly dependent on this market 170,000 $17,000 Millions of constant 1997 dollars have encountered difficulties. Both Lib- erty House Department stores and Duty 160,000 $16,000 Free Shops have been forced into unan- 150,000 $15,000 ticipated downsizing and reorganization 140,000 $14,000 in the wake of this market’s decline. Retail sales

The current situation raises the ques- 130,000 (constant $1997) $13,000 tion about the future for Hawaii retailing right scale 120,000 $12,000 that is focused on the visitor market and

Ave. Daily Visitor Census Daily Ave. 110,000 $11,000 its role in tourism development and mar- Visitors keting. What can we expect in this sector, 100,000 left scale $10,000 particularly now that the Japan market segment is in retreat? More fundamen- 90,000 $9,000 tally, what is the role of retailing in the 1982 1984 1986 1988 1990 1992 1994 1996 growth and development of tourism? Is Year it strictly a beneficiary of tourism activity or does it make a positive contribution? Sources: Hawaii Visitors & Convention Bureau (HVCB); Hawaii State Department of Taxation (DOTX). Constant dollar calculations by DBEDT using Honolulu Consumer price index.

4 Hawaii’s Economy /August 1998 shows, visitors to the state account for tal expenditures visitors make in Hawaii. an estimated 24 percent of the roughly As shown in figure 3, about 40 percent of Figure 3. Allocation of Visitor Spending, $17 billion in taxable and non-taxed re- the $10.1 billion in personal expenditures tail sales in 1994.2 Tourism spending also visitors made in Hawaii during 1996 were 1996 supports, directly and indirectly, about 51 allocated to retail purchases. By compari- Total = $10.1 billion percent of all jobs in the eating and drink- son, spending on lodging amounted to ing sector of retailing and 29 percent of 32 percent of total visitor spending and all other retail jobs.3 As a result of the tour- transportation within Hawaii to see the ism ‘push’, jobs in retailing grew faster sights, only 10 percent. So while beaches Other than in most other industries in the state and scenic tours are certainly a big part 27.4% Retail between 1969 and 1996 and about 50 of visitors’ experience in Hawaii, the data 40.2% percent faster than total job growth. suggest that visitors are also spending a lot Tourism also helped Hawaii retailing to of time in Hawaii’s retail establishments. grow about 40 percent faster than re- Of course, the need for meals is one Lodging tailing on the mainland during the same reason that visitors spend a large portion 32.4% period. of their budget and time at food stores and eating and drinking establishments, Retailing as a Visitor Draw which are classified as part of the retail But is the retail-tourism connection industry. We would expect this sector to Source: DBEDT, based on HVCB data. only a one-way street with retailing the absorb a large share of the visitor’s retail sole beneficiary? It is certainly tempting dollar, and indeed it does. In particular, to conclude that hotel, airlines and State U.S. mainland visitors allocated nearly Figure 4. Distribution of Visitor Retail spending on tourism, coupled with 54 percent of their daily retail spending Spending, 1996 Hawaii’s natural beauty, are the key fac- to food and beverage in 1996. tors in tourism growth and in bringing But interestingly, when all visitors are Gift foods Misc. visitors to retailing’s door. taken into account, overall spending on 3% 1% However, if we look more closely at eating and drinking falls to about 38 per- Souvenirs the situation, a case can be made that cent of visitors’ daily retail spending (fig- rather than being a passive beneficiary, ure 4). The reason is that the big spenders 9% retailing may be an increasingly impor- in the market—predominantly the east- tant factor in bringing visitors to every- bound, Japanese visitors—allocate only Eating one else’s door. First, the HVCB visitor about 20 percent of their daily retail spend- & drinking spending data show that retail purchases ing to food and drink. On the other hand, account for a significant amount of the to- the Japanese spend more than 67 per- 38% cent of their retail spending ($99 per day Fashion in 1996) on fashion items ranging from 49% Figure 2. Visitors’ Share clothing to cosmetics. By comparison, U.S. of Retail Sales in Hawaii visitors spent about $14 per day on fash- ion items in 1996, about 30 percent of 1 Total = $16.6 bil their retail total spending. These per-day spending figures add Source: DBEDT, based on HVCB data. up to a tremendous market in total. For instance, Japanese visitor spending at cosmetics counters in Hawaii was an esti- Japan market. Visitors mated $131 million in 1996. For the same Overall, visitors from all points of ori- 24.4% year, their expenditures on clothes and gin spent $4.1 billion in Hawaii’s retail es- accessories totaled a staggering $1.1 bil- tablishments in 1996, amounting to about lion, by far the largest single type of ex- 40 percent of their total vacation budgets. Residents penditure made by this market in Hawaii. While this alone does not prove that visi- 75.6% All totaled, retail spending in Hawaii by tors came to shop, it certainly shows that Japanese visitors amounted to $1.8 billion there is much to be gained or lost depend- in 1996. U.S. visitor spending on retailing ing on how visitors respond to the retail is also significant, although it is distrib- opportunities they find after arrival. uted somewhat differently. U.S. visitors 1 Retail Tax Base plus estimated Duty Free sales. 2 Source: Hawaii Visitors & Convention Bureau, spent $1.1 billion on food and beverage Includes $16.1 billion retailing tax base plus an allowance 1996 Annual Research Report. of $0.5 billion for non-taxed sales, including goods sold duty in 1996 and made total purchases of free. $1.7 billion, just under the total for the 3 Hawaii’s Economy, First Quarter 1996, page 7, Table 2.

Hawaii’s Economy /August 1998 5 Figure 5. Main Purpose of Trip for Japanese Visitors Does Shopping Motivate (Percent of households identifying the category as their primary trip motivation) Tourism? Compared with Hong Kong and some other notable shopping destinations, Hawaii1 42% Hawaii would not seem to be a likely Sightseeing competitor in this market. Hawaii’s com- All Destinations2 43% parative advantage would seem to be in beach and sightseeing activity rather than retail goods. However, there is 35% some evidence that shopping has become Beach at least a modest factor in attracting visi- tors to Hawaii. A 1995 study by 4% Longwoods Travel USA found that Hawaii visitors ranked shopping as sec- ond to sightseeing in terms of popular 9% activities.4 This may partly reflect a more Shopping general trend for tourists to elevate the importance of shopping as an activity at 4% whatever destination they visit. The U.S. Travel and Trade Administration reported 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% several years ago that shopping was the favorite activity of 88 percent of interna- 1 For the next Hawaii trip among those planning one. tional travelers. The same study found 2 Most recent overseas trip (may have included Hawaii). Source: Longwoods International, March 12, 1998. that for domestic travelers, shopping was second only to eating as a travel activity.5 seas and expected future travel to But Hawaii was in fourth place on this It may be that prospective visitors find Hawaii. For recent overseas travel in list, ahead of such destinations as New that a good value in both the recreational general by Japanese households, York, Singapore, the U.K., California, and shopping content of destination areas Longwoods found that shopping fell be- and Florida. is a very attractive combination. On Oahu, hind sightseeing and wedding/honey- A similar survey by Longwoods of U.S. the success of the Waikele Center’s factory moon trips as a prime motivator for travel residents planning a trip to Hawaii showed outlet stores in attracting a sizable visitor and it tied with beach trips. that shopping is nearly insignificant as a clientele may have served as a wakeup For planned future trips to Hawaii, primary motivator.8 Mainland residents call to the potential role retailing can play shopping came in third as a primary moti- are primarily looking for beach, touring in attracting tourism. Despite the fact that vator, behind sightseeing and beach trips. and cruise opportunities. Of course, main- the center is roughly 20 miles from Relaxation was a higher priority for land U.S. residents do shop while in Waikiki, in an otherwise residential sub- Hawaii vacation trips than on overseas Hawaii. About 85 percent of the main- division, it attracts visitors by the bus trips in general.7 When they did visit land respondents indicated an interest in loads throughout the day. At Waikele, stores, the Japanese respondents told shopping for local products and handi- visitors have found designer and brand- Longwoods they would primarily fre- crafts (low-priority purchases on the name merchandise in large quantities, at quent the Duty Free, factory outlets and Japanese survey). However, factory out- relatively bargain prices. The center is upscale brand names, in that order. let shopping in Hawaii was an indicated even a featured site on tour promotions Unfortunately, since this is the first interest by only about half of the Mainland in Japan. Unfortunately, data are not survey of its kind, it is not possible to say respondents to the survey. By compari- available to quantify the proportion of if the results represent a long-standing son, 70 percent of these respondents indi- visitor spending done at Waikele or the pattern or a recent change in the prefer- cated that factory outlet shopping was an numbers of visitors who shop there. ences of the market. Among those in the activity of interest on their last vacation. Despite Waikele’s success, Hawaii is Longwoods study who were planning a far from being thought of as primarily a Hawaii trip, 57 percent would be making place to shop. Recent sampling of visitor their first trip to Hawaii. Thus, more than 4 Longwoods Travel USA, Hawaii Strategic Research, Janu- motivations by Longwoods suggests that 40 percent of the respondents were repeat ary 1995. 5 Honolulu Advertiser, July 15, 1996 p. C1. shopping remains a third-level motivation visitors, and this group may hold shop- 6 Longwoods International, Japan 1997 Emergency Fund for Japanese expecting to visit Hawaii.6 ping and other non-sightseeing activity Advertising Evaluation, Benchmark Report, March 12, 1998. 7 Wedding/honeymoon trips were cited as the main purpose Figure 5 shows results of a survey of Japa- as a higher priority. for the next planned Hawaii trip by only 1 percent of the nese households conducted during a Longwoods found that most Japanese households. This low result probably occurred because of trips of this nature are not planned far in advance. 1997 study by Longwoods, comparing prefer Hong Kong as a shopping desti- 8 Longwoods International, U.S. 1997 Emergency Fund primary reasons for recent travel over- nation, followed by France and Italy. Advertising Evaluation, Benchmark Report, March 16, 1998.

6 Hawaii’s Economy /August 1998 These results suggest that shopping is However, a tourism retailing infrastruc- in the Islands. At nearly 40 years old, Ala not often a primary motivator for Japanese ture has been growing outside of the tra- Moana is now one of many general and who travel to Hawaii and nearly never a ditional resorts over the years, as visitors specialty shopping centers on Oahu, but primary factor for mainland U.S. visitors. It have ventured away from the hotel neigh- continues to be the leader in visitor retail- is thus unlikely that Hawaii can become a borhoods in search of new sights and ac- ing thanks to its proximity to Waikiki. Ala noted destination for those interested tivities. On Oahu, two trends are evident. Moana has undergone a number of reno- only in shopping. First, a major new, visitor-oriented re- vations over the past several decades to However, it is clear from expenditure tail corridor is developing from Waikiki keep pace with both its local and visitor data that once they arrive in Hawaii, visi- through the Downtown area of Honolulu. markets. In the late 1980s, the center ex- tors—particularly the Japanese—spend a Second, outlying shopping malls such panded into the upscale retail domain with considerable amount of their travel bud- as Waikele and a possible new regional the addition of the 40-store Palm Boule- get, and presumably time, in the retail mall in Kapolei, may draw more visitors vard project in the center of the complex. sector. This suggests that while shopping from Waikiki. This expansion featured such retailers as is not a primary motivator for travel, it is Gucci, Emporio Armani and Cartier, and still an important activity that visitors pur- Oahu’s Tourism-Retailing was designed to attract high-spending visi- sue. Consequently, the kinds of shopping Infrastructure tors and residents alike. Ala Moana Cen- opportunities offered at a destination, how Until recently, tourism retailing on Oahu ter is currently in the midst of its most they are packaged with other travel moti- had three focal points: Waikiki, Ala Moana ambitious renovation which will culmi- vators such as sightseeing, and how well Center, and the Duty Free Shops located at nate in the first Neiman Marcus store in they are marketed in promotional materi- the airport and Waikiki. Hawaii in late 1998. als, can have an important influence on As the state’s signature destination The Duty Free System, DFS-Hawaii, the final choice prospective visitors make area, Waikiki has provided the most in- with outlets in Waikiki and the Honolulu among competing destinations, other tensive tourism retailing infrastructure, Airport, is the single largest retail concern things being equal. in Hawaii, with sales of about a The emerging trend in retail- Shopping is not often a primary half billion dollars per year, al- ing towards a mix of shopping, most entirely to foreign visitors. entertainment and cultural experi- motivator of travel. However, once they However the privilege of operating ence varied to suit particular mar- arrive in Hawaii, visitors spend a the only duty free stores has kets has added new opportunities meant a sizable share of the pro- for Hawaii and other destinations considerable amount of their time in the ceeds accruing to the State’s Air- to use retailing as a tourism mar- retail sector. port Division and high risk on the keting tool. In the future, visitor part of DFS because of the fixed destinations may find that the variety of although a very fragmented one. The es- guarantee payment involved. Owned by shopping experiences they are able to tablishments along Kalakaua Avenue are LVMH Hennessy Louis Vuitton SA, present will be a deciding factor in at- a mixture of small store-front sundry shops which also has Duty Free Shops in Guam tracting visitors where the traditional at- like the ABC Discount stores, stand-alone and Saipan, DFS has recently announced tractions, such as beach and sightseeing, department stores such as Liberty House, restructuring plans and layoffs to address have become similar or are no longer new and compact specialty shopping centers the loss of sales related to the decline in and novel. Two examples in Hawaii of like the Royal Hawaiian Shopping Center, Japanese and other Asian visitor spending tourism enhancing retail development Waikiki Shopping Plaza and King’s Alley. over the past year. within resort destinations are the Nike Waikiki and Kapahulu are bracing for a Town store in Waikiki and the Maui wave of new retail space that is currently Emerging Focus of Visitor-Retailing Ocean Center in West Maui. As the merg- in the planning stages. Totaling about on Oahu ing of shopping, entertainment and recre- 830,000 square feet (s.f.), these proposed Hawaii’s retail revolution of the past ation continues, the marketing of shopping projects range from the 7,300 s.f. Ilikai decade has included the tourism-retailing experiences along with traditional attrac- Marina Retail Center to a 260,000 s.f. retail sector with the addition of new choices tions may become an important factor in development planned by the Magoon Es- which have drawn the visitor further away consumers’ vacation decisions. tate. Out on Kapahulu Avenue, a 125,000 from the traditional Waikiki retail base. s.f. development is planned on the Love’s One of the most successful developments The Tourism-Shopping Bakery site. in the emerging new retail infrastructure Infrastructure Bordering Waikiki, across the Ala Wai has been the Waikele factory outlet. Lo- For many years, the shopping experi- Canal and serving both the local and visi- cated more than 20 miles on the side of ence most visitors encountered in Hawaii tor markets, is the Ala Moana Shopping Pearl Harbor farther from Waikiki, this was focused on the streets adjacent to the Center, which was the largest mall of its 75-store open-air mall features the fac- major hotels and restaurants of Waikiki kind in the U.S. at its opening in 1959. tory outlets of such stores as Anne Klein, on Oahu, Lahaina on Maui, Kailua-Kona At about 1.5 million s.f. of gross leasable Oshkosh B’Gosh, Saks Fifth Avenue and in West Hawaii and later, Poipu on Kauai. area, it is still the largest shopping center other national retailers. Supplemented with

Hawaii’s Economy /August 1998 7 restaurants and such staples as K-Mart, Proposed Kapolei Mall Honolulu waterfront corridor is an impor- Eagle Hardware and Computer City, it has Campbell Estates is pursuing the devel- tant indication of where retailing and visi- been a major hit with the Japan market. opment of a major retail complex on its tor interest may be headed on Oahu in the Waikele is exceptional in that retailing to lands in the Kapolei “second city” area of decades to come. the visitor usually becomes more difficult Oahu’s Ewa district. Campbell had hoped Of course, developers need to con- the further one gets from Waikiki. But this to develop such a complex with the Mills stantly review their projects in light of the exception to the rule may be signaling Corporation of Arlington, Virginia, a noted new reality of slower growth and more a trend. developer of large and small shopping frugal spending in the eastbound market Closer to Waikiki, an important, emerg- malls. The Mills Corporation is a leader in from Asia. The decline in spending by this ing development is the expansion of the move to integrate shopping, entertain- market has been cited as a major factor in visitor-oriented retailing into the Honolulu ment and other activities into a concept it the recent reorganization announcements waterfront corridor which stretches from calls “destination shopping.” Mills initially by Liberty House and Duty Free Shoppers. the Ala Moana Center in the east, through proposed to build a two-phase, regional It is certainly a factor in nearly all retail the Downtown area, and anchored on the mall on 100 acres of Campbell Estate’s activity serving the visitor industry. Until west end by the Dole Cannery Outlet Cen- Kapolei land straddling the H-1 Freeway, Asia’s financial problems run their course, ter in Iwilei. Along the corridor, major not far from the well-planned Ko Olina retailing tied to the visitor market will retailing nodes have been developed resort destination. The single-level mall remain subdued. that are increasingly pitched to visitor would have had about the same leasable However, from a long-term perspec- interests in shopping and entertainment, area as the Ala Moana Center, and tive, the worldwide tourism market con- and in new and interesting environ- housed 200 stores with state-of-the-art tinues to have vast potential, particularly ments. Other focal points in the corridor entertainment and attractions. However, tourism from Asia. When the market is include the Victoria Ward Center and that particular project has been side- ready to come and spend in Hawaii again, Ward Warehouse complex across from tracked by poor market conditions. the state’s retailing sector needs to be Kewalo Basin, the Restaurant Row com- ready and be relevant to the emerging plex at the foot of Punchbowl Street, and When the markets come back, preferences of its markets. New retail de- the Aloha Tower complex downtown at velopments, with their promised mix of Honolulu Harbor between Piers 8 and 12. the state’s retailing sector shopping and entertainment, may be the Given the soft visitor market and sig- key to attracting visitors in the future with nificant expansion of competition in re- needs to be ready and a new and refreshing experience in Hawaii. tailing since the early 1990s, the success relevant to those markets. of these newer ventures has been mixed. The Next Step: Partnerships Both the Aloha Tower Market Place and Campbell will presumably continue seek- in Retailing-Tourism the Dole Cannery Outlet Center have strug- ing a development partner for a shopping The emergence of retailing as a poten- gled to keep stores and visitors since their complex in the area. tial force in attracting visitors suggests development, although the Aloha Tower The success of the Ko Olina resort is that Hawaii may be in need of a new para- Market Place appears to be finding its mar- an important element in the effort to dis- digm for tourism product development and ket and product mix. The Dole Cannery burse tourism on Oahu and relieve pres- marketing and promotion strategies that facility is currently undergoing extensive sures on Waikiki. Positioned properly in can embrace the potential of this powerful renovation by its new controlling partner, the tourism and resident retailing markets, sector. This suggests that a strong partner- Castle & Cooke Properties, in order to more a cutting-edge mall in Kapolei could help ship between retailing and the hospitality carefully tune its market and avoid com- boost tourism at Ko Olina. The potential sectors will be increasingly important for peting head-to-head with the Waikele for such a mall to enhance tourism devel- future tourism growth and development. factory outlets. opment probably depends on how the mix In the past, the development of of retail, entertainment and other attrac- Hawaii’s tourism infrastructure and its Potential Development tions are structured to provide visitors with promotional focus were based on its Outside Waikiki a unique experience. Such an experience most competitive assets—that is, its Despite the soft market, developer in- might combine Hawaiiana with Ameri- beaches and sights. Nearly forty years terest in adding more retailing on Oahu can, European and Asian themes to at- after statehood, Hawaii remains a unique remains high. Within the next two years, tract a cosmopolitan visitor clientele. Such and highly regarded resort destination. Victoria Ward will begin a major $200 mil- a mall would also need to attract a strong However, the established overseas vaca- lion reconstruction and expansion of its local base of customers from the expanding tion markets in the U.S. and Japan have Ward Warehouse facility. Saks Fifth Ave- Ewa region. matured and growth in Hawaii’s share of nue will be a major tenant along with FAO the world market appears to have slowed Schwarz toys and the Rainforest Cafe. The Current Status if not declined. Worldwide competition in expansion will increase the leasable area of Retailing-Tourism surf, sun and sights has accelerated. An of this center to 800,000 s.f., making it The interest in expanding retailing- increasing proportion of our tourists are among the largest in the state. tourism into leeward Oahu and along the repeat visitors who are looking for some-

8 Hawaii’s Economy /August 1998 thing new. Unfortunately, they may be pays particular attention to the total rela- into the promotional activities supported finding fewer new experiences to bring tionship between the mix of stores, prod- by State tourism marketing funds. them back to Hawaii. ucts and emerging consumer demand. The State and the industry have ad- Such knowledge and expertise could Conclusions dressed these challenges by encouraging prove a valuable input into marketing Retailing-tourism has earned a higher the development of new geographical mar- tourism, as well as updating Hawaii’s profile in Hawaii’s economy over the past kets and by exploring new tourism niche inventory of visitor attractions and the decade, mainly due to the high level of markets such as ecotourism, edu-tourism, development of new ones. spending by Japanese visitors. This spend- sports tourism and the convention mar- The notion that retailing can play an ing has made retail purchases the largest ket. Hawaii’s developing infrastructure important part in future tourism growth single category of visitor spending in the of retailing, integrated with entertain- appears to be gaining acceptance. Retail state. While visitors’ travel motivations ment and recreation, may be an impor- and hospitality groups are increasingly still emphasize the beach and sightseeing, tant new marketing opportunity. recognizing the value of cooperation. The shopping is a clear, third-level motivator. However more effort will be needed State is encouraging such cooperation With more competition in the sun-and-surf to highlight shopping as a visitor activity. through the efforts of DBEDT’s Product vacation markets, developing and pro- First, shopping, and the experiences visi- Trade Branch (which also assists in re- moting a unique, Hawaiian-international tors can enjoy at shopping destinations, tail promotions of Hawaii products) and shopping experience could be key to re- could benefit by more extensive promo- the Hawaii Tourism Office. DBEDT spon- invigorating the state’s tourism image tional effort. It could also benefit by more sored a forum in 1997 to explore the sta- and offerings. coordination between the major visitor tus and importance of retailing in Hawaii’s Retailing’s evolutionary (perhaps even and retail associations on an ongo- revolutionary) integration of ing basis. This would help build shopping, entertainment and ac- the potential of retailing and coor- A stronger partnership between retailing tivities into a “destination shop- dinate the activities and events of and tourism could inject a dynamic new ping experience” seems retailing with the rest of the visitor well-suited to help Hawaii redefine industry for maximum impact on source of ideas for tourism product and broaden its visitor appeal. In potential visitors decision-making development and marketing addition, retailing’s ability to stay process. The most extensive coordi- on top of consumer trends and nation of the hospitality and retail experience in designing micro- sectors recently was the inaugural, economy including tourism. and macro-environments to attract and French Festival held in October 1997. The counties are also important partners entertain consumers as they shop could (The second French Festival will be held in the development of the retail-tourism be an invaluable asset in the task of re- November 7–22, 1998.) It might also market. First, there is considerable poten- defining Hawaii tourism for the 21st cen- help to feature shopping more promi- tial gain to counties in terms of jobs and tury. For instance, if it takes full account nently in promotional materials and inter- property tax revenues. Second, there are of both resident and visitor markets, the net web sites developed by Hawaii’s many county-level infrastructure, trans- successful development of the proposed tourism promotion agencies. portation and planning considerations Kapolei Mega-Mall in leeward Oahu The integration of shopping with sig- that must be addressed. could help fulfill the promise of the sec- nificant entertainment, attractions and The current and planned physical de- ond city and the Ko Olina resort destina- recreation within today’s competitive re- velopment of retailing-tourism needs to be tion. tailing environment make the retail sec- better documented and analyzed so that A well-developed tourism-retailing in- tor an important source of visitor activity public services and infrastructure can bet- frastructure already exists in the islands well beyond the sale of goods. Moreover, ter serve the development of this activity. and even more renovations and new fa- a stronger partnership between retailing In particular, efficient, attractive transpor- cilities are planned, despite the current and tourism could inject a dynamic new tation systems that move visitors seam- soft tourism market and downsizing of source of ideas for tourism product devel- lessly among the major retail focal points, some local retailers. There is a need for opment and marketing. Hotels and visi- attractions, beaches and sights could ben- a promotional strategy that more thor- tor attractions generally upgrade and efit visitors, business and tourism pro- oughly integrates the shopping infrastruc- renovate infrequently, and each player motion efforts. The Honolulu waterfront ture with other visitor attractions. Moreover, tends to focus on their own interface with corridor would be a possible target for through increased coordination and coop- visitors. Retailing outlets, on the other such a system. eration among retailing, the visitor industry hand, reinvent themselves every five It would be helpful for all interested and government, a blueprint for a well- years or so, in order to stay current with parties to begin formulating a retailing- integrated tourism-retailing infrastructure emerging consumer tastes and product tourism strategy that is consistent with the might be developed that could broaden demands. Those retailers who do not stay overall goals and development priorities Hawaii’s appeal in a very competitive current with the market perish. In addi- of the community. In addition, a plan is visitor market. tion, retail shopping center management needed to integrate shopping opportunities

Hawaii’s Economy /August 1998 9 Hawaii’s Retailing Timeline

First Retailing 1932:Kress department store opens its first Hawaii 1826:James Hunnewell found C. Brewer outlet in Hilo. & Co. Honolulu’s first retail mercantile establishment. 1939:Sears Roebuck & Co. opens its first Hawaii 1849: The BF. Ehlers dry goods and outlet, a catalog store, apparel store opens in Honolulu. on Kapiolani Boule- Renamed Liberty House in 1918. vard, followed later by a full-service store on Beretania Street. Currently, the firm’s Ala Moana Center flagship store has the highest sales volume for any Sears outlet in the 50 states.

3 Sears, (Beretania Street), circa 1955. Courtesy Sears Hawaii.

1 Ehlers store, 1915, courtesy Liberty House Hawaii.

1855: The first store specializing in groceries is established by Samuel Savidge and Henry May. Later be came known as May’s Market. Closed in 1956.

4 Kahului Shopping Center, courtesy A&B Hawaii

Post-World War II to Statehood

1947: Aloha Shopping Center 1958:F.W. Woolworth opens its first opens; the first planned, Hawaii store. integrated shopping center in Hawaii. 1959:Ala Moana Center opens.

1948: Foodland grocery chain 2 Arakawa’s second store, west side of Depot Road, Waipahu, founded. circa 1940, courtesy Goro Arakawa. 1951: Kahului Shopping Center Plantation Era to World War II opens, becoming the first shopping center on a 1909:Arakawa’s plantation department neighbor island and only store is founded. the third in the state.

1927:Star Market opens its first grocery 1954: Longs Drug Store opens 5 Longs (Hotel Street), 1982 store in Moiliili. its first Hawaii outlet.

10Hawaii’s Economy /August 1998 Post-Statehood Tourism Boom 1993: Payless Drugs takes over Pay N Save 1963: Safeway opens its first Hawaii stores and re-enters store. the Hawaii market.

1970: Kahala Mall opens. 1993: The Waikele Center – featuring department, 1972: Pearlridge Center opens. specialty and factory outlet stores – opens 1972: Kaahumanu Center opens in in central Oahu above Kahului, Maui. Waipahu. The facility attracts a sizable 1978: The first 7-Eleven store opens in client base of shop- Hawaii. ping-minded tourists.

1982: Windward Mall opens in Kaneohe, 1993: Eagle Hardware & 7 “Off 5th” store at Waikele Fashion Outlet, 1998. Oahu. Garden opens its first store in Hawaii, at Waikele. 1982: Kukui Grove Center opens in Lihue, Kauai. 1993: Pearl Highlands “Power Center” 1998: Liberty House announces layoffs. opens, anchored by the first Sam’s Foodland announces (early) closure 1988: Costco becomes the first broad- Club membership outlet in Hawaii. of three marginal stores on Oahu. based membership retail store in Hawaii. 1993: The first Computer City opens in 1998: Ala Moana Center announces Hawaii at Waikele. major expansion plans to include a six-story entertainment center, for 1993: GEM department completion by 2001. stores close. 1998: Scores of “virtual stores” on 1994: The first Wal-Mart the internet offer Hawaii products store opens at for sale. Mililani in Central Oahu.

1995: Arakawa’s, the 86- year-old plantation store, closes. 6 Costco, 1998. 1995: Payless Drugs closes its stores after only three years back in Retailing Milestones in the 1990s Hawaii, citing the tough retail 1990: Palm Boulevard opens at the Ala competition. Moana Shopping Center featuring 40 upscale stores. 1997: Woolworth and Cornet stores close 1990: Lahaina Center Factory Stores as part of a na- open on Maui. tional liquidation.

1990: Toys R Us establishes first store 8 Planet Hawaii Home Page on the internet, 1998. in Hawaii.

1992: The first K-Mart store opens in Picture credit: (1 & 2) Unknown. (3) Danny Morse. Honolulu. (4) Larry Ikeda. (5-7) DBEDT.

Hawaii’s Economy /August 1998 11 Retail Evolution in Hawaii

As the accompanying timeline indi- entrants from the U.S. mainland including looking for low prices and variety, the cates, retailing established itself in Longs Drugs and F.W. Woolworth. first “big box” retailer to Hawaii, K-Mart Hawaii early in the 19th century but Post-statehood retail growth centered in 1992, was a milestone. The first Wal- grew somewhat slowly as much of the on an expansion of the shopping center Mart followed in 1994. New concepts in economy centered around plantations trend, additional mainland entrants, and a shopping centers included the Pearl High- rather than diversified businesses and proliferation of businesses tied to the rap- lands Power center and the Waikele Center occupations. By 1900 agricultural em- idly expanding tourism sector. Between above Waipahu, which featured a combi- ployment accounted for roughly 60 per- 1970 and 1972, three major new shopping nation of locally-oriented big box retailers cent of all jobs, while trade activities centers opened including Kahala Mall, and visitor-oriented, factory outlet stores. (retailing and wholesaling) represented Pearlridge Center, and the Kaahumanu The decade of the 1990s has also been only 3 percent of the total (figure 1). In Center in Kahului, Maui. The convenience a period of shake-out in the industry for the early 20th century, retailing began to store trend hit Hawaii in the late 1970s many retailers who could not weather the diversify along with the economy. Locally with the opening of the first 7-Eleven slow economy, coupled with the new com- operated stores such as Arakawa’s and Store in 1978. The 1980s saw opening petition. Local stores such as Arakawa’s, Star Market emerged in this period. In of neighborhood “strip malls” including Kuni Dry Goods, Gem Department stores the 1930s, Hawaii retailers experienced several in Mililani and Hawaii Kai. Then, and many small retailers could not repo- their first taste of serious mainland com- as the post-statehood boom peaked in the sition themselves in the market in order to petition with the entrance of Kress and late 1980s, the first of the membership survive the more competitive 1990s. Even Sears department stores. stores, Costco, opened. some mainland chains such as Payless, The post–World War II recovery period Despite the slowing of the economy in Pay N Save, Woolworth, and Home Im- was marked by the emergence of the first the 1990s, this decade has been most ac- provement Warehouse disappeared from major shopping centers in Hawaii, culmi- tive for retail development and restructur- the local retailing scene. Competition and nating in the opening of the giant (for its ing. Ala Moana Center completed a major business conditions in Hawaii were not the time) Ala Moana Shopping Center in 1959. renovation in 1990 and entered the up- primary cause of their demise, but their By the late 1950s, retailing had overtaken scale fashion market with its Palm Boule- inability to keep up with consumer and agriculture’s (declining) share of total jobs. vard segment featuring such upscale industry trends nationally was a factor. More local chains, such as Foodland, also retailers as Christian Dior, Gucci, and emerged in this period, and there were new Emporio Armani. For the average resident

Figure 1. Agriculture and Trade Activity as Percent of Total Jobs (trade includes retailing and wholesaling)

Agriculture Trade 65 60 55 50 45 40 35 30 25 Percent of total 20 15 10 5 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 1995

Year

Sources: Schmitt, Robert C., Historical Statistics of Hawaii, 1997. Hawaii Department of Labor & Industrial Relations

12 Hawaii’s Economy /August 1998 n recent years Hawaii’s retailing sec- 21 percent of the paid work force in the tor has experienced a revolution in state in 1997, or 113,600 jobs. Ithe way business is conducted and Another measure of retailing is its di- who is conducting business. Gone are re- rect contribution to Gross State Product tailing institutions such as Arakawa’s Gen- Hawaii’s (GSP), which is measured by the value eral Store, Gem Department stores, Atlas of all inputs that help produce retailing Building and Supply, and Honsport. Main- services minus the cost of goods sold. The land chains including K-Mart, Wal-Mart, Retailing U.S. Bureau of Economic Analysis esti- Eagle Hardware, Sports Authority, and the mates that the 1996 contribution of re- membership stores of Costco and Sam’s tailing to GSP was about $4.2 billion, or Club have taken their places. Local land- Revolution 12 percent of total GSP under the Bureau’s mark stores are not the only casualties of estimating method. this revolution, however. Even national Thus, even excluding the value of chains like Woolworth, Cornet and Pay- goods that pass through the industry, re- less have, for one reason or another, been tailing still accounts for a significant share forced to close up shop in the competitive About 114,000 households in Hawaii of total employment and GSP. But while environment of the 1990s. have members that work in the retail indus- retailing is a big industry, with a number Many factors have contributed to this try. For these consumers, more competi- of high-profile giants like Sears and Wal- revolution. However, three of the most im- tive conditions may save them money at Mart, it is mostly an industry of small busi- portant are: the slowdown in the Hawaii the cash register, but it also casts a shad- nesses. In March 1997, there were 7,200 economy, the higher efficiency of most ow on their economic security with the retail establishments in Hawaii with paid large national chains versus smaller retail- possibility of fewer full-time positions in employees, with an average of 16 employ- ers, and the increasingly higher expec- the industry, shrinking fringe benefits and ees per establishment. When small retail tations that consumers have about their a less stable employment environment. establishments with no paid employees shopping experience. As a result, the past are taken into account, the number of decade has been a challenge for retailers Hawaii’s Retail Profile establishments is probably about 13,000.1 in Hawaii as they have sought to keep Retailing is a big part of the economy, costs down while maintaining an attrac- since most things we buy come to us Structure and Organization tive and interesting environment for shop- through this distribution system. In terms of Hawaii Retailing pers. The next decade does not promise of gross value of sales, retailing is the larg- As indicated in figure 1, the largest to be any easier for the industry. Retailers est activity in the economy. In 1997, re- concentration of retail employment at will not only have to contend with new tailers in Hawaii rang up sales of $15.7 both the state and national level, is in res- competition from outside and shift- taurant, night clubs and other ing consumer tastes, but will also drinking establishments. At about need to deal with the emerging The past decade has been a challenge 47,000 workers in 1997, this re- phenomenon of “virtual” shopping for retailers in Hawaii. The next decade tailing segment is larger than which is made possible by televi- many full-fledged industries includ- sion, the internet and accompanying does not promise to be any easier. ing construction (21,000), transpor- advancements in communications tation/utilities (41,000), finance and computer technology. billion. That amounted to 34 percent of all (36,000), hotels (39,000) and Federal The winner in this new retailing era business receipts subject to the General activities (31,000). Fast food establish- would, thus far, appear to be the consumer. Excise Tax (GET) in Hawaii. ments probably account for an important There is little doubt that for most Hawaii Of course, measuring retail activity by share of this category, although the ex- consumers, the retailing revolution has total sales can be misleading. Except for act proportion is not clear. been a dream come true. The intense com- eating establishments, the retailing sector Compared with the nation as a whole, petition has presented shoppers with more generally does not make the items it sells. Hawaii has a somewhat larger share of choices and better prices then ever before. Rather, most trade activity provides the retail employment eating and drinking It has also made consumers more aware service of bringing goods from the manu- activity—41 percent compared with 35 of their choices and has raised their ex- facturer to convenient locations for pur- percent nationally. This may partially re- pectations about the shopping experience. chase by consumers. Thus, total retail flect stronger demand for such establish- Established stores that do not meet the sales include a considerable amount of ments by local residents, but probably new standard that consumers have come value that is simply passing through the results from the demand for restaurants to expect may not be able to count on retail channel. by visitors, who constitute about 12 per- customer loyalty for long. A more appropriate measure of the rel- On the other hand, there may be a sub- ative size of retailing in the economy is 1 The most recent available count of total retail establishments stantial segment of the population who probably the size of its work force. By this is from the 1992 Census of Retail Trade, which reported a view the retail revolution with concern. measure, the retail industry accounted for total 13,185 establishments.

Hawaii’s Economy /August 1998 13 cent of the state’s (de facto) population population. Hawaii shows less concen- ment per capita than the nation as a whole, on an average day. tration in such areas as automotive, fur- even when visitors are taken into account. Hawaii also shows a higher concen- niture, food stores and particularly the Figure 2 shows the number of retail em- tration of employment in apparel shops hardware/garden specialty, which is less ployees per 1,000 population in Hawaii and miscellaneous retailing than does than half the national proportion. and U.S. for both the resident and de facto the nation as a whole. This is also prob- Apart from the distribution of retail ac- population measures. The resident popu- ably related to the state’s large visitor tivity, Hawaii also has more retail employ- lation includes only people who reside in the state, while the de facto population is a measure of people physically present in the state on average, including visitors. Figure 1. Distribution of Retail Employment, U.S. and Hawaii, 1995 Per thousand residents, Hawaii had nearly 100 retail workers in 1995, 20 percent more than at the national level, Percent of retail jobs which had about 83 workers per 1,000 0 5 10 15 20 25 30 35 40 45 residents. On a de facto population ba- Building materials 1.8 sis, the number of retail workers drops and garden equipment 4.1 to about 91 per 1,000 population in 1995, General merchandise 11.4 but this is still about 10 percent over the stores 12.6 U.S. average. As the figure indicates, Ha- Hawaii waii’s concentration of retailing employ- Food stores 12.3 15.9 U.S. ment on a per capita basis was greatest Automotive dealers 8.0 relative to the mainland in the two eco- and service stations 10.3 nomic boom periods, i.e., the late 1970s Apparel and accessory 7.9 and, most recently, the late 1980s. stores 5.4 About 84 percent of Hawaii’s 7,200 Home furniture 3.0 retail establishments that have paid em- and furnishings stores 4.5 ployees maintain street locations through- Eating and drinking 41.1 out the community, either alone or in small places 34.7 shopping plazas. These range from stand- alone stores and restaurants of various Miscellaneous retail 14.5 12.6 sizes to tenants in the many small busi- ness parks and plazas around the state. Sources: U.S. Bureau of Labor Statistics (BLS); Hawaii Department of Labor & Industrial Relations (DLIR). The remaining 16 percent or 1,200 re- tail stores occupy space in one of Hawaii’s 20 major shopping malls.2 Table 1 lists these centers and some information about Figure 2. Retail Employees per 1,000 population them. The most typical of the major shop- ping malls is about 370,000 s.f. in leas- 110 able area with about 60 stores. The closest fit to this profile is the Kahala Mall on 100 Oahu, although its store count is larger. Hawaii (resident pop.) Stores located in a major shopping mall can significantly increase their pool of 90 potential customers. Shopping center man- agement strive to maintain a customer- 80 Hawaii friendly environment, advertise heavily, (defacto pop.) and choose a mix of stores that will com- 70 U.S. (resident pop.) plement one another, thereby leveraging consumer traffic through the center. More- 60 over, the larger centers offer theaters and

Employees per 1,000 population other entertainment activities to increase 50 traffic. On the other hand, stores in centers ’69 ’71 ’73 ’75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 can expect to pay a high price, often in- Year cluding a portion of their sales revenues for

2 Defined for State Data Book purposes as shopping centers Sources: BLS; DLIR; U.S. Bureau of the Census. exceeding 250,000 square feet of leasable area on Oahu or 150,000 square feet on the Neighbor Islands.

14 Hawaii’s Economy /August 1998 privilege of being in the center. Centers may also exercise considerable authority Table 1. Major Shopping Centers, 19961 over the guidelines for store operation and store conformance to mall-wide objectives Island and name of center Location Year Site area Gross Parking Number for promotion and ambiance. opened (acres) leasable spaces of stores area Recent Growth Trends (1,000 sq. ft.) As suggested earlier, several factors Oahu: have combined to lead to major changes Ala Moana Center Honolulu 1959 50 1,500 7,800 200 and restructuring in the retail sector. An Kahala Mall Honolulu 1970 20 407 1,800 86 important factor has been the softening of Koko Marina S.C. Honolulu 1963 15 281 855 64 the Hawaii economy in 1990s. As figure Mililani Town Center Mililani 1988 45 434 1,675 85 3 shows, taxable retail sales in constant 1997 dollars declined after 1990 follow- Moanalua S.C. Honolulu 1952 15 250 500 50+ ing a decade of relatively strong growth. Pearl City S.C. Pearl City 1967 14 252 830 34 Real sales fell about 16 percent from 1990 Pearl Highlands Center Pearl City 1993 13 411 1,847 17 to 1993, then rallied back to earlier levels Pearlridge Center Aiea 1972 56 1,400 6,600 170 by 1996. Jobs also declined slightly after Royal Hawaiian S.C. Honolulu 1980 7 280 614 150 1990, but not as sharply as real sales. One Waikele Center Waipahu 1993 60 728 3,400 80 reason that jobs did not shrink as much Windward Mall S.C. Kaneohe 1982 30 530 2,300 105 as sales may be that hours were declin- ing over the period, particularly between Hawaii: 1990 and 1991, as shown in figure 4. Kaiko’o Mall S.C. Hilo 1970 15 220 950 33 In contrast to jobs and real sales, the Keauhou Shopping Center Kailua 1984 22 170 876 50+ number of retail establishments has grown Pines Plaza Kailua 1992 1 161 64 (NA) nearly every year that sales have been in Prince Kuhio Plaza Hilo 1985 46 419 2,798 78 decline. As figure 5 shows, there was an Waiakea Center Hilo 1996 18 245 1,138 20+ aggressive expansion of retail establish- Maui: ments in the mid-1980s which slowed Kaahumanu Center Kahului 1972 32 573 2,864 102 but did not stop in the late 1980s and has continued into the 1990s. Lahaina Market Place Lahaina 1969 2 208 16 17 Maui Mall Kahului 1972 27 191 1,272 49 Competitive Trends Kauai: in Retailing Kukui Grove Center Lihue 1982 49 454 2,574 61 The slowing of the economy has meant that retail businesses must be more aggres- 1 Includes all centers on Oahu with more than 250,000 square feet of gross leasable area and all centers on other islands with sive in getting a slice of an economic pie more than 150,000 square feet. NA Not available. that has not been growing and, in the case Source: International Council of Shopping Centers, Hawaii Shopping Center Directory 1996. of the Japan visitor market, may be shrink- ing. Moreover, with new firms entering the market, competition has intensified. Figure 3. Retail Jobs & Sales, 1982 to 1997 There are currently two major sources of competition in the local retail sector. 120,000 $18,000 Millions of constant 1997 dollars Considerable attention has been focused 115,000 $17,250 on competition from new large mainland 110,000 $16,500 retailers entering the Hawaii market. How- Retail jobs* left scale ever, another factor resulting in stiffer com- 105,000 $15,750 petition among retailers is the ease with 100,000 $15,000 which firms can enter the retail market. 95,000 $14,250 Retail sales Numbers of jobs 90,000 (constant $1997) $13,500 Competition and the Ease of Entry right scale The reason for continued growth in the 85,000 $12,750 number of retail establishments in the face 80,000 $12,000 of slack sales, as depicted in figure 5, is 1980 1984 1986 1988 1990 1992 1994 1996 not altogether clear. One reason may be Year that it is very easy to start a retail opera- * Wage and salary. tion. All one needs is a location, a source Source: DLIR; Hawaii State Department of Taxation (DOTX). Constant dollar calculations by DBEDT using Honolulu Consumer price index.

Hawaii’s Economy /August 1998 15 of goods to sell, and a small line of credit By comparison, most service busi- is likely to succeed. Most small retailers to carry inventory. Ironically, these ele- nesses and certainly manufacturing activi- are not subject to this screening process ments are easier to assemble in a slack ties require special training and skills, as and are consequently thrust into a com- economy since there is often plenty of well as substantial start-up investment in petitive market for which they may not empty shop space and manufacturers are equipment and facilities. Acquiring a large be prepared. This ease of entry and lack motivated to provide products to the retail amount of start-up capital means con- of pre-screening result in more competi- level. Normally, retailing requires no spe- vincing lenders, through well-prepared tion and probably a higher failure rate, cial license, special training, or even paid business plans, that the target market is particularly in the kind of sluggish con- employees if partners and family members sound, that the entrepreneur has the ex- sumer market that Hawaii has faced in are available to staff the shop. pertise to run a business, and that the plan the past few years.

Mainland Retail Chains Of course, the most often-cited source Figure 4. Retail Sales and Average Weekly Hours of new competition, and another reason the number of establishments has grown in the face of slack sales, has been the 35 influx of large mainland-based retailing Retailing average weekly hours $18,000 33 left scale Millions of constant 1997 dollars operations. As the article on page 12 in- $17,000 31 dicates, outside competition for Hawaii $16,000 29 retailers is not a new phenomenon. Lo- $15,000 cal retailing faced the entrance of Kress 27 $14,000 and Sears in the 1930s, Longs Drugs and 25 Retail sales (constant $1997) $13,000 Woolworth in the 1950s, the Safeway right scale 23 $12,000 Chain in the 1960s, and the 7-Eleven 21 $11,000 stores in the 1970s. However, the competition that began Average weekly hours worked Average 19 $10,000 to enter in the late 1980s has been per- 17 $9,000 1984 1986 1988 1990 1992 1994 1996 haps the most difficult for existing Hawaii retailers, because it has featured a new Year breed of discount retailers that focus on Source: DLIR; DOTx; DBEDT (deflated sales data). price, selection, and customer satisfaction. Beginning with the Price-Costco member- ship store in 1988 and continuing with the Figure 5. Retail Sales & Establishments, 1982 to 1997 entrance of K-Mart, Wal-Mart and Sam’s Club, Hawaii retailing has been thrust into the era of so-called “big box retailing.” 8,000 $18,000 This competition features huge stores of Retail Establishments* left scale $17,250 Millions of constant 1997 dollars 7,500 100,000 square feet and more, with prices $16,500 comparable to those charged nationally. 7,000 $15,750 Beyond the “marts” and membership $15,000 6,500 stores, another type of big retailer, nick- Retail sales $14,250 (constant $1997) named the “category killer,” has also 6,000 right scale $13,500 $12,750 played havoc with established local re- 5,500 $12,000 tailing. This group of stores includes such 5,000 $11,250 giants as Sports Authority, Eagle Hard-

Number of establishments $10,500 4,500 ware, Computer City and Circuit City, to $9,750 name a few. These stores focus on one 4,000 $9,000 1984 1986 1988 1990 1992 1994 1996 major category of merchandise but with Year tremendous variety and selection within that category. The big-box discount retail- ers and category killers rely on a national * Note: 1982 through 1990 establishments adjusted upward to approximate work-site based compilation beginning in 1991. inventory and purchasing system, which Source: DLIR; DOTx; DBEDT (deflated tax data). can provide goods quickly and cheaply, and on a store operation designed for maximum efficiency. Hawaii is certainly not alone in having to adjust to this revolution in retailing

16 Hawaii’s Economy /August 1998 which, in fact, has been occurring nation- tomed to a competitive environment in A number of grocery stores have begun wide. Nearly all communities on the U.S. which customer service is a high priority, scan card programs that provide customers mainland have experienced a similar reor- and they tend to search out the best price on-the-spot discounts and reward them for ganization of retail activity over the past in the quality range they desire. They may loyalty with bonuses on accumulated pur- decade or more. Moreover, the revolution have some brand loyalty, but generally chases. McDonalds restaurants have in- is far from over. In the future even the big- have little store loyalty and will go where stituted a similar program in the fast-food box retailers will be scrambling to hold prices and service are superior. sector. market share as new innovations in retail- The kind of retailing represented by the Stores are looking hard at their shop- ing evolve that will include entertainment big-boxes and category retailers evolved to ping environments and at the relevancy of and social elements, as well as merchan- address these emerging consumer patterns. the merchandise they are offering. To at- dise focus. Another looming innovation is It is not surprising, therefore, that they tract more customers, many small stores virtual shopping that may become a staple have done well in Hawaii at the expense of are remodeling to give their shops of retailing in the future as technology established retailers, who are now strug- a more contemporary look and ensuring merges television and the internet into an gling to adjust to both the new competition that their merchandise is up-to-date and interactive world in the living rooms of and the new consumer. plentiful. most households. Stores are also trying to find niche mar- Retailing Efforts to Adjust kets in which they can excel and prosper, Changes in the Consumer This competition has generated a clas- and which are not attractive to the giant Profile sic shakeout and readjustment period in retailers with their low-cost, high-volume A third major factor affecting retailing Hawaii’s retail sector over the past decade. market base. Apparel stores such as Cin- is the consumer. A key trend in consumer This readjustment has intensified as the namon Girl on Oahu and Baby’s Choice on behavior over the past generation has been economy has continued to remain slug- Maui have carved out such a niche. the aging of the baby-boom generation gish, particularly with the decline in the In the computer market, category killers and their changing needs. In the like Computer City, CompUSA and 1960s and 1970s, this large group Circuit City probably contributed to of consumers were generally in their Small stores are trying to find niche the demise of such small vendors as 20s, single and devoted considerable markets in which they can excel and Software Plus. But in the shadow of time to recreation and entertain- the high-volume computer stores, a ment. In the 1980s, this market prosper but which are not attractive number of new niche stores have was into family formation. In the to the giant retailers emerged. These new niche players 1990s, baby boomers have been have targeted more-advanced com- raising their children and are saving puter users instead of competing for retirement. In the next decade, they number of high-spending, eastbound trav- head-to-head with the computer category will begin to retire and entirely different elers to Hawaii over the past year. As men- giants for general computer and software spending patterns will likely emerge. tioned earlier, gone are locally-grown sales. Instead, they offer an array of com- Following the baby boomers have been retailers such as Gem Department stores, petitively priced components and custom- smaller-sized generations. While they have Arakawa’s General Store, Atlas Building built systems to a growing certainly made their own mark on retail- Supply and Kuni Dry Goods. More recently, computer-enthusiast market, along with a ing and other industries, they have not there have been problems with some of level of personal and expert service that the had the dollar impact of the boomers. As Hawaii’s larger stores as well, including the category giants are hard pressed to match. a result, those areas of retailing serving Chapter 11 bankruptcy of Liberty House Of course, it is not only the stores that younger markets have experienced keener and the closing of all but one of the Hono- are trying to adjust to the new retailing en- competition for sales dollars. lulu Book Shops. Even some international vironment. The major shopping centers are Beyond this well-known “aging of the retailers have retrenched in the face of the also caught up in the challenge of more in- population” factor, consumers generally strong competition, particularly those fo- tense competition for the increasingly de- have less time to shop. As a result, con- cused on the eastbound visitor market. manding consumer in Hawaii. The newer sumers today tend to patronize retailing Duty Free Shops, for example, has cut power retailing centers of Waikele and Pearl that delivers what they want and can get back its operations in Hawaii and Guam. Highlands have increased pressure on the them out the door quickly. “Big-box” and Recently Japan’s Marui Imai company an- traditional regional centers such as the Ala “category killer” retailing are particularly nounced intentions to close its United Col- Moana, Pearlridge and Windward Malls. designed to provide selection, fast service ors of Benetton stores in Hawaii, as well Thus, the structure of the retail market and prompt resolution of common con- as in Guam and Saipan. Undoubtedly, is slowly adjusting to the new onslaught of sumer problems such as exchanges and scores of other, smaller retailers have left big-box and category retailers by finding returns. the market with little or no public notice. the niche markets that are not well-served Finally, today’s consumers are becom- But many stores are fighting to survive by the big retailers and tailoring products ing increasingly aware of their shopping and find niches in the new era of power and services to those niches. alternatives. They are becoming accus- retailers and more demanding consumers.

Hawaii’s Economy /August 1998 17 Frontiers in Hawaii’s desktop publishing tools have reduced the tions cut into the business traditionally Retail Sector time and expense of putting out merchan- held by retail stores. But the adjustment in retailing may be dise catalogs and other product literature, Like most other retail innovations, a long-term process, as Hawaii’s retailing and increasingly more manufacturers catalog, TV and internet marketing may revolution shows little sign of subsiding and product brokers are using these tools. be a mixed blessing for Hawaii. On the soon. Indeed there are developments on Also, thanks to the proliferation of cable positive side, such sales medium offers the horizon that retailers will need to and satellite dish systems, there has been the consumer a wider variety of mer- watch and adjust to, perhaps well into the an explosion in the number of television chandise and price options. Moreover, next decade. channels available. This has permitted the internet and TV marketing offers valuable development of specialty channels such opportunities for Hawaii products to find Merging of Retailing as QVC and the home shopping channel, new markets on a global basis. Already, and Entertainment which can focus entirely on direct pur- several local companies have found QVC Many regional shopping centers around chase by phone of products shown on to be a boon for sales and company the country are fighting back against the the TV channel. Perhaps of most signifi- growth. DBEDT has worked and contin- draw of the big-box and category retailers cance for the long run has been the rise ues to work with both QVC and manu- by turning their facilities into entertain- of the worldwide web of the internet as a facturers of local products to take full ment and recreation centers that provide cheap and effective advertising medium advantage of this opportunity for Ha- considerably more than merchandise. The for products. waii companies to reach national mar- most notable example of this concept is Supporting these “front end” advances kets. Scores of Hawaii companies have a the Mall of America in Bloomington, Min- in direct selling has been the improvement presence on the internet, and several nesota, where many customers drive hun- in the fast shipment of goods at the back “virtual” Hawaii shopping malls have dreds of miles to spend the entire been set up on the net.3 On the other hand, to the ex- day at this 4 million square foot Technology and the communications Mega-Mall. The facility features an tent that direct marketing through amusement park, theaters, restau- revolution have allowed manufacturers catalogs, TV and the internet by rants and hundreds of stores. companies outside of Hawaii takes However, centers that merge en- to directly market their products to the sales away from local retailers, tertainment, recreation and shopping consumer, utilizing magazine ads, they reduce employment and busi- need not be huge. Developers, such ness opportunity. They may also as the Mills Corporation of Virginia, catalogs, direct mail and the internet result in an increasing drain on build medium-sized malls that prac- as “virtual stores.” general excise tax revenue because tice the concept of “destination it is difficult to collect on such shopping,” where customers can sales. spend an entire day enjoying entertain- end. Competition in the airfreight industry Of course, these new mediums are ment and recreation as well as shopping. has resulted in faster service for custom- almost certainly here to stay. This means Mills runs more than a dozen major re- ers ordering goods and traditional surface the best way for Hawaii to address the gional shopping centers around the coun- shippers that are faster and more efficient. negative aspects of these new direct sell- try averaging around 1.5 million square As a result of these advances, hun- ing mediums is to utilize them more ef- feet in leasable area (about the current dreds of major manufacturers nationwide fectively than the competition. size of the Ala Moana Center). These malls now directly market their products exclu- There are limitations on the advan- feature major, off-price retailers, hundreds sively, utilizing magazine ads, catalogs, tages of direct selling that will ensure that of shops, plus food courts, theme eateries, direct mailing, and the internet, as their there will always be a role for the retail virtual reality arcades, theaters and other “virtual store.” This is particularly true of store. First, one cannot closely examine attractions in a package Mills describes as the electronics market where such com- or sample the merchandise shown in “vibrancy and value.” puter giants as the Dell and Gateway com- catalogs, on TV and on the internet, an puter companies deal with clients almost option many consumers insist upon. Sec- Direct Marketing, Mail Order, TV, exclusively through direct contact. ond, even with priority shipping, the lo- and the Internet Even small producers are now finding cal customer must wait several days or Bypassing the store to go directly to that direct selling through the internet can more to receive the product. Also, if prob- the customer is not new. Door-to-door sell- greatly expand markets at very little cost. lems are encountered with the product, ing and catalog sales have been a fixture Hundreds of smaller companies use direct refunds, exchanges or repairs can be of retailing since the days of the general marketing to sell the same array of prod- time-consuming, costly and, occasion- store. However, technology and the com- ucts found on retail shelves. Many of these ally, unsuccessful, with few options for munications revolution have given direct companies neither make nor warehouse selling the tools to reach a huge potential the products they sell, but rather pass or- 3 Using the search phrase ‘Hawaii AND shopping’ will gener- customer base at a relatively low cost. ders on to manufacturers or distributors ate a comprehensive list of sites on the major internet search For one thing, new, computer-based to be filled. Of course, all of these opera- engines.

18 Hawaii’s Economy /August 1998 redress. Finally, direct marketing does not of a strong, adaptable business structure competitive and difficult in the local indus- accommodate the social experience of is fostered. try’s history. These conditions have gen- shopping and combining other activity Such an adaptable business structure erated a retailing revolution in Hawaii such as eating and entertainment with is essential if Hawaii is to compete in the which has seen many long-time island shopping, which are important to some evolving national and world markets. For retailers either close down, consolidate consumers. instance, the entrance of the factory outlet or attempt to restructure under the threat Despite these limitations, it is likely that stores, big box, and category retailers in of bankruptcy. the trend towards direct selling through the Waikele Center offered Hawaii a pow- The revolution is continuing on many TV and the internet will continue to grow erful marketing opportunity for tourism, fronts. Additional large retailers are ex- and may pose a serious competitive chal- drawing hundreds of thousands of Japa- pected in Hawaii in the future, focusing on lenge to traditional, store-based retailing. nese shoppers to the islands who may have such specialty areas as home improvement To compete, traditional retailers will and consumer electronics. New need to emphasize the areas where Allowing businesses to experiment and and renovated shopping centers direct selling is weakest, including that combine shopping with enter- the immediate availability of mer- adjust to the changing nature of tainment and recreation are on chandise and ensuring fast, satis- competition fosters a strong, adaptable the horizon, and existing centers factory resolution of customer are retooling to meet this trend. complaints. Moreover, retailers can business structure. Such a structure is Finally, technology is presenting compete by offering customers the essential for Hawaii to be competitive in more options for low-cost “virtual opportunity to combine shopping, stores” on both TV and the entertainment and recreation, and evolving national and world markets. internet. This option provides Ha- by ensuring that shopping is an in- waii producers with a valuable op- teresting experience rather than a chore otherwise gone to alternative destinations. portunity to reach national and or even painful experience, which is the Of course, the public sector has an international markets. However, the motivation for many consumers engaged economic development interest in the re- trend may also result in more outside in direct purchase through catalogs and TV. sults of the competitive struggle in retail- competition for Hawaii’s consumer dollars ing apart from regulatory concerns. State by firms that will not be providing local Government’s Role government would prefer that retail jobs employment opportunities, buying in the Retailing Revolution in Hawaii not be lost to other areas out- Hawaii-produced services, or paying The retail sector of the economy is un- side of the state, unless the net result is local taxes. dergoing a revolution that challenges all that even more economic activity and op- On the demand side, the retailing revo- business in the industry. However, the portunity are generated within the state. lution has been a welcome change for role of government in the retailing indus- Government would also prefer that retail- most consumers, bringing lower prices try’s adjustment process is a limited one. ing provide quality jobs for the roughly and a greater selection of stores and mer- This is because competition within the 20 percent of the work force employed in chandise. This experience and a greater private sector for markets is the basis of the industry. Finally, the public sector awareness of shopping options have made our economic system and contributes to would like to facilitate retailing that either Hawaii consumers a more demanding our higher standard of living. In our eco- enhances Hawaii’s position as a destina- group. They expect better quality, lower nomic system it is not government’s role tion, or promises to bring the products prices and more service than in the past to always protect local business from com- and services of Hawaii to national and and have less loyalty towards any par- petition. This could have the effect of de- international markets. ticular retailer. Of course, for the 20 percent nying consumers the opportunity to enjoy Achieving these economic develop- of the work force dependent on retailing a higher level of consumption on their ment goals requires good and frequent for their livelihood, the retailing revolu- limited income. communication between the retail indus- tion has been a difficult and sometimes Rather, the public sector has the role of try and government. At the State level, painful period. helping to maintain a level playing field DBEDT is working to facilitate that com- The role of the government in the re- for both business and consumers, so that munication and better integrate retailing tailing revolution is not to protect exist- competition actually does lead to an ex- into tourism and other product promo- ing businesses at the possible expense of panding economy and rising standard of tion, as well as to help the community to consumers, but to ensure a level playing living. Government does this by monitor- better understand the very competitive field for all and to work with the private ing changes in competitive conditions to retailing industry and its important role in sector to achieve economic development make sure that laws regarding anti-trust, the economy. goals for retailing. In this way a strong unfair competition, protections for labor competitive retail sector can emerge that and for the consumer, are enforced. By al- Conclusions will be in a better position to provide stable lowing the players in the economic process Ease of entry, new competition from employment, good quality and competi- to experiment and adjust to the changing national chains and a sluggish economy tive prices to consumers, as well as help nature of competition, the development have made the 1990s one of the most attract visitors to the state.

Hawaii’s Economy /August 1998 19 Emerging Trends in U.S. Retailing

Until the post–World War II period in in the current retailing environment. The augmented by a series of category stores the U.S., retailing was primarily a “Main leading edge of the revolution was the rise in specialties such as hardware, books, Street” activity with individual department, of the large discount stores of Wal-Mart office supplies and computers. A more drug, variety (five & dime) stores and cof- and K-Mart. These stores are often re- compact example is the Pearl Highlands fee shops clustered in the hearts of towns ferred to as” big boxes” because they tend Center in Pearl City. and cities. In an earlier retail revolution, to build single stores of 100,000 square Another recent mall variation is the the market segmentation and economies feet or more, surrounded by a sea of park- “factory outlet center” where brand- of scale achieved by the department and ing stalls. These two retailers succeeded name manufacturers maintain direct variety stores had virtually wiped out the where most other discount marts failed in retailing outlets for their products, usu- “general stores” which had ruled retail- the 1970s and 1980s, by staying abreast ally garments. The upper section of the of what the consumer wanted. Waikele Center is an example, along with The leading edge of the current That formula includes having a the Dole Cannery Square. wide range of merchandise on Still another variation is the festival retailing revolution was the rise of the hand at the best possible price. market place, featuring specialty retailers large “big box” discount stores of These stores also have a propri- in an outdoor, entertainment-oriented at- etary, national distribution sys- mosphere. The Aloha Tower Market Place Wal-Mart and K-Mart tem, which adds to the on the downtown Honolulu waterfront is efficiency and lowers the cost of such a facility. ing during the 19th century. But as large the store system. One of the most recent and significant segments of the population moved to the On the heels of the “marts” came the innovations in shopping malls has been suburbs in the 1950s and 1960s, a new trend towards huge, specialty stores called the move towards so-called “mega-malls,” retailing revolution took place, as subur- “category killers.” These operations spe- encompassing several millions of square ban shopping malls challenged and broke cialize in selling many types of merchan- feet and featuring a wide variety of enter- the dominance of the Main Street stores. dise in a particular category, in a large and tainment and non-retail activity in addition Moreover, the profile of the shopping well-stocked store. One of the first of this to many more stores than the average re- public was changing in the post-war era. new breed of retailer was Toys R Us. Today gional mall. A prime example of this con- Main Street retailing was structured to the category killers are dominating many cept is the Mall of America, in Bloomington, serve the needs of the traditional nuclear specialty markets such as hardware, com- Minnesota. This 4-million square foot fa- family with a single breadwinner that puters, books, and sports equipment. This cility contains a seven-acre amusement shopped as a unit once or twice a week. aspect of the retail revolution However, by the 1970s and 1980s, this may have been more damaging The “mega-mall” innovation features profile had become a minor segment. In- to the vast segment of small, several million square feet of creasingly more families had two-income specialty merchants than were earners. Individual family members were the big box retailers. entertainment and non-retail activity making their own purchasing decisions The third component of the and consumer demand was moving be- retail revolution has been a in addition to many more stores yond the staple items stocked by Main rapid shift in the infrastructure than the average regional mall. Street stores. or venue of retailing—mainly Some giants, like Sears, Woolworth and towards the shopping mall. Just as the park complete with roller coaster and ferris J.C. Penny were reasonably successful in suburban shopping malls supplanted Main wheel. In addition to 400 specialty stores establishing new stores in the suburban Street retailers, new types of shopping and countless restaurants, the complex malls catering to the emerging consumer malls are emerging to serve new consumer includes cinemas, a comedy club, an 18- groups. But also emerging from this mi- preferences. hole miniature golf course and a wedding gration of retailing to the suburbs was a One emerging shopping center trend chapel. On the weekends, as many as new breed of aggressive, discount retail- has been the “power center,” a facility 200,000 customers enter the mall each ers led by such pioneers as Wal-Mart in with about half a million square feet of day, many traveling more than 150 miles general merchandising and McDonalds in store area designed to house a few huge to visit the mall. The Mall of America is the fast-food market. stores of the big box and category type. setting the trend for new shopping centers in As American society continued to The lower portion of the Waikele Center terms of diversity of activity. However, few, change in the 1980s, a revolution in the above Waipahu is an example of this type if any, new developments have attempted format and leadership of retailing resulted of arrangement, with a big box (K-Mart) to duplicate this mall’s physical scale.

20 Hawaii’s Economy /August 1998 The Language of Retailing

Small Retailing:1 and ordering through the mail. More recently, merchandise is offered on the internet and purchases can be made directly General Store: Wide variety of unrelated merchandise. Usu- on-line. ally in rural areas. May be able to survive when customer options are limited. But the small operation cannot become Catalog Store: Local warehouse stores where customers can sufficiently expertise in each line to compete with specialty buy catalog items they have chosen at home. or large department store operations. Off-price Merchants: Find volume merchandise at a sub- Specialty Store: Limited line such as bakery, jewelry, women’s stantial discount such as overruns and discontinued lines. clothing, or shoes. This class has the greatest success rate Items can be sold at retail, below the original wholesale price for retailing because personalized service rather than price but still at a profit to the merchant. only is a factor. The assortment within the limited classifica- tion is wide. The store’s buyer can become expert within the Manufacturers (factory) Outlets: Stores set up by manu- more limited class of merchandise. facturers specifically to sell their surplus and other goods they will not be selling through regular marketing channels. Boutiques: Similar to specialty stores but focuses on the high- est quality or latest fashion of a particular classification. Warehouse Clubs: Large retail operations charging an an- Usually very expensive and limited in stock. Often feature nual membership fee. Merchandise is usually sold in bulk or in-house creations. larger than normal quantities. Self-service and usually no frills, such as bagging purchases. Food Specialists: Handle a narrow assortment of items, many ready to eat or reheat. Popular because consumers can General Merchandise Discounters: (Wal-Mart, K-Mart) find what they want quickly and less time for food prep at Large stores, large assortment and sell mainly price. home. Shopping Centers Flea Market stalls: Has become a regular format for en- trepreneurial retailing. Flea markets have become a big city Free standing stores: Generally, large discount stores sur- fixture. Cost is only about $40 per day. rounded by a vast expanse of parking, and usually located on major traffic arteries. Kiosks and Push Carts: Successful in large shopping cen- ters and festival markets. Low overhead operations. Neighborhood Clusters: A number of small stores grouped together in urban or suburban areas where neighborhood Large Retailers traffic is a major source of business.

Department Store: Offers a large volume of hard and soft Festival Marketplace: Composites of shops and eating goods organized into specialty departments, numerous cus- places in a festive setting, often fashioned from structures tomer services and a large staff specializing in various func- that once housed industrial activity. Frequently a public- tions. private sector effort to rehabilitate or revitalize a section of town. New York’s Fulton Fish Market, St. Louis’ Union Sta- Chain Store: A centrally owned and managed organization tion and downtown Honolulu’s Aloha Tower Market Place with two or more similar units, each carrying same categories are examples. and classification of merchandise. These can be variety chains like Woolworth, food chains like Safeway and hardware such Mixed Use Centers: Combination of shops, commercial as Eagle. offices, residences eateries and movie theaters, usually found in major cities or large suburbs. Copley Place in Boston is a Supermarkets: Large, departmentalized, self-service organi- prime example. In Hawaii, Honolulu’s Restaurant Row comes zations selling food primarily, but supplemented with fresh closest to the concept, except for a lack of a major depart- meats, poultry and sundry items. (Today, delis and bakeries ment store. are common.) Strip Mall: Relatively small, outdoor shopping centers of Direct Market Retailer: Merchandising through catalogs about 20, independent or small-chain stores, featuring mainly apparel, hardware, food, and miscellaneous merchandise.

1 Sales under $500,000 per year (1995).

Hawaii’s Economy /August 1998 21 Power Centers: Shopping centers featuring two to three New Nomenclature major category or big chain retailers. Usually between 200,000 to 500,000 sq. ft. leasable area. Big-Box Retailer: Major, general merchandise chain stores of 100,000 sq. ft. or more. (Factory) Outlet Centers: Devoted mainly to apparel manu- facturers’ outlet stores. Category Stores (also called Category “Killers”): Ma- jor chain specialty stores, usually more than 50,000 sq. ft. Regional Shopping Center: Major shopping complexes mix- ing strategically chosen department stores and smaller retail- Mega Mall: Super regional malls, designed to be “shopping ers, often with eateries, entertainment and recreation facilities. destinations” providing a full range of shopping, entertain- Generally more than 500,000 sq. ft. of leasable area. ment, recreation and eating opportunities. Usually more than 1 million sq. ft.

Sources: Diamond, David, & G. Pintel, Retailing, Sixth Edition, 1996; Cook, David, & D. Walters, Retail Marketing Theory and Practice; Pittman, Robert, & R Culp, “When Does Retail Count as Economic Development?” Economic Development Review, Spring 1995.

awaii’s economy remained steady the first quarter of 1998 than in the first in the first five months of 1998. quarter of 1997 (table 1). All of this de- HSome indicators of activity, such cline was due to the large drop in east- as nonagricultural wage and salary jobs bound visitors of 6.3 percent. With the and visitor arrivals declined slightly. Other State Asian economic crisis and the declining indicators, such as personal income (only value of the yen, the eastbound market available for the fourth quarter of 1997) is likely to remain weak. and tax revenues, improved. Overall, the of the Hawaii County had the strongest eco- low, but steady, rates of economic growth nomic performance among the counties in that Hawaii has experienced over the last the first five months of 1998 (p.24). The several years continued through the first Economy county’s job count showed a 2.8 percent quarter of the year. increase from the same 1997 period and In the labor market, the familiar pat- visitor arrivals were up 7.0 percent. All tern of mixed signals continued. For the other counties showed fewer visitors and first five months of 1998, the estimated jobs, except on Kauai, where the job number of civilians employed in the State’s count was the same as in the comparable economy showed a 1.3 percent increase the year, a declining visitor count from period of 1997. over the same 1997 period and the num- Asia and the Pacific has slightly offset Visitor arrival growth of 1.0 percent is ber unemployed declined 14.2 percent. solid gains in the U.S. and other west- expected in 1998, accelerating slowly On the other hand, the estimate of total bound markets to result in a slight, 0.5 over the next two years. Wage and sal- nonagricultural wage and salary jobs percent decline from the same period in ary jobs should continue the low level of showed a 0.5 percent decline in the first 1997. However, the average daily cen- growth seen in 1997. Inflation-adjusted five months of this year. Construction con- sus of visitors for the first five months is personal income and gross state product tinued to show the sharpest decline of any the same as the year before, thanks to should show modest, but steady, growth industry, down 2.9 percent in the January the longer length of stay by the west- of 1 to 1.5 percent per year. to June period. Only the services sector, bound visitors. Overall visitor spending A thorough review of Hawaii’s current government, and agricultural wage and in 1998 may showed a decline from and anticipated economic conditions can salary jobs showed an increase in the first 1997 due to the decline in the very be found at the DBEDT internet web site, quarter of 1998 compared to the same high-spending Japan market segment. located at: period in 1997. Retailing jobs showed a Poor economic conditions in Japan 1.4 percent decline for the first five months coupled with a lower-valued yen than last http://www.hawaii.gov/dbedt/qser.html of 1998. year are the major causes of the decline The visitor industry has also shown in visitors from Japan. The number of mixed results. For the first five months of visitor arrivals was 1.7 percent lower in

22 Hawaii’s Economy /August 1998 Selected Economic Indicators: State

1998 Percent change from same period in previous year Series May Year to Date May Year to Date Civilian Labor Force (persons)1 591,250 592,250 0.5 0.3 Civilian Employment 556,750 559,200 1.3 1.3 Civilian Unemployment 34,450 33,050 -11.4 -14.2 Unemployment Rate (percent)2 5.8 5.6 -0.8 -0.9 Total Non-Agr. Wage & Salary Jobs 529,900 530,000 -0.7 -0.5 (number) Contract Construction 21,300 21,550 -3.4 -2.9 Manufacturing 16,100 16,250 -3.3 -2.1 Trans., Comm., Utilities 40,400 40,800 -2.4 -1.4 Trade 131,900 132,800 -1.4 -1.1 Retail 111,000 111,900 -1.7 -1.4 Finance, Insur. & Real Estate 35,000 35,250 -3.0 -2.6 Services & Miscellaneous 169,400 169,350 0.7 0.5 Hotels 37,600 38,150 -1.1 -1.5 Government 115,800 114,050 0.4 0.4 State 68,900 67,250 0.7 1.0 Federal 30,400 30,350 -0.7 -0.7 Agriculture Wage & Salary Jobs 7,300 7,300 7.4 8.0 Taxes ($thousands) State General Fund Tax Revenue3 211,895 1,182,640 3.7 6.8 Trans. Accom. Tax Revenue 9,288 54,342 -12.4 -0.9 General Excise & Use Tax4 105,417 597,235 -8.8 -0.9 Retailing Tax 40,471 243,485 -13.8 -6.2 Services Tax 19,178 89,809 0.4 -0.9 Contracting Tax 8,897 45,728 -12.2 -2.4 Hotel Rental Tax 5,852 33,012 -18.4 -7.3 Producing Tax 204 1,103 -13.6 5.3 Unallocated Net Collections 5,544 48,851 23.9 81.3 Visitor Arrivals (persons)5 525,720 2,784,480 -0.9 -0.5 Westbound Visitors 329,320 1,752,110 7.0 4.3 Eastbound Visitors 196,400 1,032,370 -11.7 -7.6 Hotel Occupancy Rates (percent)2 67.0 74.3 -0.9 -2.0

1 Labor force and jobs averages are based on monthly rounded data. Labor force data were also rebenchmarked in February 1997. Self-employed data will no longer be published by DLIR. 2 Change represents absolute change in rates rather than percentage change in rates. 3 If tax period ends on a weekend some of the collections may be shifted to the next period. 4 Components may not reflect true collections due to unallocated net collections. 5 Preliminary data. Note: Data for 1995 and 1996 were rebenchmarked by DLIR. Sources: Hawaii Department of Labor and Industrial Relations, Dept. of Taxation, Hawaii Visitors & Convention Bureau, and PKF-Hawaii. Compiled by Economic Planning Information System, READ, DBEDT.

Hawaii’s Economy /August 1998 23 Table 1. Selected Economic Indicators by County: January to May 1998 (value and percent change from same 1997 period)

C&C of Honolulu Hawaii Maui Kauai Percent Percent Percent Percent Indicator Value Change Value Change Value Change Value Change Unemployment Rate1 4.7 -0.6 8.4 -1.6 6.4 -1.5 9.4 -2.7 Non-Agr. Wage & Salary Jobs 401,200 -0.8 50,700 2.8 55,100 -0.5 23,200 0.0 Construction 16,150 -3.2 2,200 -4.8 1,800 -5.3 1,000 5.3 Manufacturing 12,500 -2.3 1,600 -3.0 1,750 0.0 400 0.0 Retail 80,850 -1.9 11,200 0.4 13,750 0.0 6,100 0.8 Services & Miscellaneous 121,000 0.3 18,200 5.5 21,350 0.7 8,250 -0.6 Hotels 16,900 -5.3 7,000 6.1 11,050 -0.5 3,350 -1.5 Government 91,850 0.3 10,400 1.0 7,500 0.0 4,000 0.0 State 52,000 0.9 7,350 1.4 5,200 3.0 2,600 0.0 Federal 28,600 -0.5 900 0.0 500 0.0 400 0.0 Agriculture Wage & Salary Jobs 2,000 8.1 2,550 11.1 1,850 -5.1 900 20.0 Visitors, total number3 1,955,750 -3.5 543,620 7.0 978,430 -0.6 414,100 -0.2 Westbound 932,240 -1.1 414,400 5.3 803,240 2.9 357,120 2.3 Eastbound 1,023,510 -5.6 129,220 12.9 175,190 -13.9 56,980 -24.7 Room Occupancy Rate (%)1 75.5 -4.8 73.5 4.3 75.0 0.2 67.0 -1.6

1 Measured as change in percentage points rather than percent change in rates. This report has been cataloged as follows: 2 Labor force and jobs averages are based on monthly rounded data. Labor force data were rebenchmarked as of Hawaii. Dept. of Business, Economic Development & Tourism. March 1998. Research and Economic Analysis Division. 3 Preliminary data. Hawaii’s economy. Honolulu: May 1995– Note: Data for 1995 and 1996 were rebenchmarked by DLIR. 1. Hawaii-Economic conditions. Sources: State DLIR, HVCB, PKF-Hawaii. Compiled by EPIS/READ, DBEDT. 2. Hawaii-Statistics. HA4007.H358 Y

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24 Hawaii’s Economy /August 1998