Not knowing what's next has slowed spending
By Andrew Gomes
Advertiser Staff Writer
North Shore resident Laura Lee Suyetsugu is cutting back on eating out. Tony Taclan of Pearl City is not. Suyetsugu is postponing home improvements. Taclan is following through with a planned vacation to the Philippines next month.
Who better represents consumer confidence in Hawai'i? Economists don't agree. They say it's too soon to tell since the Sept. 11 attacks and the U.S. government's pledge to wage war on terrorism.
But two-thirds of Hawai'i's gross state product hangs in the balance. If too many people cut back on spending for too long, it would compound already severe problems facing the state such as job losses and bankruptcies and risk plunging the local economy into yet another downturn.
Consumer spending affects home buying, travel, entertainment and investing, but is mostly reflected in retail purchases. As an industry, retailing is an $18 billion component of the local economy that accounts for 20 percent of all paid jobs and 10 percent of the gross state product.
A variety of negative influences affecting consumer confidence were triggered by the attacks, such as grief, layoffs, depression, falling stock values and America headed to war against terrorists.
There are also positive influences, such as lower interest rates, the federal tax rebate and efforts to devise a state action plan to keep Hawai'i's economy from faltering. But the negatives have convinced many people to pull back.
According to economists, consumer confidence, which was already at an 8 1/2-year low this month before the attacks, was dealt a further blow by the terrorists.
Additionally, Hawai'i has to contend with a drop in retail spending by tourists who postponed or canceled their visits to the state over the past two weeks.
Visitors account for a quarter of all retail sales in Hawai'i, an estimated $4.5 billion a year, and spend roughly twice as much daily as residents.
Recently, visitor-oriented retailers have reported sales declines generally from 20 percent to 50 percent and say they have no idea when things will get better. That has made spending by residents like Suyetsugu and Taclan all the more important.
Suyetsugu, a manager at XCEL Wetsuits Hawai'i in Hale'iwa, said she's not pessimistic, but she will be cautious with her money.
"I believe we'll be buckling up in our family," said Suyetsugu, who is the wife of a teacher and mother of two teenagers. "We won't be eating out, splurging or buying clothes. We'll be keeping our money for essentials."
Suyetsugu added that her husband's teaching contract bonus was going to be for home improvements, but that project is on hold.
On the other hand, Taclan, a manager at Spa Fitness Center in Makiki, said he's not adjusting his spending one bit.
He said he'll continue going to the movies at least once a week, surfing in Waikiki on a rented board and eating out on Saturdays and Sundays at places like Bedroq Bar & Grill and Sarento's Top of the I.
"Sarento's is kind of pricey, but I like the atmosphere," he said.
Taclan also said his sense of patriotism and adventurism has reinforced his planned vacation to the Philippines next month despite Muslim factions there and the prospect of a worldwide war against terrorists.
Still, recent accounts of Hawai'i retailers and restaurants suggest that fewer people are behaving like Taclan and maintaining normal spending habits.
Ric Maiava, general manager of Ken's House of Pancakes in Hilo, said the only thing selling well in the 24-hour restaurant is newspapers.
Business was down 60 percent last week, and Maiava was sending employees home. "It's like Death Valley out there," he said. "People are putting their wallets up on the shelf."
Maiava added that the restaurant, which relies on kama'aina for 80 percent of business, is a good gauge of the area's discretionary spending. "People are nervous," he said. "At this point, I do have hopes that people will start calming down."
A lot of the decline in dining out and shopping since the attacks can be attributed to people staying home to watch TV for updates on the rescue efforts, investigation and preparations for war.
But many have begun to feel the drain on their income. Last week, Hawai'i's two major airlines announced flight cutbacks.
Aloha Airlines will lay off 250 employees. Hawaiian Airlines plans to cut staff soon. Hotels, tour operators and retailers have slashed work hours.
Even Barr's Muffler in 'Aiea is feeling the slack in business. As a result, company owner Yowan Kim said he's going to ease his spending.
"Definitely, we not going to spend money because we not making money," he said. "We're living by a daily basis."
Yowan's auntie, who owns the Dong Yang Inn restaurant in Wahiawa, also is facing slow business, he said, adding that in the past 20 years she's never complained to him about it being slow.
Randy Karns, managing partner at consulting firm Arthur Andersen in Honolulu, said he believes that most of the people whose jobs have not been affected by business cutbacks are taking a wait-and-see attitude before they consider altering spending habits.
Some retailers, however, aren't waiting. Federated Department Stores Inc., which bought Liberty House earlier this year and is converting the chain to Macy's, said it is reviewing merchandise orders and canceling them where appropriate.
A Macy's representative could not be reached to say if the plan includes Hawai'i.
Dwight Yoshimura, general manager of Ala Moana Center, believes that it's too early to tell if consumer shopping patterns will change significantly.
Customer traffic at the state's largest mall, which gets about 45 percent of business from tourists, slowly picked up last week. "That's a good sign," he said. "There seems to be more momentum building, but it's not up to normal levels."
To attract more shoppers, Yoshimura said retailers probably will increase promotions. "You gotta," he said. "Somehow you gotta draw (consumers) out."
The National Retail Federation forecasts that retail sales nationwide will grow 2.2 percent in the fourth quarter. That assessment, which factored in psychological and economic effects of the terrorist attacks, was down from an earlier growth forecast of 4 percent.
A 2 percent growth for Hawai'i retail sales would be great, but is unrealistic, according to Carol Pregill, executive director of the local trade association Retail Merchants of Hawai'i.
"I can't even use 'cautiously optimistic' and I'm probably one of the more optimistic people in town," she said.
In fact, Pregill is keeping some of her own spending in check. "I bought a book today when I could have gone to buy another pair of Ferragamo shoes," she said, adding that the book was a paperback.
Such stepped-down buying will likely hit the restaurant industry, said Pat McCain, president of the Hawai'i Restaurant Association.
"There is an underlying consciousness to pull our horns in," he said. "With restaurants, everybody steps down from Ryan's to Dixie Grill to Zippy's to McDonald's that's what happens.
Still, like Taclan, some people say they won't hold back.
"I'm pretty confident," said Lisa Grado, a sales representative for Sentinel Alarm Co. Inc. "I know there's a lot of people panicking. I'm pretty confident."
Of course a lot hinges on the impending military action.
President Bush told the nation that the campaign would be a lengthy one "unlike any other."
Ross Murakami, a partner at Arthur Anderson who works with retail business, said combat including any response to U.S. military action is a big unknown.
"Until that happens," he said, "you really won't see how long (and) how significant the effect on consumer confidence will be."
Reach Andrew Gomes at firstname.lastname@example.org or 525-8065.