Trouble in paradise

By Dan Nakaso
Advertiser Staff Writer

Frank Lavey has the typical headaches of a Hawai'i hotel executive these days.

Hawai'i hotel executives note that revenue per available room is down 13 percent. And the tourists who do come also are spending less. Advertiser library photo • November 2001

Visitors also are booking reservations with just a couple of weeks' notice, making it almost impossible for hotel managers to predict occupancy rates, revenue and staff needs even a month ahead. And once they arrive in Hawai'i, both Japanese and Mainland tourists typically are spending less for rooms, food and gifts than before.

The result is that Lavey, general manager of the Hyatt Regency Waikiki Resort & Spa, and other tourism executives don't know what to expect for the rest of 2002, just as the visitor industry is coming up on the traditionally slow fall season.

Since January, the economic indicators of visitor arrivals, hotel occupancy rates, visitor spending and revenues have been a sawtooth pattern of frustrating unpredictability for the people whose lives depend on tourism.

Some months, such as June, were expected to be slow, then turned out surprisingly well in some areas. But overall, room charges are down 5 percent statewide. And the critical category of "revenue per available room" that hotel executives carefully watch is off 13 percent.

Tourists from the West Coast have been the main market to fill rooms and airplane seats since Sept. 11. And they remain the largest group for total spending. But preliminary figures from the state Department of Business, Economic Development and Tourism show that their May spending of $246.6 million was off 18.4 percent compared with the figures of May 2001.

Visitor spending overall for May was down 4.3 percent to $785.4 million compared with the previous May. DBEDT blamed the drop on a 5.6 percent reduction in total visitor arrivals and a 4.2 percent decline in per-person, per-day spending, which was $177.

"People are coming on a very tight budget, and they're not spending as much in the restaurants, in shops and attractions, and that affects our entire economy," said Murray Towill, president of the Hawaii Hotel Association. "Obviously, unless revenue improves, it becomes a lot harder to do everything, whether it's increase employment or make investments in your property. That creates a lot of stress."

The anniversary of Sept. 11 could trigger even more jitters for Hawai'i's No. 1 industry if tourists avoid traveling overseas. Then toss in the uncertainty of the stock market, which could make people feel less confident about spending money on a Hawai'i vacation.

It all adds up to anxiety over the unknown.

"We used to be able to make plans," Lavey said. "This year it's been very difficult, even on a monthly basis, to make an accurate forecast."

A scheduled room renovation at the Hyatt Regency has been pushed back six months. And unionized hotel workers are talking about a strike. "It's the last thing that Waikiki needs right now," Lavey said.

Hotel executives always are under pressure, said Joseph Toy, president of Hospitality Advisors LLC, "even in good times. But certainly, it's vastly worse during these down times. There's a lot that's beyond their control."

Economists and tourism experts had hoped to report good news for the visitor industry by now. Instead, they're cautiously predicting that the economy won't rebound until the first quarter of 2003.

And that leaves Waikiki, the center of Hawai'i tourism, pockmarked with vacant store fronts. The retailers that remain are scrambling to find a formula that will draw sales out of budget-conscious tourists.

"We're still going through major changes in Waikiki," said Carol Pregill, president of the Retail Merchants of Hawai'i. "None of these things will happen overnight. Retailers are trying to adjust to the changing wants and desires of the customer. If you don't provide what the customer wants, then you don't have an industry anymore."

The patterns of today had been forming for the last few years.

Wealthy Japanese visitors were turning to new destinations, such as Guam, South Korea and China. And the slowing Japanese and U.S. economies were leading to drops in high-end bookings, corporate travel and incentive trips. The rise in Internet use also gave visitors a powerful tool to find travel bargains to Hawai'i. But discounted rates tended to attract people on a budget.

The tourism industry had already begun to change, too.

Hotels and other businesses were marketing themselves better and using improved software to more efficiently staff their operations. In 1990, the national average for a typical hotel was 80 employees per 100 occupied rooms. By last year, the number had dropped to 72 employees per 100 occupied rooms, Toy said.

Hotels also were investing in new ways to generate revenue through restaurants, retail shops and fees for such things as Internet use.

Retailers such as McInerny, one of the Islands' oldest businesses, were scrambling to retool their inventories away from the big-spending Japanese who were disappearing. Instead, they were trying to serve both bargain-hunting Japanese and Mainland customers who needed larger sizes.

Then Sept. 11 hit, and the tourism industry all but shut down in the days that followed. Ever since, it's been a struggle toward recovery.

"Sept. 11 just exacerbated some trends that had already begun," Towill said.

Last month, McInerny announced it was going out of business after 145 years. McInerny has no brand of its own and sells other companies' merchandise — the same merchandise available in competitor stores throughout the Islands. For three years. McInerny had been struggling with its suppliers to readjust its inventory to the new market.

"We saw the change coming, but you can't adapt overnight when you don't control your own brand," said McInerny president Mike Windsor. "Adapting to different sizes, in particular, just takes time."

Last year, Windsor was named the Retail Merchants of Hawai'i's Retailer of the Year. Now he has no idea what kind of business will succeed in Hawai'i's climate.

He just hopes that someone with new ideas will move in to McInerny's 55,000 square feet of space spread over two buildings in the Royal Hawaiian Shopping Center.

"I wouldn't pretend to know what will work," Windsor said. "Our time really is in the past. So I don't think they'll replicate what we've been doing."

The closing of McInerny's 13 statewide stores on Jan. 31 will leave an especially big hole at the Royal Hawaiian Shopping Center.

In better years, the center has been as much as 98 percent occupied. Today, it has more than 140 shops and restaurants and a 15 percent vacancy rate.

The trick for retailers at the shopping center is to change their focus to the Mainland market without alienating the Japanese who still come to the Islands, said Charlian Wright, corporate marketing director of Pauahi Management Corp., which manages the shopping center.

"We don't want it misconstrued that we won't work with the Japanese anymore," she said.

Some stores that specialize in quality Hawai'i products, such as jewelry and 'ukuleles, are making sales to both Japanese and Mainland tourists, Wright said.

But so far, she said, no one seems to have discovered a magical new formula for thriving in these times.

"I do know that businesses need to adapt," Wright said. "The ones that just cater to one market won't succeed anymore."