Retailer squeezed out of mid-market

By Frank Cho
Advertiser Staff Writer

J.C. Penney Co. Inc. joins a growing list of major department stores over the past five years to significantly scale back their Hawai'i operations or simply close their doors amid increasing pressure from "big-box" discount stores and specialty retailers.

J.C. Penney Co. officials would not discuss the future of the company's store at the Queen Ka'ahumanu Center in Kahului, Maui. Timothy Hurley • The Honolulu Advertiser

Once a formidable, fast-growing retailer with Hawai'i roots stretching back to 1966, J.C. Penney was where many young couples in the late 1960s and early 1970s bought their first dinette sets and backyard lawn chairs.

But local retail analysts said the company represents a bygone era in Hawai'i retailing, one that has fallen out of favor with today's shoppers.

"It's just a different era now," said Stephany Sofos, a Honolulu-based retail consultant. "There's the high-end couture, and then there's the discounters.

"People are going to the Alfred Dunhils, Louis Vuittons and Pradas, and they're going to the Costcos, Wal-Marts and ABCs. They're not going to mid-market. Your mid-market is really having pressure."

Department stores as well — both here and on the Mainland — have struggled to retain customers who have lost interest in department store prices, layouts and items and increasingly are being lured to discounters, specialty stores and value retailers.

In the past two decades, department stores' share of the apparel market has dropped to 40 percent from 70 percent, according to Service Industry Research Systems Inc. In home electronics, their share plunged from 26 percent to 5 percent and in furnishings from 40 percent to 5 percent.

In Hawai'i, retailing remains an $18 billion-a-year industry, representing a little more than 10 percent of the gross state product, according to state records.

But the industry has struggled for five years to remake itself in a difficult economy that was made worse by the events of Sept. 11. Statewide retail sales have dropped nearly $600 million for the first six months of this year as wary consumers trimmed spending.

State Tax Department figures show retail sales shrank to $8.39 billion in the January-to-June period, from $8.97 billion during the same six months last year.

Employment in the industry, which accounts for roughly 20 percent of all jobs in the state, also has been slow to recover.

State Labor Department figures show that retail jobs have hovered around 112,000 for the first half of the year, compared with about 116,000 during the same period a year ago.

And closing of the J.C. Penney stores, which is expected to cost the industry another 460 jobs, is not going to help the state's job situation, said Fred Noa, vice president with CB Richard Ellis Hawaii

Roger Lyons, a vice president of retail services with CB Richard Ellis Hawai'i, said that five years ago the retail industry in Hawai'i was bemoaning the fact that department stores were under-represented in the state.

"Since that time, we have had further consolidation with Macy's acquisition of Liberty House and Nordstrom's expansion plans have slowed down considerably," Lyons said. "So we have gone from a few department stores to fewer."

For years J.C. Penney has struggled to hit upon a winning strategy at its four Hawai'i stores, which are being squeezed from below by Wal-Mart's rock-bottom prices and from above by trendier competitors such as Old Navy, which lures a slightly more affluent customer.

"It's not that (J.C. Penney) did anything wrong," Sofos said, "it's just that the market is moving more toward value."

"In my opinion, J.C. Penney did not stay connected to the needs of the community," Noa said. "Hawai'i consumers have a propensity for value. That is why the category killers have continued to do so well here."

Advertiser staff writer Andrew Gomes contributed to this report. Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.