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The Honolulu Advertiser
Posted on: Wednesday, September 25, 2002

Statewide retail sales down nearly $600 million

By Andrew Gomes
Advertiser Staff Writer

Statewide retail sales dropped nearly $600 million for the first six months of this year as wary consumers trimmed spending amid a sluggish and uncertain economy.

The latest 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.

But the figures also show that spending began to improve significantly in the second quarter in a sign that economists said supports the general trend of Hawai'i's gradually recovering economy.

"The spring months were difficult for many of us," said Mark Hollander, president and chief executive of Hawai'i retailer Crazy Shirts. "We've shown gradual sales increases over the summer."

The tax data — one of the first complete looks at how hard one of Hawai'i's largest industries has been hit in the wake of the Sept. 11 terrorist attacks — show that retailing has been one of the slower sectors to rebound.

The $18 billion-a-year industry represents a little more than 10 percent of the gross state product, and the six-month 6.5 percent sales decline was a significant contributor to tax revenue collections that dropped $109 million for the state's fiscal year that ended in June.

"(Retailing) still is not really back to where it was pre-9/11," said Pearl Imada Iboshi, the state's chief economist.

Still, while statewide industry sales declined by $578 million during the first three months of the year, sales were up $4 million in the April-to-June period.

Part of the reason for the second-quarter sales improvement could be new legislation that allowed some retailers to defer reporting of income and tax payments, according to Francis Okano, chief of research for the Tax Department. "Monthly payers deferred until the end of the quarter, and these taxpayer (filings) bunched up in April and July," he said.

Iboshi noted that July retail sales look good, and said she believes that there should be continued improvements in reported retail sales through the rest of the 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 to about 116,000 during the same period a year ago.

Paul deVille, president and chief executive officer of Hilo Hattie, said the company in the past two months has added 20 to 30 employees to its staff of 460 at nine Hawai'i and five Mainland stores, but still has not filled all the positions it had frozen since last September.

Sales also are not back to pre-9/11 levels, and may not recover this year, deVille said.

"August and September have been a little slower than what we had expected it to be," he said.

Paul Brewbaker, chief economist at Bank of Hawaii, said retail spending is recovering more slowly than some other sectors of the economy because it is heavily influenced by visitor purchases.

"The visitor counts did not recover from 9/11 until mid-summer," he said, adding that the main obstacle to retail sales returning to pre-9/11 levels is Japanese tourists, who are visiting in fewer numbers and spending less.

"That's where the hole is, and it ain't going to fill in fast, not at 120 yen (to the dollar)," Brewbaker said. "I'd be thinking about what to sell to locals and Mainland (visitors). Fast."

Doug Sanders, "paisano" partner at Italian restaurant Buca di Beppo, said the 80 percent split of kama'aina customers has definitely helped sales exceed expectations since the business opened at Ward Entertainment Center in January.

"I haven't felt it as bad as I think some of the retailers have," he said. Buca's weekly customer average started at between 4,000 and 4,500 in the first two months of the year, and has held steady at about 5,000 since mid-March.

At Nissan Motor Corp. in Hawai'i Ltd., sales are up 20 percent for the first half of the year. "Auto loans are pretty much at a 10-year low," said Eric Miyasaki, company president and chief executive officer. "The market is definitely a lot stronger than we thought it would be."

Brewbaker said residents have benefited from increases in personal income, low interest rates, low unemployment in sectors other than retail and prices for goods in Honolulu up just 1.1 percent during the first half of the year over the first half of 2001.

"The resident is OK," he said.

"They just refinanced their house and freed up a couple hundred bucks of monthly cash flow. They are tripping over Costcos and Home Depots on their way to Wal-Mart in the new SUV they bought for 0 percent financing."

Mike Hamasu, research and consulting director for Hawai'i commercial real estate firm Colliers Monroe Friedlander, said optimistic retailers leased 65,000 square feet of additional space on O'ahu during the first six months of the year, dropping the retail vacancy rate from 6.33 percent last year to 5.3 percent at the end of June.

In Waikiki however, the vacancy rate is 15.14 percent with 60,000 square feet of retail space available.

"It is a tale of two retail economies," Hamasu said. "The retail spending and job counts — these are all negative indicators, but there are retailers doing very well now."

Retailers such as McInerny and DFS Hawai'i have been among the hardest hit, while furniture and home-improvement merchandise retailers have been doing well.

Hamasu said purchases of furniture and other home-improvement merchandise have helped offset lower sales of fashion apparel and luxury merchandise favored by Japanese visitors.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.