Retailers expect to be hurt more than in last war
By Andrew Gomes
Advertiser Staff Writer
As air raid sirens wailed in Iraq and Kuwait yesterday, silent alarms were going off in the heads of Hawai'i merchants who know the drill: Be ready for incoming sales declines.
Like the 1991 Gulf War and Sept. 11 terrorist attacks, the war in Iraq is certain to hurt the state's tourism industry and could, depending on the duration of the conflict, have a prolonged effect on consumer confidence and spending among residents.
"We're sitting on pins and needles," said Sharon Weiner, vice president for travel retailer DFS-Hawai'i.
Among retailers and restaurateurs interviewed yesterday, no one was comfortable estimating possible financial losses, but many expect damage to exceed that of the 1991 Gulf War because of the current war's more complex objective.
Merchants said they would respond more quickly to sales drops compared with Gulf War and Sept. 11 reactions that included layoffs, reduced hours of operation and other cost-cutting measures. But they also said yesterday it was too soon to take action.
Any drop in consumer activity over the first day or so of the war is expected to be from people closely watching live battle coverage at home on TV instead of taking in a movie or going out to dinner.
But hotels have been receiving room cancellations through yesterday and that is sure to trickle down to other businesses. An added worry is that fears of terrorist retaliation against the United States will keep more travelers at home.
"At this moment of course we're concerned, but the impact is minimal," said Paula Orr, general manager of Aloha Tower Marketplace.
On the Kaka'ako waterfront, fine-dining restaurant John Dominis was busy yesterday with 160 reservations — more than 20 percent above the daily average 130 because of several large groups. "I haven't had many cancellations — no more than usual," said receptionist Rose Saloricman.
Weiner of DFS said it will be difficult for weeks to measure the war's impact. But sales for the company's duty-free shops in Waikiki and at airports statewide are already down 17 percent year to date, compared with the same period in 2001. If combined with a drop similar to the 33 percent decline after the 1991 Gulf War, that would mean a 50 percent fall in business.
"You layer this war on the effects of 9/11 and that's a pretty grim outlook," she said. "We're going to wait and see how things evolve. If it continues, it will have a dire effect on our business."
DFS-Hawai'i's parent company, San Francisco-based DFS Group Ltd., already has debts of more than $500 million, including about $40 million owed the state for overdue rent and $350 million to majority owner LVMH Moet Hennesy Louis Vuitton.
Not everyone is convinced business will turn bad. Ron Fujikake, who runs four retail businesses, including Ukulele House and Dooney & Bourke, said several factors — Asia's deadly mystery pneumonia, perceived danger around North Korea and the recent typhoon in Guam — conceivably could lead more Japanese travelers to Hawai'i. The state's perception as a safe place with many travelers could also help sustain business.
"I think this is a great chance for Hawai'i to increase tourism," he said. "I don't think (the war) is going to affect us that much."
Mary Phillips, owner of the Flags Flying store in Ward Warehouse, said her business immediately picked up after the attack on Iraq Wednesday, and a line of customers had formed 15 minutes after the store opened yesterday at 10 a.m.
Phillips said many customers were replacing flags they bought after the terrorist attacks on Sept. 11 and she suspects that sales of
T-shirts, mugs, purses, earrings, watches, shorts and stickers adorned with American flags won't be as brisk as after Sept. 11.
"It is too early to say," she said. "The next couple of days will set the tone."
David Allaire, senior vice president of TS Restaurants, said he isn't sure exactly what to expect, but he's prepared a plan patterned on helping the company's six restaurants on O'ahu, Maui and Kaua'i recover quickly after Sept. 11.
TS suffered a 20 percent decline in sales in the week following Sept. 11, but cost controls including a hiring freeze and deferred renovations led to a TS rebound in three months, with October-December finances better than the same three months in 2000.
Now Allaire said TS, which operates the popular Duke's in Waikiki, is ready to make hiring freezes, go on buying restrictions and adjust employee schedules.
"We're at the ready," he said. "It's all scenario planning. We can't predict the reaction to the war. So you just have to be ready."
Allaire also said TS has increased cash reserves over the past year to help the company weather another economic hit such as war, though he hopes the expected economic downturn won't be as dramatic or long as the fallout from Sept. 11.
"We're very hopeful that people are a little bit used to this sort of thing by now," he said.
Evidently, a lot of people aren't. Joann Watts of Ethel's Delicatessen on South King Street stocked up on rice and toilet paper at the Iwilei Costco store Wednesday, worried that the war against Iraq could interrupt the flow of supplies shipped into the Islands from the Mainland and she wouldn't have enough for her customers.
"If you look around you, that is what everyone is buying," said Watts as she pushed a cart filled with six 50-pound bags of rice to her car.
Patrick Chang, who owns the Nuuanu Open Market and operates a produce stand in the Manoa Marketplace farmers market, is also worried that the war could affect shipping lines. About half his produce is grown locally and the rest imported from the Mainland.
Robert Macdonald of the food distribution company Macdonald and Porter Inc. said shipping has not been disrupted by war since the second World War.
"There was a time, more back in my dad's day, the late '60s or early '70s, when there was a big West Coast dock strike that shut down everything. It lasted three or four months," Macdonald said. "With this war, if they did divert some ships to be supply carriers, there is still ample amount of ships in the fleet to continue on."
Brian Taylor, vice president and general manager of Horizon Lines (formerly CSX), said that despite increased security measure both here and on the Mainland, no disruptions in shipping activity are expected.
"It's possible that if there are random Coast Guard boardings of vessels prior to arrival, that could potentially delay arrivals a little bit, but I would not say of any great significant," Taylor said.
It is unclear whether the war will have significant impact on high-value items consumers were buying in record numbers last year, such as homes and automobiles.
After Sept. 11, home sales in Hawai'i increased. Today there are multiple offers on existing homes and hundreds of back orders on new homes.
New auto sales in Hawai'i fell sharply after Sept. 11 primarily because rental car companies curtailed buying. But business rebounded last year to the best year since 1990.
Jeff Morgan, customer care representative at BMW of Honolulu, said that except for people watching TV news in the reception area, yesterday seemed like a normal day.
"We sold nine cars on the 18th and four on the 19th, which is pretty good," he said. "We were busy."
At the First Hawaiian International Auto Show, which opened yesterday at noon at the Hawai'i Convention Center, Nissan Motor Corp. of Hawaii President Eric Miyasaki said there wasn't a line out the door like there was last year, but those in attendance appeared to be more serious buyers.
"I think we'll be all right," he said. "Assuming that the war will not be a prolonged war — if it lasts two or three weeks — I don't think there will be too much impact."
"The longer it lasts the more difficult it's going to be," added Aloha Tower Marketplace general manager Orr. "We hope it all is over pretty quickly."
Staff writer James Gonser contributed to this report.
Correction: Sales at DFS-Hawai'i duty-free shops in Waikiki and at airports statewide are down 17 percent year to date, compared with the same period in 2001. A comparison date was unclear in a previous version of this story.
