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BIG BOXES BRING SMALL PRICES TO THE CARIBBEAN

By Debra Hazel

Kmart’s Supercenter in Port of Spain, Trinidad, opens in May.

Caribbean islands long have been used to high winds and floods, usually from hurricanes. Now, the winds are of retail change, and the flood may soon be U.S.-based big-box retailers looking to serve a population desperate for reasonably priced goods.

In recent years, Kmart has opened Supercenters around the islands, and membership warehouse PriceSmart has also expanded. OfficeMax has opened units in the U.S. Virgin Islands, and other U.S.-based big boxes reportedly are coming to the region.

Not that the arrival of U.S. retailers to the Caribbean is entirely new: The now-defunct Woolworth had locations in the islands, and Foot Locker has been successful there for a decade.

Chains have traditionally initiated their offshore expansion in U.S. territories, where the laws are familiar. Troy, Mich.-based Kmart had a long history in Puerto Rico, then moved to St. Thomas and St. Croix, two of the three U.S. Virgin Islands.

“This is a hub for the English-speaking Caribbean, with a population of 1.5 million,” said Etienne Bertrand, president of St. Thomas-based developer Lockhart Caribbean Corp.

But now retailers are looking beyond the more than 2 million cruise ship visitors and employees that regularly visit the region; as the Caribbean has recovered from the storms that buffeted it in the 1990s, it is drawing chains looking to serve the often impoverished locals, who still comprise a viable market.

“We’re taking care of the poor,” said John Hildebrandt, executive vice president of operations at PriceSmart, San Diego, which has units open or planned in Trinidad, Barbados, St. Thomas, Aruba and Jamaica, as well as in Central America. “These markets are not buying televisions and DVD players. People have to eat and being able to have a mix to appeal to that side of the market is important.”

Kmart’s plans call for a Supercenter to open in Port of Spain, Trinidad, in May, and six stores to open in the Dominican Republic over the next two to three years, said Dale Apley, divisional vice president for international trade and affairs.

“These areas have seen tremendous economic growth,” he said.

Kmart has a high acceptance factor; Miami is easily reached from the islands, and many islanders have visited the stores in the United States.

“They’re shopping Kmart already and seeing Kmart commercials on television,” he said.

PriceSmart, a descendant company of The Price Club, opened its first membership warehouses in the Dominican Republic in 1999. In addition, it recently signed agreements to locate Payless ShoeSource units next to some of its island stores. The key demographic factor is the appetite for U.S. products, said Hildebrandt.

“The next factor is, is the GDP enough to support a store?” he said. Failing that, a large population can help. “The Dominican Republic definitely has a huge population that makes up for the GDP.”

Both Apley and Hildebrandt say that the expansion of each retailer will complement the other, as well as help the region. Kmart’s stores will range from 160,000 square feet to 180,000 square feet, and PriceSmart’s footprint totals between 40,000 square feet and 50,000 square feet.

“It’s the club versus the non-club situation, bulk versus individual items,” Apley said.

Kmart offers some 50,000 to 60,000 skus, while PriceSmart generally stocks 3,000 skus, Hildebrandt said.

“The combination of both formats sometimes complements each,” he said.

But retailers looking to enter the region must be patient with challenges different from mainland North America: in some cases, a poor local populace; higher construction costs because materials and labor must be imported; and strict building codes because of earthquakes and hurricanes.

But the largest problem may be the difference in the amount and quality of demographic information; retailers from the United States largely have stayed away because they cannot get current reliable data about the various markets in the region. Mom-and-pop stores often do not report sales, and a strong underground economy exists in many locations, distorting income data.

“All the important documents are out of print,” said Tom Leung, a partner at development consulting firm Thomas Consultants, Vancouver, British Columbia, which is working on projects in Jamaica. “The offering is very weak, and you have to do a lot of leg work.”

Still, more big boxes are expected to enter the region. Rumors persist that The Home Depot, which already has units in Puerto Rico, will expand to other islands, though the chain would not confirm such plans.

Developers are continuing to build, as well. Lockhart is planning to expand two projects on St. Thomas: Market Square East will grow from 90,000 square feet to more than 200,000 square feet in mid 2003, and Lockhart Gardens will expand from 135,000 square feet to 200,000 square feet.

But expansion won’t be particularly rapid in some areas: Jamaica is about five years behind other islands, notes Thomas Consultants’ Leung. At the behest of the Jamaican government, his firm is consulting on Port Royal in Kingston, Jamaica, a retail/entertainment/restaurant complex of about 200,000 square feet to 300,000 square feet, to open in 2003 or 2004 at the earliest. The 200,000-square-foot Ocean Village Center in Ocho Rios is repositioning itself to better capture the tourist sector and also will open in 2003 or 2004.

“The current retail is not exciting enough to capture the tourist,” Leung admits. “We want to create something that is better rounded. The tourists want to go where the locals go.”

As always, the risk of overbuilding is present, but demand is great among locals, who want the same prices that tourists enjoy at home. The presence of the chains already is having a positive effect on the typically high prices in the region.

“The cost of living here is so high. Now the basics are getting comparably priced,” Bertrand said.

Toilet paper, which once cost 50 cents per roll, now is about 26 cents, much closer to mainland U.S. prices. That should encourage further retail growth; as prices for basics decline, shoppers will have more disposable income for other items, Bertrand said, a development “we all love.”

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