PacRim Marketing Group and PRTech President & CEO, Dave Erdman, discusses the ever changing trends of visitors/shoppers, development, and other issues affecting the health of Hawaii's retail industry with others at PBN's Retail Roundtable in February.

Dave spoke about travel and retail industry, specifically the impact of Chinese travelers and shoppers, the new visa extension, and laws affecting China's travel industry. The emerging Korean market of shoppers, as well as the importance of maintaining and growing share of the Japanese traveler market, also was discussed.

A summary of the Retail Roundtable and comments are in this March 13, 2015, PBN article:

"Retail, in my view, is a very simple business," says industry veteran Randy Yeager. "It's having a good product, presenting it well, and providing good service," he says. "If you do that, there's a market here and always will be."

Yeager was among eight authorities on the retail industry who gathered at PBN last month to talk story about one of Hawaii's hottest business sectors. They talked about the need to be "vertical," to understand and adapt to the changing demographics of the visitor industry, and to speak up against bad public policy. They discussed the impact of having hundreds of thousands of square feet of new retail space coming online within the next few years on Oahu alone.

And they talked about relationships. Smart retailers are using a combination of social media, e-commerce and bricks and mortar to build long-term relationships with customers from throughout the world, they said. And, while retailing may not be as simple as Yeager suggests, many are finding that it can be very rewarding if done correctly.

Dave Erdman
President and CEO, PacRim Marketing Group and PRTech

"Hawaii has a brand, and it's not just about hotels. All these retailers offer a great experience in Hawaii and we shouldn't be ashamed to talk about it."

PacRim Marketing, which celebrates its 25th anniversary this year, is a speciality marketing company with offices in Honolulu and Tokyo. PRTech is its multilingual marketing affiliate.
Dave Erdman said his company helps businesses, especially retailers who desire to reach Asian consumers directly.

Asked about the effect of Chinese buyers on local retailers, he said it's important to look at the travel industry first. He is excited about the additional flights from China and growing that market, but still thinks Hawaii is getting only a small share of the Chinese outbound market.

He said the U.S. visa requirements had been unfavorable, but the new 10-year visa extension has changed that. In the past, outbound Chinese tourists would want to experience U.S. culture by going to New York and the national parks. To go elsewhere, they would have to apply for a new visa. He said now he's hoping to get travelers to come directly to Hawaii.

He said Chinese travelers to Hawaii are mostly first-time visitors, but as they become more accustomed to traveling they will become more independent.

He noted that the affluent younger travelers will have the money, time and desire to travel. That will be good for retailers — studies show that shopping is one of their most popular leisure activities.

Shopping habits of the Chinese visitor also are changing dramatically due to policy changes, i.e., bribes. He said the practice of people buying 10 belts and 10 watches and taking them back to bribe a government official may no longer be happening; rather, they are buying for themselves. In Hawaii, Chinese visitors are looking for authentic products that have serial numbers, something they may not have in their own country.

It's important for retailers to build a relationship with foreign visitors, and it's not about being online or in a bricks-and-mortar establishment. For long-time loyal customers, retailers can build a database and market to them either the next time they visit Hawaii or by creating an online presence in their home country.

"When business is tough, they get on the phone and call them in Asia," he said.

— Jason Ubay

Josh Feldman
President and CEO, Tori Richard

"If you're not vertical, you're not a retailer."

Josh Feldman began working for Tori Richard in 1994. His late father Mort Feldman and his wife Janice Moody, and pattern maker Mitsue Aka founded the company in 1953.

Josh Feldman succeeded his father as president and CEO in 2003 and has been a key player in the brand's evolution from an exclusive women's resort wear brand to the 170-employee company it is today. Its products are sold in more than 2,500 specialty and department store locations around the globe, and it operates 17 retail stores.

To survive in the competitive sector, Feldman offered this advice. "If you're not vertical, you're not a retailer," he said, noting that there are hardly any independent retailers left at Ala Moana Shopping Center. The merchant who buys wholesale is a "dying breed," he said.

In terms of e-commerce, he said the "savviest" retailers integrate an online experience for their customers. The digital market gives retailers an exciting new way to stay in touch with customers long after they leave Hawaii, he added.

A Hawaii retailer's approach to the market will transform over the next couple of decades, especially with ongoing development in Waikiki and Ala Moana — about half a million square feet of gross leasable area will be added all at once.

Feldman said developers project earnings to increase steadily, and rising rents can be supported only by rising sales.

"You have a couple of elephants in the room, and I think the yen is a big one," he said. "Quantitative easing in Japan is here to stay for a long time. How do you reconcile this with occupancy costs in resort retail areas? I think the pendulum is definitely swinging towards tenants instead of landlords."

Eighty percent of Tori Richard customers are Mainland-based, but its island shops serve many Asian customers, with heavy traffic from Korea. A record number of Russian customers visited during the holidays.

Feldman believes Honolulu International Airport has enormous potential as a retail venue for visitors but is "consistently ranked as one of the worst in the world."

"It's really a lost revenue opportunity for the state," he said.

— Lorin Eleni Gill

Randy Yeager
President, Honolulu Cookie Co.

"What we've found is that our competition isn't necessarily other retailers; it's in other places that they would spend their money."

Long-time business executive and consultant Randy Yeager joined Honolulu Cookie Co. last year as president of operations just before it opened its first international location in Seoul.

Today, the company has 16 locations, including two in Las Vegas.A new Japan e-commerce platform is being introduced as well, so customers "don't have to worry about fitting [cookies] in their suitcase," he said, noting that it is a growing trend for retailers to deliver directly to tourists' home countries.

The former president and CEO of Crazy Shirts knows the importance of the tourism industry to any Hawaii company's success.

"Like a good stock portfolio, you want to have balance and [be in] different markets at any given time," he said, noting that hotel room rates have a big impact on retailers' wallets.

"What we've found is that our competition isn't necessarily other retailers; it's in other places that they would spend their money," he said. "It's kind of a zero-sum game. People come in with a certain amount of discretionary income to spend, and if the room rates are high, and food is expensive, or they are going to take excursions and side trips, maybe they have less to spend."

He said there has been an increase in customers traveling westbound to Hawaii, but selling to the Japanese market is increasingly challenging during their country's recession. He said it is important for retailers to strike a balance between their online presence and bricks-and-mortar locations. While retailers have incentive to push towards e-commerce because of rising rents, they should integrate both, because bricks and mortar will always remain an important component of sales, he said.

Honolulu Cookie Co. has utilized social media to give customers a "seamless" shopping experience, with consistency across all platforms.

"Retail, in my view, is a very simple business," he said. "It's having a good product, presenting it well, and providing good service. If you do that, there's a market here and always will be."

— Lorin Eleni Gill

Sheri Sakamoto
President, Retail Merchants of Hawaii

"We as retailers need to be more vocal and help the small local business owner be part of the community."

As head of the Retail Merchants of Hawaii since October 2013, Sheri Sakamoto advocates on behalf of approximately 3,000 retail businesses throughout the Islands. Part of that advocacy this year is trying to kill 20 or so pieces of legislation that the RMH sees as anti-retail.

One bill in particular, SB 234, got the retailers' attention by proposing to triple the hourly salary for employees who work on holidays.

"There's a lot going on [in the Legislature] that our businesses and retailers don't know or understand," she said. "What we're trying to do is help them see what's going on and realize that they need to be part of the process."

The organization's efforts to change the proposed legislation succeeded — SB 234's language has been amended to protect employees from suspension, discharge or discrimination for refusing to work on a holiday traditionally reserved for family gatherings.

Meanwhile, Sakamoto said she is worried that Hawaii is losing many small local boutiques that are important to maintaining its culture and environment.

"It's very difficult when we're either 49th or 50th in the U.S. to do business, and we're getting regulated, or charged up the yin-yang because our government and policymakers don't really understand how business works, which is unfortunate," she said. "We as retailers need to be more vocal and help the small local business owner be part of the community."

The nonprofit's members are collectively the single largest generator of the general excise tax, she says.
The retail sector is "ever-changing," especially in the digital age, she said, noting two types of customers: baby boomers with extra spending money, and millennials who buy nearly everything online.

The challenge for retailers is reaching both types of customers.

To aid retailers, the RMH is using a $125,000 grant from the state Department of Labor and Industrial Relations to hold training seminars on customer service, sales, employee recruitment, development, motivation and retention.

— Lorin Eleni Gill

Kent Untermann
President, The Art Source
Founder and Owner, Pictures Plus, California Closets, Island Sole

"As I look back, when I started at the swap meet 28 years ago and the opportunities then, I really feel bad for the young entrepreneur trying to start in retail."

Kent Untermann started his own business in 1985, mostly in vertical retail manufacturing. His companies now employ 209 workers and include 19 retail locations and a 43,000-square-foot manufacturing facility in Kapolei.

His businesses cover a broad spectrum of customer markets, and the strength of the market depends on what category it's in.

Untermann said, for example, that the Island Sole brand sells to tourists and the challenge has been the U.S. dollar.

"Waikiki has been on sale," he said, noting that the euro, Australian and Canadian dollars, and the Japanese yen have all had stronger valuations until about a year ago. Small items, such as cookies, may be insulated from currency rates, but higher-priced items such as aloha shirts, art and $70 slippers can become an issue.

Untermann estimates that there will be more than 700,000 square feet of gross leasable area coming online soon with Ala Moana, Waikiki and Ward redevelopments.

"I think if we really care about our local retailers, we need to do something about it because there's so much pressure," he said, citing high rents and construction costs.

He applauded Outrigger Enterprises Group for its support of local businesses, including Honolulu Cookie Co., Na Hoku, Tori Richard and Island Sole.

"You have [local retailers] on prime 50-yard-line [locations] because the Outrigger hasn't been greedy with the rents and has been fair and understands the big picture," said Untermann, a former University of Hawaii football player.

He thinks retailers should lobby the Legislature for a bill that would require landlords with a certain amount of gross leasable area to set aside part of it for local tenants. He said he doesn't know if his company would qualify, but he thinks it would be better for Hawaii.

"Normally, I don't like that kind of regulation, but I don't see it naturally happening enough with all of our landlords, and it's going to hurt our whole community," he said.

— Jason Ubay

Sam Shenkus
Marketing Director, Royal Hawaiian Center

"The days are over where you just open the doors and they just come in."

Sam Shenkus has been in Hawaii since 1984, working in marketing for Ala Moana Center, Aloha Tower Marketplace and Roberts Hawaii. She has been at the Royal Hawaiian Centerfor eight years.

With a recent OmniTrak survey showing consumer confidence at its highest level since before the Great Recession, and Hawaii's inflation rate lower than the national average, she said the effect on retail depends on who the customer is and what the business is selling.

"We have a joke that Honolulu Cookie Co. is really in the business of printing money," Shenkus laughed, noting its high volume of sales.

Another Royal Hawaiian Center retailer, Fighting Eel, may not have as high a sales volume, but it is laser-focused on customers, she said.

"They have a lower transaction rate, but they find that the Japanese and locals want to go into Fighting Eel," she said. "Maybe they buy one instead of two dresses — but they still buy."

Shenkus also commended Fighting Eel for its use of social media. A consumer, for instance, might see a handbag or other item online and then buy it either online or in the store.

"The days are over where you just open the doors and they just come in," she said.

Royal Hawaiian Center has a social media person on staff and does outreach in multiple languages. And, it's not just about followers.

"The key word is engagement," Shenkus said.

Through social media, Royal Hawaiian Center asks followers to post on holidays such as Mother's Day to get a discount — that drives engagement.

She said visitors still have money to spend on luxury items. For example, the new Harry Winston store at Royal Hawaiian Center is the company's largest in terms of retail space, she said.

"They have a diamond ring that's $11 million, and they let you try it on!" she said.

Opening its biggest store in the world demonstrates Harry Winston's commitment to Kalakaua Avenue and Waikiki, Shenkus said.

"We're being more aspirational as a destination," she said.

— Jason Ubay

Bobbie Lau
Senior General Manager, Ward Village Shops

"Our retail is a component of our community. We are banking on it being a component of a whole."

Bobbie Lau was appointed general manager of what was then Ward Centers in Honolulu in 2011. She is a former senior vice president responsible for the property management division of Colliers International Hawaii, formerly Colliers Monroe Friedlander, and now manages the Honolulu retail portfolio of The Howard Hughes Corp.

She noted that the Ward Village Shops caters more to residents than to visitors and will keep that focus as it grows. She said shoppers currently are about 70 percent locals and 30 percent visitors.

She called shopping a "flight to quality," with locals deciding whether to spend their $50 for an item at Nordstrom Rack or choose a one-of-a-kind item at a local retailer.

She said retaining tenants is critical because having dark space is not good for any shopping center.

"It's not us versus them," she said of the landlord-tenant relationship. "It's a partnership. It's important for us to sit with our retailers. We don't want you to go away. It's an infection if they start moving away."

— Duane Shimogawa

Brooks Borror
Managing Director, Commercial Consultants Inc.

"Average rents for neighborhood centers range from $4.50 per square foot per month to $5 per square foot per month, with common area maintenance charges from $1 per square foot per month to $1.50 per square foot per month. That's tough to pay."

Brooks Borror was vice president and partner at Bollenbacher & Kelton Inc., a Southern California shopping center development company, from 1986 to 2000 and moved to Hawaii in 2011 to open offices on the Neighbor Islands for CB Richard Ellis and Grubb and Ellis.

Borror and Nick Paulic opened a stand-alone office for CCI in 2011 after being exclusively contracted to Grubb & Ellis. CCI's speciality is in smaller shopping centers. He believes that Hawaii will be over-retailed for a while, and that it's currently a landlord's market, especially in neighborhood centers.

"There are multiple offers that I get from tenants when some square footage comes online," he said.

He noted that some shopping centers in West Oahu are nearly 100 percent leased.

"We have done a lot of work for Roger Dunn golf shops," he said. "They thought they would be replaced by Walgreen across from Ala Moana Center. But the Japanese walk across the street from Ala Moana Center to Roger Dunn. You never think that you would be selling snowboards or golf clubs to the Japanese in Hawaii."

He said there's a lot of interest in Hawaii from tourists, especially from Asia, mainly because the state is a safe tropical destination, and that helps retail sales. He's hearing from tour operators that visitors are looking for items that are unique to Hawaii.

— Duane Shimogawa