By Craig T. Kojima, Star-Bulletin
Business is tougher for Yukio Yoshikawa, part-owner
of McKinley Car Wash, since a competing car wash
opened next door. It is an increasingly common
situation in Hawaii.
More Hawaii businesses
By Peter Wagner
are finding competitors
too close for comfort
Star-BulletinIT didn't seem neighborly when Kapiolani Express Car Wash & Lube opened on Kapiolani Boulevard last year, next door to the long-established McKinley Car Wash. The newcomer has been snagging 150 to 200 cars a day before they turn into the next driveway.
Nor was it nice when Office Max and Office Depot took up residence two years ago in Kakaako, across the street and around the corner from Fisher Hawaii.
"They weren't coming to be friendly neighbors," said Tim Hallaman, general manager at Fisher, first to arrive in the neighborhood. "We didn't shake their hands when they moved in."
It may be common on the mainland, but bare-knuckle retailing is something new in Hawaii. It's a battle that bodes well for consumers: Look for lower prices and better service, analysts say.
Currently wading into the fray is computer giant CompUSA, which plans to set up shop next summer on South Street and Ala Moana -- just a few blocks from the Computer City store across from Ward Centre. The largest company of its kind with 133 stores across the country, Dallas-based CompUSA Inc. several months ago opened a store in Portland, Ore. -- across the street from Computer City.
"It's not our strategy to locate nearby," said CompUSA spokeswoman Carol Elfstrom. "Our strategy is to find a site that is high traffic and easily accessed by our customers."
But increasingly, retailers are finding customers in the parking lot of a competitor.
"I don't think anybody's happy to get a competitor right down the street," said Nathan Morton, chief executive at Computer City and formerly with CompUSA. "But if we were unable to compete, we wouldn't be there in the first place."
Some who work at Computer City's Kakaako store are privately worried about the new competitor. They predict more price-cutting in an industry already operating on paper-thin profit margins. Banking on return customers looking for accessories and services, the store is selling computers at far below costs, they say.
While restaurants have long sought each other's company to share a critical mass of customers, only recently have competing isle retailers moved into the same neighborhood.
Consultant Marty Plotnick, president of Creative Resources Inc., says the combatants are drawn by land and zoning, not bloodlust. He notes that Kakaako, the focus of major redevelopment by the state in recent years, is at the center of Honolulu's retail district.
"This is all about the lack of land in Hawaii," Plotnick said. "No retailer really wants to be across the street from his competition."
Still, he predicts that in the battle for Kakaako, CompUSA Inc., which has $4.6 billion in annual sales, will swallow up the smaller Computer City, a $2 billion-a-year company.
While Hawaii's retail market is limited, it's lucrative, analysts say. "You have a very finite marketplace but per square foot it's doing 30 to 40 percent higher in retail (gross sales) than on the mainland," said Stephany Sofos, commercial real estate consultant and president of SL Sofos and Co. "It's very attractive to these mainland retailers, so they're going to come in and try to be a bigger and better store and capture that market."
Sofos predicts 30 to 40 new retailers will test Hawaii's waters in the next several years.
But if the close competition is good for customers, she says, it's not helping businesses -- especially smaller ones struggling with Hawaii's weak economy.
"We don't know who will survive," said Sofos. "Historically, when the big guys come in the little guys get hurt."
Gary Schweikhart, director of public relations at Office Depot Inc. in Boca Raton, Fla., likes the close-quarter competition.
"When you have close proximity among stores people can price compare," he said. "If Office Max has a product at a lower price than us, we'll not only match that price, we'll also give them 55 percent additional credit." Schweikhart said Office Depot -- the biggest U.S. office supply company with more than $6 billion in sales last year -- can outdo any comers.
But Fisher Hawaii, first to draw a large customer base to the area in the late 1980s with it's huge inventory and 50,000-square-foot warehouse, is up to the challenge.
"We believe if we go head to head we can win," Hallaman said. "It's going to come down to selection and service."
Hallaman is skeptical that the market will bear the new competition. "The more people that come in, the smaller the pie -- it's that simple," he said.
Plotnick says there's no doubt customer service will improve.
"The closer you are to your head-on competitor, the more service you will offer in addition to sales," he said. "When Home Depot opens up (near Dole Cannery in Iwiliei) ... I can assure you City Mill will increase the quality of their customer service greatly, or it won't survive."
At McKinley Car Wash, which has dominated the car wash business in Honolulu for 28 years, part-owner Yukio Yoshikawa says something's got to give. "Unless the economy turns around and business gets very good for both of us, one will probably have to go out of business," he said.
With more than 50 full-time employees, McKinley appears to be thriving but "looks can be deceiving," Yoshikawa noted.
"The net profit per car is small and expenses are large," he said.
But his new neighbor, Taiwanese businessman Sherman Hsieh, owner of Kapiolani Express, said he likes close competition. That's the way it's done in Taiwan, he noted.
"With businesses together, you can attract a lot of customers to the area," he said. "If I set up a car wash over here, people will have a choice."
