Help Wanted - Hawaii's Economic Crisis



Hawaii’s field
of dreams: retail

Retailers worldwide believe
if they build it, we will come, but others
think there's a limit

By Rick Daysog
Star-Bulletin

Back in the early 1990s when local developers Dick Gushman and Duncan MacNaughton were building the Waikele Center, they were puzzled about what to do with a horseshoe-shaped part of the property.

They eventually decided to build a factory outlet center on the 214,000-square-foot parcel, even though they knew little about the outlet business.

In February, Gushman and MacNaughton's WCC Associates sold the popular factory outlet center to New Jersey-based Chelsea GCA Realty Inc. for $76.2 million, or an industry record $356 a square foot.

"We didn't know what a factory outlet was. I'd never seen one (then). I just read about them," said MacNaughton. "We didn't have a clue. Sometimes you just get lucky."

The blind-luck success of the Waikele factory outlet center highlights what's been one strong segment in Hawaii's struggling economy: retailing.

It also underscores the frenzied interest in the isles by large department store chains like Neiman-Marcus Group Inc., Nordstrom Inc. and Saks Fifth Avenue and other retailers like Pier 1 Imports Inc., Home Depot Inc. and Nike Town.

"Retailing definitely has been one of the bright spots (in Hawaii's economy)," said Pearl Imada Iboshi, state economist. "If retailing had not done as well, Hawaii might have done worse than it has."

State tax data show that retail sales amount to about $15 billion a year in Hawaii, making them one of the largest segments of the overall economy, Imada Iboshi said.

She said the retail sector has also been one of the few areas where job growth has been relatively steady during the past few years. Hawaii's retail industry directly employs about 113,250 workers, up from 98,400 about 10 years ago, according to the state Labor Department.

What's attractive about Hawaii's retail market is the strong mix of local consumers and Asian tourists, said Barry Goldsmith, managing director of Burberrys Limited, the London-based retailer of fine men's wear.

Some of these new retailers are eyeing Hawaii as a stepping stone to Japan, MacNaughton added. Others are already in Asia and want to use Hawaii as a bridge, said MacNaughton.

Goldsmith says Hawaii is well on its way to becoming a world-class retail destination for high-end retail. He likens it to Bond Street in London or 57th Street in New York.

Many of the big international luxury retailers like Chanel, Prada, Hermes and Louis Vuitton are already here, and their Honolulu stores are among the busiest within their chains. Goldsmith noted that the success of his company's 2-year-old Ala Moana store prompted it to open a larger Waikiki store last month.

What do you think?

"We view Waikiki as one of the top shopping places in the world," he said.

And there's plenty of room to grow, some retail developers said.

Hawaii has a ratio of about 9.3 square feet of shopping-center retail space per resident, compared to an average of 12.6 square feet per person in large metropolitan areas, according to Simon DeBartolo Group Inc., which is developing a $200 million retail and entertainment complex in Kakaako with Victoria Ward Ltd.

Tourist destinations such as Orlando boast a ratio of about 18.9 square feet per person.

Mitch D'Olier, Victoria Ward's chief executive officer, said that while Hawaii's retail industry is well represented at the high-end and discount markets, he believes there is plenty of room for retailers that cater to the middle.

There are a lot of national retailers such as the big department stores like Nordstrom and Saks, specialty retailers like Pier 1 and clothing stores like the Limited that are not represented in Hawaii. Attracting these retailers to Hawaii will help create a critical mass, transforming Hawaii into a major retail destination that approaches the likes of Singapore or Hong Kong.

Not everyone buys that scenario.

Marketing analyst Marty Plotnick calls Hawaii a "finite market" in which the tourism industry has shown little growth and its local market has been sluggish.

Plotnick points to what he called an ill-conceived plan by Horizon Group Inc. to redevelop Dole Cannery. The Michigan-based factory outlet developer recently wrote off a $32 million investment in the property.

Others cite the consolidation in the local off-price clothing business. Retailers like Marshalls Inc., T.J. Maxx and Clothestime all made big pushes here only to retreat, said Eric Tema, director of real estate at the MacNaughton Group.

"There are only so many visitors in Hawaii in a given day, and there are only so many local consumers," said Plotnick, president of Creative Resources Inc. "And that's all there is."

Paul Yonamine, managing partner at KPMG Peat Marwick, sees some tough obstacles in Hawaii's retail market -- especially in the Japanese-tourist market. Many American retailers are making a big push to open stores in Japan, bringing new competition to isle retailers, which in the past benefited from lower prices for American and European luxury goods.

That forces Hawaii retailers to stand out by offering unique features, such as more entertainment, and not just compete on price, he said.

"You don't want to go to a mall in Hawaii that looks the same as one in Los Angeles or Boise, Idaho," Yonamine said.



By Rod Thompson, Star-Bulletin
J.W.A. "Doc" Buyers envisions success
for diversified agriculture.



Diversity big,
even in farming

Diversified agriculture is growing
by leaps and bounds in Hawaii

By Russ Lynch
Star-Bulletin

One recent success story in Hawaii's changing economy has been diversified agriculture.

It hasn't replaced jobs lost in the wind-down of corporate agriculture, but it is growing fast and is providing a livelihood for a growing number of Hawaii residents.

State statistics show that diversified agriculture -- everything from ginger root, tomatoes and potatoes to the more exotic products such as durian and rambutan -- generated revenues of $276 million in 1995, the latest year for which figures are available.

That was a growth of more than 19 percent in 10 years. Over that same period, the value of sugar cane harvested statewide dropped 45 percent. The big turning point was 1992, when the value of diversified agriculture for the first time exceeded the value of sugar and pineapple combined.

"In March of 1993, I gave a speech about what agriculture would be like in the year 2000. We are so far ahead of schedule, it's unbelievable," said J.W.A. "Doc" Buyers, chairman and chief executive officer of C. Brewer & Co.

Buyers enjoys being described as a zealot about diversified agriculture.

More than 20 years ago, he realized that sugar wouldn't be around forever, and he has been pressing since then for more effort to go into alternative crops.

His company has been out of sugar since March 1996, when the closure of its 255-employee Kau plantation also marked the end of sugar on the Big Island.

"We did sugar because it was a good thing at the time," Buyers said. Companies kept sugar going for years after it became uneconomical to grow the crop on the rainy windward sides of the islands.

Sugar as a whole has shrunk from harvesting nearly 8 million tons of cane in 1987 with close to 4,000 employees to only about 4 million tons of cane and 1,800 workers statewide last year. While some of the sugar workers found jobs elsewhere in the corporations they worked for, the job loss was still substantial. In just five years, 1991 through 1996, sugar employment was cut in half.

Buyers says sugar is history -- at least on the windward sides of the islands where it doesn't get enough sun -- and it has to be put behind us. Diversified agriculture didn't leap forward until sugar was pretty much laid to rest.

"We had to be released from sugar," he said.

Economist David Ramsour calls it an "emotional" release and says the community has finally realized that most of sugar couldn't be saved and it's time to look for other things.

Those other things haven't provided the jobs that sugar did, but again, Buyers says, "We have to forget about all that." In other words, sugar is gone, the economy is different and it won't ever be the same again.

Buyers said Hawaii has the best climate in the world for agriculture, year round, and the expertise to do it well.

The "Hawaiian mystique" is a real marketing plus, and some of the rare and exotic fruits now being grown here have the potential to yield $40,000 to $50,000 an acre each year, Buyers said.

Corporate agriculture remains in thousands of acres of macadamia, papaya and some guava. Alexander & Baldwin Inc. converted former sugar land on Kauai into a 4,000-acre coffee plantation.

But diversified agriculture is the growth opportunity, Buyers said.

Brewer has 500 acres of bananas and 600 acres of papayas, but Hawaii has yet to develop orchards in a big way, Buyers said.

C. Brewer is encouraging small farmers to try crops on former sugar land along the Hilo Coast, and the area is now dotted with such farms.

Buyers says there is a real future in growing special fruits for sale outside Hawaii, exotic fruits that can command a high enough price to overcome Hawaii's costs and delivery charges.

And he sees a future in special products derived from agriculture in a world that is seeking, and is willing to pay the price for, organic, natural herbs and cures and nutritional supplements.

"The world is going strongly toward natural foods," he said. "I'm going to try to make the Big Island the wellness center of the world.

"If you grow natural foods there with the Hawaii name on them, boy, are you going to get a premium for it."

Never say die: Sugar's
still a sweet success

Star-Bulletin staff

Hawaii sugar is not dead.

Alexander & Baldwin Inc. still has faith in it. The company's 37,000-acre, 1,000-employee Hawaiian Commercial & Sugar Co. on Maui makes money, an A&B spokesman said.

There are two reasons it does well, sugar industry executives say.

One is location. Lying in central Maui, HC&S gets plenty of sun, unlike the cloudy windward areas on other islands where plantations have closed.

Another is investment. A&B poured $224 million into drip irrigation, factory improvements and other advances from 1976 through 1995 to keep it efficient.

Kauai still has three sugar plantations operating: Amfac/JMB Hawaii Inc.'s Kekaha Sugar Co. and Lihue Plantation and the Gay & Robinson Inc. plantation.

All sugar operations on Oahu and the Big Island have ceased.

How has the slump affected you?

Wes Fong, Attorney and president of the Chinese Chamber of Commerce

"Presently, Hawaii's economic slowdown has not affected my family's lifestyle that much since my law practice is not that dependent upon tourism or government spending. However, with a sense of prudent caution, we have limited our discretionary spending in regards to cost-conscious vacation destinations, postponing purchase of luxury items (my car will probably have to die before we get a new one) and just eating out less.

"However, even before becoming the Chinese Chamber president, I have seen a marked effort on our small businesses and those members who are salaried. It's a simple equation -- economic slowdown results in downsizing and loss of jobs or less income. The end result is less spending. We have seen it in the change of levels of contributions by our sponsors of the Narcissus Festival. We have seen it in the less-than-crowded restaurants, even in Chinatown, perhaps with the exception of Sunday dim sum. We have seen it in the complaints by merchants and Realtors. It has affected every social-economic strata of our population.

"I am also concerned that we are losing the talent of our younger generation. They are moving to the mainland. 'Why settle for low pay or no jobs when I can get a three-bedroom house and a good-paying job on the mainland?' they say. Do you blame them?"

Dubious Distinction

Honolulu ranked 161st out of 256
U.S. cities for export sales in 1994 despite
being the 65th largest city in the survey.

Source: Commerce Department




Wanted: Your comments
What needs to be done to help Hawaii emerge from
its prolonged slump? Write to us at Letters to the
Editor/Economy, P.O. Box 3080, Honolulu, HI 96802
or e-mail us at editor@starbulletin.com and share
your suggestions. Please include your
daytime telephone number.




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