DEAN SENSUI / DSENSUI@STARBULLETIN.COM Smyah Bodere handed out flyers for the Waikiki Gun Club, a business that caters to Japanese tourists. Bodere said the industry seems to have taken a considerable slump, even before Sept. 11.

Reinventing retail

Waikiki struggles to overcome
losing Japan's big spenders

---

By Russ Lynch
rlynch@starbulletin.com

The vacancy rate among retail space in Waikiki has nearly tripled since last year, but the tourist hub is far from fading.

A new report by Colliers Monroe Friedlander Inc. showed a retail vacancy level of 15.14 percent this month, compared with 5.22 percent a year ago and suggests retailers are making a big mistake by staking their future on a dwindling Japanese market.

But the commercial real estate company says retailers in the area are adapting to survive the decline in Japanese tourists since Sept. 11. Refocusing their marketing toward the booming U.S. West tourist market is working, Colliers said.

Some of the empty space is already filling, said Randy Yeager, president and chief executive officer of Retail Strategies Inc., a retail consulting and leasing firm whose portfolio includes the Royal Hawaiian Shopping Center, an upmarket and traditionally Japanese-oriented property on Kalakaua Avenue.

"Quite frankly we view it as an opportunity. Waikiki and resort retailing in general, including Ala Moana Center and the Victoria Ward properties, has for the last decade been oriented towards the Japanese," Yeager said.

Now Japanese visitors are down in numbers and spending power, creating a reason to refocus on the strongest group of tourists, in numbers and total spending -- those from the mainland, particularly the West Coast, Yeager said.

The vacancy rate in Waikiki has to be looked at in light of the overall trend for the district, with hundreds of millions of dollars being invested in new hotels and shopping facilities, Yeager said.

For example, Outrigger Enterprises is spending $300 million to redevelop the Beach Walk-Lewers area and Honu Group is about to open a $140 million upscale shopping center at the gateway to Waikiki.

Yeager also said the Colliers report's reference to 60,000 square feet of space opening up in the Royal Hawaiian Shopping Center because of the departure of two McInerny stores is premature.

So far only about 32,000 square feet is vacant and lease negotiations are under way for about half of that empty space, he said.

But it is time to look away from what used to be the best target, free-spending Japanese.

"The Japanese used to outspend the U.S. market 3 to 1 and now they're maybe 2 to 1. There are fewer of them and they are spending less," he said.

DFS Group tends to hang onto the idea that its biggest customers, the Japanese, need to be wooed back to Hawaii -- and its DFS Galleria retail complex in Waikiki.

But DFS concedes times are changing and Waikiki needs to be focused on the amount tourists spend rather than just the volume of visitor arrivals.

"It's no surprise. We're trying to get creative," said Sharon Weiner, DFS group vice president of administration.

"The problem is arrivals from Japan are down about 20 percent year-to-date through June. We spent $65 million on the Galleria with the idea that we would expand the Japanese business and with 20 percent fewer arrivals you have to figure that business is off by a similar amount," Weiner said.

DFS has gone a bit local in reaction, opening a shave ice store at the entrance to the Galleria and promoting T-shirts and toe rings as a way to get people into the three-story complex, she said.

But she sticks with the importance of bringing the Japanese back as the best economic answer for Hawaii. "In the short term, you have to sell to whoever's there but in the long term we have to sell to the high-spending Japanese," Weiner said.

The Japanese still spend more per capita in Hawaii than anyone else, she said.

Daily spending by Japanese visitors in July averaged $256 per person, according to the most recent state statistics. Visitors from the West Coast spent an average of $123.20 per day.

Outrigger Enterprises, owner of the Outrigger and Ohana hotels and by itself a major retailer in Waikiki, sees the need for change, said Eric Masutomi, the company's director of planning.

"A major transition is occurring in the retail market in Honolulu in general and Waikiki in particular," Masutomi said. The answer is to look long-term, he said.

The Colliers report, prepared by the firm's consulting and research director, Mike Y. Hamasu, said Oahu as a whole has not done badly, with a retail space vacancy rate now running about 5.3 percent compared with 6.33 percent a year ago.

Resort retailers suffered while those catering mostly to Hawaii residents actually saw their markets improve and vacancies decline, the report said.

"In what appears to be a losing proposition, many of Waikiki's retailers continue to rely heavily upon the spending habits of the Japanese tourist market," the report said. "At their peak, the Japanese have outspent other tourists on average by 200 percent to 300 percent. Unfortunately, the dynamics of the Japanese tourist dynamically have changed."

Healthy spending by Hawaii residents at regional Oahu shopping centers countered the Waikiki plunge the report said.

But, the report said, retailers in Waikiki "need to focus their merchandising efforts towards growing market segments," particularly the U.S. West.

Waikiki woes While retail vacancies are declining throughout Oahu, Waikiki, with its dependence on Japanese tourists, is having a tougher time. Waikiki retail vacancy rate Year Rate 2002* 15.14% 2001 5.22% 2000 8.47% *September 2002 Source: Colliers Consulting