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Finally, Discount Chains Discover Hawaii : Retailing: Aloha State residents are finding wider selection and lower prices. Oahu even boasts Costco's best-performing outlet.

September 13, 1993|From Associated Press

PEARL CITY, Hawaii — Faux grass skirts and pricey Hermes scarves proliferate in the tourist boutiques that line Waikiki's clean-swept brick sidewalks. From here, it seems, Hawaii is a shopper's paradise.

But for the 1.1 million people who make their homes in the Aloha State, Hawaii can be a shopper's nightmare. Getting a good price on a garden hose or being able to choose from among a dozen different laundry detergents has been considered a luxury largely unattainable--until now.

Discount and off-price chain stores--from Kmart and Wal-Mart to Dress for Less--suddenly have discovered the island state and are rushing to build outlets and develop a loyal following.

"We are now being inundated with discount stores," said Doug Smoyer, who heads the Honolulu consulting concern Retail Strategies.

Mel Wilmore, president of Ross Stores Inc., called Hawaii the chain's "most exciting market because of its untapped potential." The company's first Dress for Less shop in the state won't open until November, but Ross Stores is so optimistic it plans to open two more outlets in 1994.

Clothestime Inc., which operates 502 apparel shops nationwide, has studied the market and is considering a Hawaii store. So is Marshall's, the Melville Corp. subsidiary.

Discount retailers have been expanding aggressively since the 1980s throughout the United States, but in Hawaii the trend is still in its infancy. So far this year, chain stores have opened or announced plans to open more than a dozen Hawaii outlets.

The proliferation of new stores is giving the state's choice-starved consumers a wide selection of merchandise for the first time, and competition promises to push down prices.

"A lot of stores sell the same goods," complained Katherine Ripper-Smith, who works for the state's Department of Health. "So not only do we have a limited choice of retail outlets, we also don't have a lot of different sizes or shapes and brands."

Most companies find the cost of doing business in Hawaii extremely high--some estimate it is at least 25% greater than in San Francisco, the nearest major Mainland city. Expensive and limited real estate and high labor and shipping costs had dissuaded many retailers from testing a market isolated by thousands of miles of ocean and scattered among eight islands.

But retailers are discovering that brisk sales and efficient distribution methods can more than offset operating expenses.

Some say Hawaii's retail revolution began about five years ago with the opening of a Costco Wholesale shopping club in an industrial park on Oahu. The store, which sells everything from food to clothing to hardware, racked up spectacular sales.

"Traffic was unbelievable," recalled Thomas Smyth, administrator for the state Department of Business, Economic Development and Tourism. "They were the first to come in with the bulk packaging concept and low prices."

The store became the best-performing outlet in the Costco chain, grossing what Smoyer estimated to be $1,600 per square foot, "an unheard-of figure." Costco opened a second Hawaii store a year ago.

Based partly on Costco's success, other big chains started to sniff around.

Kmart has been the most aggressive in establishing a presence. The retailer opened its first store in Honolulu last year, recording the biggest opening day in its corporate history. And sales in Hawaii consistently outperform the company average of $181 per square foot.

"Our real advantage is that we have tremendous name franchise," said Kmart regional Vice President Paul Hueber. Hawaii residents have been watching Kmart TV commercials for years, so "everybody knows about us."

Kmart opened a second store on Oahu in June and an outlet on the neighboring island of Maui the following month. By December, 1994, Kmart expects to have a fourth store, on the big island of Hawaii.

Kmart subsidiaries, including its Sports Authority athletic stores and Borders booksellers, are also opening branches. Hueber said there's still room to continue the expansion.

Wal-Mart, Kmart's most formidable rival, is also intent on seizing some of the market. Last month, it opened a Sam's Club warehouse center in Pearl City. A second Sam's and a Wal-Mart discount store are scheduled to open next year on Oahu.

Retailers in Hawaii must maintain larger inventories because they might have to wait up to two weeks instead of two days for merchandise to arrive. Goods shipped from the West Coast take about four days to cross the Pacific.

Despite higher transportation costs, most retailers are keeping prices down. Kmart district manager Dale Fishell said the chain "prides (itself) on having Mainland prices."

That's a big change for residents who enjoyed little price competition among retailers in the past. Electrical engineer Rick Beard used to buy beer only when it was on sale, and he'd pick up several cases at a time.

"You have to be prepared to pay dearly for items if you want them immediately," he said.

But some see a downside to the retail expansion. Smoyer predicted it will "wreak havoc on local businesses. Some will not make it."

Indeed, sales at Ala Moana Center, the state's largest shopping mall, slipped 0.8% in June as the mall grappled with low-cost competitors such as the new Sam's Club.

But Smyth, the state's economic development administrator, was upbeat. He sees Hawaii as being in the midst of a retailing boom likely to last several years before the market becomes saturated.

"It will end up with a sorting out," he predicted.

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