Commercial Trade

Retail Trade

Highlights

As the recession proceeds, retail sales barely increased, at an annual nominal rate of 1.0% during the first seven months of fiscal 2009, with inflation erasing the nominal increase.i
Employment in the wholesale and retail sectors declined at an annual rate of 6.1% during the first four months of 2009, after a small gain of 0.3% in same period of 2008.
Still, the retail market is fluid with Sembler's $78 million shopping center project moving, and upscale US retailer Nordstrom eying a possible site at Plaza Internacional in Carolina, a new multiuse commercial development in the works.
The main issue affecting retailers - and consumers alike - is the proposed changes to the Closing Law; in particular the provision for double-time pay for working Sunday.
In July 24th takes place the third increase in the federal minimum wage, which will boost the minimum wage by 70¢ to $7.25.

Overview

The wholesale and retail sales sectors are important in the local economy. As of 2008, they employed 159,800 persons, representing 16% of total non-farm employment. They account for 12% of total output (GDP). According to the 2002 Economic Census for Puerto Rico, the Island had over 13,700 wholesale and retail establishments that reported $37 billion in sales. Moreover, a significant amount of investment has taken place in commercial development during the past 35 years and today Puerto Rico has 18% of its retail space in shopping centers. On average, shopping centers achieved sales of $323 per square foot, above the average for the U.S. market.

Consumer spending provides the basis for wholesale and retail trade activity. It represents 89% of the Island's GNP. In fiscal 2008 it rose to $54.4 billion. Adjusted by inflation, it declined though at an annual rate of 0.5%, evidencing the undergoing contraction in the economy since 2007.

During the first seven months of fiscal 2009, as consumer's adjusted their spending given the economic situation, retail sales registered a small nominal increase of 1.0% from last year. Sales of department stores and gasoline stations were the main drivers, growing at an annual rate of 6.1% and 10.3%, respectively. Dining out has taken quite a bite, with sales barely increasing at an annual rate of 1.8%.

Employment in wholesale and retail has taken its toll, too, declining at an annual rate of 6.1% during the first four months of this year, after a small gain of 0.3% in 2008.

The panorama, though, is not all bleak, with Sembler's $78 million shopping center project moving, and upscale US retailer Nordstrom eying a possible site at Plaza Internacional in Carolina, a new multiuse commercial development in the works, and fashion retailer F&F opening two stores in Bayamón and Carolina this year.

There is also the new 20,000-square-foot mall at Luis Muñoz Marín International Airport, which will house 22 stores. The project is part of a $14 million development at the airport that will add 100,000 square feet of new retail space throughout the island's busiest airport.

The key policy issue affecting both sectors is the proposed changes to the Closing Law, specifically the provision for double-time pay for working Sunday. This provision is being objected by the main trade organizations since it would impact negatively operating costs of business in the light of the coming increase in the minimum wage. The Senate approved in late June one new House amendment to the Closing Law for Puerto Rico. The House amendment permits businesses that increase Sunday employment by 5% for four consecutive trimesters to pay single time. All other amendments were rejected and the bill was returned to the House for further work.ii

Outlook

Not much is expected in the short-term in terms of more robust increases in sales and employment, until the economic situation improves and consumer spending moves into a more upbeat pace, although it is possible that the economic stimulus funds might provide some impetus, which would be felt more likely at the end of 2009 and 2010.

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