Retail Destination: Puerto Rico

by Kyle Bingham

Columbus discovered the island of Puerto Rico in 1499, I discovered it in the fall of 2010.  It was then that a colleague and I traveled to the island for three days in September to evaluate five sites for a U.S. based client looking to expand on the island.  We were armed with a rental car, a GPS system, and a local map.  I was not sure what to expect but I knew that the landscape would be unique.  It was also an opportunity to test my Spanish language skills from my freshman year in high school.

Before we started our fieldwork, we met with a local real estate broker to get the lay of the land and gain some local knowledge.  Based on his comments, the island is an active place for U.S. retailers.  Towards the end of our meeting I inquired about the unemployment rate on the island.  His response was interesting; “this is Puerto Rico, there is always high unemployment!”  Utilizing the U.S. as a benchmark, poor demographics are a constant theme across the island.  This fact alone should not discourage U.S. retailers as is evidenced by their shear presence.

On day 1, we started out from San Juan and traveled to the eastern portion of the island towards the cities of Carolina, Fajardo, Humacao, and Caugus.  As we drove through the towns that dotted the coast I was amazed by the lush vegetation, the state of the homes, and the number of U.S. retailers.   It was hard to grasp the incomes I was seeing on paper and through the window of our rental car.  Poverty was no doubt ever present in the towns and cities we entered.  Like many tropical areas, it is a story of the haves and have nots.  We saw much of this throughout the island.  The sprawling gated resorts were surrounded by lower income residences with bars over the windows.  In the small towns, Stray dogs and cats paroled the streets and in the bigger cities traffic often defied logic.  It seems everyone on the island has a car and it shows during rush hour.  This can be both a blessing and a curse for a potential site. As mentioned earlier, U.S. retailers were ever present.  The “Americanization” of the retail was so prevalent that we often had a hard time finding local retailers.  On more than one occasion we were hunting for a local Puerto Rican lunch destination to no avail.  In short this may be the reason so many national chains have done well.  Logistically, it is an expensive endeavor to open a business so that is where U.S. retailers have jumped in to fill the void.

Day 2 took us to the west side, and less densely populated side of the island, to cities like Arecibo, Aguadilla, Mayaguez, and Ponce. Due to the distance from San Juan, the cities seemed to be less influenced by tourist activities.  Again, there was no shortage of the familiar U.S. nameplates like Wal-Mart, The Pep Boys, Burger King, and Wendy’s.  In fact, we stopped inside the Wal-Mart in Hatillo, one of 9 on the island, and I was amazed at how busy the store was at 10am on a weekday.  The larger cities we passed through in Day 2 resembled modern, progressive cities like Mayaguez and Ponce, while smaller towns and cities seemed to be stuck in time.  The end of the day took us to Old San Juan where people first settled on the island.  Old San Juan represents the early days of retail with local shops all within walking distance and streets barely two cars wide.  It is a far cry from the many highways and roads that now trace the island.

Many of the same principals apply when evaluating sites in the United States and in Puerto Rico.  One has to evaluate the potential trade area, examine strategic considerations, and understand site characteristics and retail synergy.  However, strategic considerations were the leading factor when evaluating the 5 sites.  In an island setting, this is sometimes more important than site characteristics.

Someone had to be first on the island in terms of U.S. retailers.  This no doubt took a lot of courage because based on the available demographics; Puerto Rico would be an afterthought.  Instead, it has become a success story for many major U.S. retailers.  It seems despite the incomes and household values, and the cost of shipping goods to the island, there is a propensity to spend dollars at U.S. based retailers.

Following two days in the field, we were able to recommend a market strategy for our client.  That client is currently executing on the plan with several units to open in the next five years. Through our fieldwork for major retailers worldwide, PBBI has retail location expertise in all 50 states and around the world with offices in the United Kingdom, Canada, and Australia.