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Costa Ricans Cautious on Holiday Spending

Consumers are spending less this holiday season, but retailers still expect growth for the year to be the same as in past years.

In the last 14 years, including 2008, the retail sector has registered a steady 4.5 percent growth. However, next year it is predicted to grow just 3.5 percent. Consumers are simply not going to be spending as much as in previous years.

The current world economic crisis appears to be contributing to the drop in sales in the retail sector but not as significantly as in other sectors, such as construction and real estate, says Alonso Elizondo, director of the Costa Rican Chamber of Commerce.

One retail company bucking the trend is PriceSmart. Costa Rican manager Manrique Ugalde says the retail giant’s sales during the last quarter of this year have increased over the same period last year, in particular this month.

“A big factor that has contributed to this increase is a significant rise from institutional sales,” Ugalde says. “We have seen more restaurants, hotels catering, and services operators come to our club stores.”

PriceSmart Inc. has four warehouse supermarkets in Zapote, Escazú, Heredia and Llorente, where everything from food items to electronics and electro-domestic products are sold to customers with memberships.

Ugalde cites perishable goods as the products with the highest sales during December.

Wal-Mart – a competitor that operates in Costa Rica as Más x Menos, Hipermás and Palí – declined to discuss its sales figures.

Consumer Jesús Cortez, a retiree who lives with his wife and his son’s family, says that despite the economic crisis, families like his would spend most of their income on food items.

“I plan to spend money on a few gifts for my grandchildren and whatever we need in the food department,” Cortez says.

The growth rate for durable goods, items such as appliances and electronic equipment, has shown a significant drop in sales, Ugalde says.

Some people have less income available right now while other people just want to be careful with their savings, Ugalde explains. College student Elizabeth Sotelo says her parents are being cautious by not buying Christmas gifts this year.

“My parents are keeping their aguinaldos (end-of-the-year bonuses) in their saving accounts in order to better invest them next year,” Sotelo says.

Many businesses have had to change their marketing techniques, says Elizondo, to sell what is currently in their warehouses.

“The sales people are seeing now are usually offered during the first few months of the year,” Elizondo said.

Elizondo explains that many businesses offering reduced prices and big percentage sales now could have had an erroneous inventory prediction for the last three months of this year.

Some businesses over-predicted their product inventory in May, Elizondo says.

“This can be a problem for businesses where inventories are not sold because they run on liquidity.”

Ugalde says his company was able to correctly predict their sales for the last trimester of the year.

“That was not our case. Anybody can confirm that we are almost out of holiday merchandise,” Ugalde says. “We were strong but we had a great deal of (inventory) planning.”

Workers are also feeling the slowdown.

“People are consuming and spending less,” says Reynaldo Valverde, a local mechanic. “People are having their cars fixed less and less. Some choose to wait until next year to see if the situation improves or, if the car’s repairs amount to too much, people are selling their cars instead.”

The hiring segment within the retail sector would also be affected greatly in 2009, Elizondo says. The chamber is predicting the creation of about 5,600 jobs, a drop of about 6,000 on average in each of the last 14 years.

“I was a bit worried when experts started talking about the possibility of an economic crisis,” Ugalde says. “However, we were fortunate to walk away free of harm.”

The retail areas highly affected are cars, electronics, appliances, food perishables and chemical products, Elizondo said. Sales of these products have had steady growth of 17 percent over the last 14 years. At the end of 2008, the sales of these items are expected to increase by just 11 percent increase.



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