Waikiki Goes Hawaiian

It’s one step back and two steps forward as Waikiki retail finds a new look and feel for the next century.

January, 2001

What has a bout of the Asian Flu and a spell of American euphoria done to retail in Waikiki? At first glance, not much. On the one-and-a-half-mile strip of land fronting the Ala Wai Canal, in which retail activity has been valued at anywhere from $2 billion to as high as $6 billion a year, couture and kitsch both sell briskly—only a beach ball’s throw away from each other.

Little has changed in Waikiki retail during the past two decades, during boom and bust, because it probably didn’t have to.

But times are changing.

“In that 10 acres from Saratoga to Uluniu Street that strip is probably some of the greatest retail in the world,” says Stephanie Sofos, commercial real estate consultant. “It’s gone down from its high point in 1995, but it’s slowly coming back. Waikiki right now is going through a catharsis, meaning that they’re trying to re-evaluate who they want to be for the next century.”

In the midst of a changing visitor market—eastbound visitors are on the decline, while westbound visitor numbers are slightly up—retailers in Waikiki are realizing that changes must be made in order to stay alive in today’s competitive market. And as less dense areas on Neighbor Islands and foreign countries become more appealing options for tourists seeking a unique cultural experience, the Waikiki community is feeling a foreboding sense of urgency.

Back to the Future

The first manifestation of the new Waikiki will be unveiled next month when DFS opens its $65 million expansion to the Galleria Waikiki. The Galleria will feature a giant two-story walk-through aquarium, in addition to the unique Waikiki Walk, which features a wide selection of authentic Hawaiian fashions and island treats, in a historic Hawaiian streetscape setting. The shopping plaza’s main attraction will be a three-story replica of a 1920s cruise ship, called the Spirit of Aloha, in front of which local entertainers Tihati Productions will perform Hawaiian songs and dances nightly.Retailers may have different strategies to the problem, but the bottom line is they are united in their efforts to rejuvenate Waikiki as a way of stimulating retail. And with Waikiki hotel occupancy rates on the decline—down from its peak of 84.35 in 1995 to 79.67 this year, according to industry consulting firm PKF Hawaii—retailers across the board are rethinking their retailing strategies from the customer service level all the way up to product mixes.

The DFS Galleria Waikiki broke ground for its 182,000-square-foot complex in January 2000, with an expected opening this February. The $65 million budget includes renovations to the existing building, which DFS currently owns, and the 70,000-square-foot expansion of a shopping and entertainment center in the adjacent Nippon Shinpan Building. DFS President Bob Coe says, “The Galleria is a real destination attraction as opposed to just a shopping center. And we’ve had experience doing this in other places in the world.”

Live and Learn:

And according to DFS Hawaii’s Group Vice President Sharon Weiner, even though the expansion is in duty-paid retail, DFS’ main focus remains the duty-free business—which is primarily fueled by Japanese visitors, whose numbers in Waikiki have recently been lagging. According to the Department of Business, Economic Development & Tourism eastbound visitor arrivals in 1999 was 2.5 million, down 5.9 percent from the year prior while westbound visitor arrivals to the state shot up 6.1 percent last year to 4.2 million.The DFS Waikiki Galleria was modeled after similar retail concepts that were tested in Guam and Saipan, respectively “We’re applying all the learning that we’ve been able to do,” says Coe. So what has he learned? “Give them what they want,” he says. “They want to be entertained and have fun. Create a fun experience and they will come back.”

And while the resurgence of the westbound market has served as a catalyst for the Hawaiian-themed retail, the parallel decline in the Asian market has had a significant negative impact on the tourism-related retail sector. The department’s statistics reveal that Japanese visitors spend substantially more than U.S. visitors, to the tune of $286—versus $171—per day, respectively. “Still, anybody would have to be a fool to give up on the Japanese,” says Douglass L. Smoyer, president of Retail Strategies Inc., who specializes in Japanese retail. “And I don’t think that’s happened, but they’re just not the major player at the moment.”

Coe admits that he’s taking a big risk with the Japanese market, and has done a lot in terms of trying to understand why it’s shrinking. Coe says that DFS has surveyed both westbound and eastbound visitors, and according to Japanese visitors Hawaii has lost its appeal.

“Waikiki as an attraction is losing its lure,” says Coe. “It’s lost the aloha and the exotic, romantic magic of Waikiki … so we’re bringing it back.” “Ironically, even though the market is trading down, which is what DFS is doing, there’s all this activity going on in the luxury goods sector,” says Smoyer.

And one major player that is ready to take advantage of this activity in the high-end market is the Honu Group Inc. Its $140 million luxury goods retail complex, called 2100 Kalakaua Ave., will feature eight global high-end retailers, including J.P. Tods, Tiffany & Co. and Chanel. Five other retail spaces in the development are under letter of intent or lease negotiations. “I think people are looking for quality more now, and are willing to spend more money now to have something that’s nice that lasts longer,” Honu Group President Tom Applegate says.

“With this complex we’ve addressed a facility need for luxury retailers to go from very small stores and facilities—where their selections were heavily focused on the Japanese—to basically designing flagship stores with more selection,” says Applegate. The 110,000-square-foot project is set to open November 2002.

But will the long-term investment into the luxury goods market pay off for the Honu Group? “Absolutely,” says Sofos. “Because people who buy couture will always buy couture. It’s a market that’s not tremendously affected by certain recessionary pressures.” According to Sofos, the average retail store in the U.S. mainland averages about $285 per square foot in annual sales, and about $385 per square foot in Honolulu. High-end retailers, however, average about $2,000 per square foot in annual sales internationally.

And with an inviting street-front entrance fronting Kalakaua Avenue planned, the complex is poised for heavy traffic. Applegate says that the idea behind the design of the complex was to establish great architecture for each tenant to find their identity and fit into the context of Waikiki. Traditionally, couture shops in Waikiki have opted for a more sophisticated look, as opposed to Hawaiian-themed storefronts. The future tenants of 2100 Kalakaua, however, are trying something a little different. And that difference is what might also change the face of Waikiki for the next several decades.

“It (2100 Kalakaua ) is classic urban street-front retail design,” says Applegate. “And all of the tenants are intimately involved with the design of their store fronts.” Individual three-story retail “town houses” will be set back 30 or 40 feet from the curb and the surrounding landscape will project a Hawaiian sense of place. Cut lava benches, native Hawaiian plants, and Chanel handbags. “The merchandise you find in high-end retailer stores in Waikiki is the same in Florence, Italy. We don’t have control over that,” explains Applegate. “So the issue is really to make the experience approaching the store, in and about the store, much more intimate. Much more distinct and Hawaiian.”

Corporate Marketing Director for the Royal Hawaiian Shopping Center, Charlian O. L. Wright elaborates: “Show them something they can’t see at home. Visitors don’t want things that they can get at home. When you come to the Islands you want products that are representative of Hawaii.” The 20-year-old shopping center is 293,000 square feet with over 150 tenants. Wright says that they are looking towards improvement in the way of cultural Hawaiian and International events, re-tenanting a few available spaces, and working closely with the existing tenants to insure the right product mix and maintain a superior level of customer service. “Waikiki needs to get back to the friendliness we had before,” says Wright.

Clearly, Waikiki retail is being thrust into a period of transition by significant changes in the visitor market. But not all retailers can afford to make multimillion-dollar expansions and two- or three-year-long renovations. In fact most retailers’ dreams of renovations are quickly squashed by a combination of weak tax incentives and no guarantees on any return of investment. “We’re going through renovation right now in our Waikiki Shopping Plaza,” says Leighton Mau, president of the Waikiki Business Plaza. “The renovation costs are approximately $2 million, but a million dollars doesn’t buy you much nowadays.” The plaza will be anchored by a 6,000-square-foot Guess? Inc. flagship store and feature three other new tenants after construction is completed this month.

Also quietly chipping away at one of its 36 stores in Waikiki is ABC stores. “Waikiki’s getting kind of commercialized and rundown,” says Paul Kosasa, ABC Stores president. “It’s all part of the revitalization of the urban resort.”

Currently, only one store is under renovation, and costs have already exceeded $1 million. Kosasa says there will be approximately six stores up for renovation, “depending on how the business is.”

Like Kosasa, other major players in Waikiki are also waiting and watching. The Queen Emma Foundation once announced a plan to restructure the aging International Marketplace, but no further announcements have since been made. Liberty House has yet to come up with a plan for its Kalakaua store, valued at $50 million by owner JMB Realty Corp. And Mel Kaneshige, Outrigger Enterprises’ senior vice president and chief operating officer, says the proposal for a new retail/entertainment/restaurant development on Lewers Street is still on the back burner.

Several years ago, the late Hawaiian historian and visitor industry consultant Dr. George Kanahele called for a transformation of Waikiki that brings back a sense of culture, history and uniqueness. He called that sense of place “Hawaiianness.” Waikiki retailers may or may not have heard of Kanahele or his ideas but if the renovated DFS Galleria and 2100 Kalakaua Ave. are successful in the coming years, then the all-encompassing term Hawaiianness might have a new meaning: good business.

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