Wal-Mart, Target rethink Puerto Rico expansion plans
Retail giants Wal-Mart and Target have had second thoughts about their plans regarding Puerto Rico, with Wal-Mart reconsidering its intention to open more stores on the island for the foreseeable future, while Target has called off a long-intended entry into the local market, according to industry sources close to both companies.
Among the reasons for the change in plans in both retail chains is the recently enacted gross receipts tax, or patente nacional, which seeks to raise nearly $1.5 billion in additional revenue, as well as a bill pending in the Legislature that aims to protect small and midsize businesses (pymes by its Spanish acronym) by imposing additional requirements to establishing so-called "megastores," which has already been approved by the House.
The downgrade of Puerto Rico debt to junk or noninvestment rating, which took place in early February, has further compounded the situation for both retail chains, with Target scrapping its plans to enter the Puerto Rico market after long-rumored plans to do so, sources said.
Regarding the patente nacional, Wal-Mart stated back in December that the approval of the new tax made it reconsider its investment plans on the island. "The patente nacional has raised our taxes by more than 70%, leading us to re-evaluate the expansion of our operations on the island," Wal-Mart said in a written statement signed by local Wal-Mart Corporate Affairs Director Iván Báez.
Another big thorn in the side of prospective chain establishments is House Bill 545, co-authored by House Speaker Jaime Perelló, which was approved by the House shortly before the December recess.
The bill, if approved by the Senate and signed by Gov. Alejandro García Padilla, would require an economic-impact study for any company that wishes to set up a retail outlet falling under the bill's definition for a megastore.
The study is to be carried out by the local Permits & Endorsements Management Office. If the study finds that nearby local businesses would be affected, the permits for the new store would be denied.
As it turns out, Wal-Mart and Target aren't the only big retail chains looking closely at ongoing developments in Puerto Rico, and not in a good way. A retail sector lobbyist, speaking on condition of anonymity, told CARIBBEAN BUSINESS that several representatives from top retail franchises arrived in Puerto Rico two weeks ago to talk with some legislators regarding Perelló's bill. By all accounts, talks on the matter were less than encouraging for the visiting executives.
Although some sources said Senate President Eduardo Bhatia has expressed some reservations regarding the bill, others believe Senate approval of HB 545 could be imminent. "Right now, the whole downgrade issue has postponed the matter at the Legislature, but it's a matter of time before they take it up again. Remember, this bill is Perelló's baby, and he is pushing hard for it under the assumption it will help the pymes sector," a source said.