California leader in diversification - discount stores in the Pacific states

Discount Store News, May 23, 1988

California Leader in Diversification

Encompassing five Western states, the nation's Pacific region is dominated by California, with the Golden State's diversification providing a strong base for survival under varied economic climates.

Washington, Oregon and Hawaii also provide strength to the region's general economy, but Alaska continues to struggle under the drop in oil demand and high unemployment rates.

Despite Alaska's negative drain, the region generally registers as one of the nation's strongest areas and local economists expect this trend to continue in the coming months.

The most recent unemployment level for the region, posted in March of this year, was 5.7 percent, according to the U.S. Census Bureau. And while unemployment has remained at low levels, 6.0 percent for all of 1987, the population has continued to grow.

As of July 1, 1987, the Pacific Region reached 36.5 million people, up from 35.7 million people in 1987 and up 14.9 percent since 1980. Leading the growth during the last seven years is Alaska, where population grew 30.7 percent, and California with a 16.9 percent growth. However, Hawaii's population sprang up 12.2 percent, Washington's grew by 9.8 percent and Oregon's numbers grew slightly, by 3.4 percent.

Typically Better Job Market

What drew many of the people to the Pacific region during this time was typically the better job market. Although many once-economically strained parts of the country have regained some momentum of late, most of these states still present some of the best growth prospects nationally.

Unlike many areas, the Pacific region holds a diversity of job sectors, ranging from the lumber industry in the Pacific Northwest to the computer chip business in Northern California's Silicon Valley to the heavy military/ defense spending in parts of Southern California.

Tapering in Defense Spending

While defense spending is expected to taper off somewhat in the coming months, economists and area retailers still believe the majority of the Pacific region will continue to prosper. Already the area is benefiting from the lower dollar value vs. the Japanese yen, with exports picking up and foreign investment pumping in new monetary resources.

The investment in the region is apparent in many areas, particularly Hawaii, because of its closer proximity to the Orient, and the state is expected to continue to receive further capital injections, according to Carol Bray, assistant vice president and regional economist for First Interstate Bank.

The Pacific Northwest is also benefiting from the lower dollar by increased trade and improved demand for natural resources such as lumber. After suffering from several recessions in the past, Washington and Oregon have taken steps to better insulate themselves from future downturns.

Lumber mills have been upgraded and modernized, and in Seattle, the economy is benefiting from recent large commercial aerospace orders, which will supply jobs over the next few years and will not be affected by defense cuts, explained Wells Fargo Bank economist Bob Skinkle.

However, as retail analyst Sarah Stack with Bateman Eichler, Hill Richards noted, there are pockets of prosperity throughout the region. While the coastal areas of the Pacific Northwest are prosperous, the eastern agricultural regions are still somewhat depressed.

Still, discounters have recently become more interested in the Pacific Northwest, entering markets well-established by local chains like Fred Meyer and Pay Less. This July, Target will open its first wave of stores in both Oregon and Washington and the chain expects to have 35 stores in operation within the next five years. ShopKo entered the market already and is planning additional stores.

While these chains invade Fred Meyer's territory, the one-stop-shopping retailer is still expanding, experimenting with varied concepts and is taking a limited version of its stores to some areas of Alaska. Alaska, however, remains depressed as the state still fights to overcome the oil price drop. According to Bray with First Interstate, Alaska will still see economic decline this year, but the drop should stop in 1989.

Beyond four Fred Meyer stores, the only other discounters in Alaska are Costco with one site and Price Savers also with one site-national retailer K mart is not in the state.

Most discounters have instead turned their attention to California, as the state remains the total population and job leader for the region. Population in California reached 27.6 million as of July 1987, with Los Angeles-Anaheim-Riverside Counties in Southern California holding 13.1 million people as of July 1986.

While general interest has held steady over much of California, it is the Southern portion which still rates most of the attention from retailers.

Here, discounting proliferates in all forms, from traditional discounters to membership warehouse clubs to small and large off-price apparel chains. Although the area formerly supported several general merchandise discounters, chains like Zody's and Gemco have folded in recent times leaving behind primarily K mart and Target.