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Letter: Lessons from Target Canada for Argyle International Airport in St Vincent
Published on February 14, 2015 Email To Friend    Print Version

Dear Sir:

The media are regularly filled with reports of corporations that are either in dire financial straits, have actually gone into bankruptcy protection, or have had their distressed assets picked up by vulture funds to be torn apart and sold piecemeal to other investors.

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One of the less surprising of these reports was the announcement last month (January 15, 2015) by the Canadian subsidiary of the huge American discount department store chain, Target Corporation (1,801 USA stores and 366,000 employees), that it will close all its 133 Canadian stores, putting over 17,000 people out of work.

Target in both countries carries clothing, shoes, jewelry, health and beauty products, electronics, bedding, kitchen supplies, sporting goods, toys, pet supplies, automotive accessories, hardware products, and seasonal items. The corporation competes directly against other discount retailers. In Canada, these include Wal-Mart, Costco, Loblaws, Sears, Canadian Tire, and Shoppers Drug Mart.

In its only international venture ever, Target opened its first Canadian stores in March 2013. Only 22 months later, the corporation threw in the towel after concluding that it cannot make any money in the cut-throat Canadian retail market. To date, Target has lost US$2.1 billion. Things were so bad that "Target Canada would have been unable to meet its employees' payroll for the week of January 16, 2015, if it hadn't filed for bankruptcy court protection from creditors according to court documents that it filed at the Ontario Superior Court of Justice." (http://en.m.wikipedia.org/wiki/Target_Canada).

Business commentators have offered several fairly obvious reasons for Target's failure in Canada, nearly all of them relevant to the similar fate that awaits Argyle International Airport (AIA) in St Vincent and the Grenadines (SVG).

These include: significantly higher prices for products than in the USA due to higher Canadian transportation, distribution, and fuel costs; customer disappointment that products were much higher in price and variety much lower than in the US stores these customers usually frequented; a lack of familiarity with the very different Canadian market; chronic supply-chain problems resulting in empty shelves for weeks on end; uncompetitive prices compared to Wal-Mart Canada and others; poor marketing and no online sales presence.

Target, in one form or another, has been around since 1902. It is second in size in the United States to global giant Wal-Mart. Canadians flock by the thousands every year to shop at its American stores, an important factor behind its ill-fated foray into Canada. It has hundreds of very bright senior managers, directors, and external consultants.

But still Target Canada failed just as many expect AIA to fail.

It is well known that government-owned enterprises like AIA have a significant advantage over their private-sector counterparts because the former are able to circumvent market discipline based on the law of supply and demand by arbitrarily raising taxes on their citizens, wildly borrowing money from local banks and all manner of international lenders, capriciously selling public land and floating potentially worthless government bonds, and so forth, when their often misguiding business ventures or foolish nationalization projects go awry. Even when sovereign nations default on their loans, they never go out of business, so to speak, they just shrug and move on.

Were Target Canada a Crown-owned corporation, it would surely still be running full steam ahead while burning up even more of the people's money. Still, this does not necessarily preclude comparing nominally publicly-owned entities (i.e., those that are government controlled and managed on behalf of the public) and truly publicly owned ones (i.e., those individually owned by one or even thousands of individual shareholders). Moreover, many of the former are regularly converted into the latter (where they generally prosper) and vice versa (where they generally flounder or fail).

1. Conception and Rationale

In 2004, SVG's largest and only truly international business venture (the Ottley Hall marina was meant to service mainly the Caribbean market) was conceived when the Honourable Prime Minister Ralph E. Gonsalves decided to build AIA. Of course, the idea of a real international airport (as opposed to the regional airport at Arnos Vale) had been bandied about for decades. But it was only this prime minister who had the vision and tenacity to put the idea into practice.

Similarly, while Target came to Canada only in 2013, rumours were circulating since at least 2004 about its interest in expanding there. Presumably, both operations were preceded by careful thought and consideration. Without knowing whether Target had done a full-blown feasibility study based on mass-market research and focus-group interviewing, we know for certain that thousands of shoppers were spending millions of dollars annually at its American stores and that many of these shoppers were longing for a Target store closer to home, as reported in the media.

In the case of AIA, we know even less. About all we have been told is that:

It was August 8th 2005 when Prime Minister Dr Ralph Gonsalves addressed a gathering at the Methodist Church Hall on the issue of airport development in St Vincent and the Grenadines, and made clear the intentions of the government to construct an international airport at Argyle.

In what is now an historic speech, Prime Minister Dr Gonsalves addressed two crucial questions.

The following is a quote from Dr Gonsalves speech.

“Why do we need an international airport?

"I begin first by answering two queries posed by some persons:

o Does St Vincent and the Grenadines really need an international airport?

o And if we need one, can we afford one?

"Fundamentally, both questions are inter-related. Having studied this issue for many years, it is clear to the ULP administration and its leadership that the full realization of the potential of our country’s growth and development hinge on an international airport, among other vital considerations.

"The requisites of economic diversification and regional and international competitiveness demand an international airport."
(http://www.svgiadc.com/index.php/development/development-history)

At best, this is pretty thin gruel -- or pretty "long water," if you prefer the cook-up analogy -- since it doesn't answer either question. What actually is "the potential"? How would AIA lead to its "full realization" (whatever "full realization" means)? Exactly how does the country's "growth and potential hinge on an international airport"? What are the other "vital considerations"? What kind of "economic diversification" is being proposed? How would "competitiveness" be enhanced by building exactly the same thing all our neighbours have had in place for decades -- often with mixed or disappointing results -- in an already overcrowded, high-risk, seasonal market?

Given the size, complexity, cost, and potential risk of the project, each of these questions deserved a detailed, evidence-based presentation followed by a full public debate. None was ever given or even allowed.

2. Pricing and Products

AIA will face the results of all the price and product disadvantages of Target, and then some. Target couldn't supply the same products or the same prices in Canada that it did in the United States. Neither can SVG supply the same AIA spin-off products or prices as our neighbours.

Economies of scale have always constrained our economic growth and development. This is why many of our estate and peasant cash crops failed and the price of everything, including food, labour, housing, transportation, and, yes, even hotel accommodation is so high compared to many other Caribbean and nearby Latin American countries.

Price competitiveness is a very important consideration in the hospitality industry. The proliferation of Internet travel comparison sites (trivago, Hotel Planner, TripAdvisor, OneTravel, etc.) has made it very easy to choose and pay for the best value flights, accommodations, and attractions. Given the dearth of our existing mainland holiday operations and the lack of any evidence that they will soon expand, not to mention the paucity and relatively poor quality of our allied natural and human-made tourist attractions, St Vincent Island will long remain a comparatively expensive place to spend a comparatively lacklustre holiday.

A feature by feature comparison that anyone with an Internet connection can easily do of accommodation at the luxury all-inclusive Buccament Bay Hotel and Resort with any of the three elegant Sandals resorts in nearby St Lucia (which allows free access to the different facilities at all three venues) would show that the latter are a much better overall value, as is a vacation in St Lucia generally, given the scope and development of its tourism products.

Sandals, an upscale couples-only, all-inclusive Caribbean-based hotel and resort company, has just opened its first operation in Barbados and is planning to open another hotel-and-resort operation there very soon. A well established and globally respected holiday resort leader, Sandals would hardly even stoop to visit our scruffy mainland with an investment tour, let alone an investment promise. All we can ever hope for are dodgy enterprises like Buccament Bay's parent Harlequin, whose sales arm is now in liquidation.

At the economy end of the accommodation continuum, the value, choice, variety, and quality of hotels, guest houses, and private-residence rentals all have much to be desired in our country compared to other nearby destinations.

3. Expertise and Marketing

Target failed party because it had no experience with the Canadian market, including knowledge of the shopping habits of its potential customers. Canadians are generally more budget conscious and debt-adverse than their American neighbours, something Target's highly-paid executives should have known.

If we don't want to repeat Target's disaster in SVG, what are the concrete plans of those who will be charged with ensuring AIA generates a large passenger load? In particular, what is the projected post-AIA-completion increase in airline traffic -- three, five, and ten years down the road -- based on data collected about similar projects in similar environments elsewhere?

Has the tourism budget, especially overseas promotion, been increased commensurate with the increase in potential tourist interest a brand-new airport is expected to generate? Which countries and which types of traveler will be the focus? What will be the main attractions -- existing, refurbished, and brand new -- that will prompt visitors to come to a country they have never heard of? And, most of all, what is our current track record in providing an excellent mainland tourist product?

Not very good, judging from our existing cruise ship and airport arrival numbers. Not very good, judging from the grossly out-of-date video nauseatingly regurgitated 24/7 on our amateurish tourism television channel.

Do we even have the means, technical and personnel-wise, or the massive budget needed to attract tens of thousands more people to the mainland and then meet, if not exceed, their expectations, given our failure to do so with our mature cruise-ship industry? To be sure, there is a vibrant and flourishing holiday business in the Grenadines, largely a product of its inviting beaches, crystal clear turquoise waters, and local and international private development initiatives.

But tourism outside the mainland is irrelevant to AIA, since there is no reason to believe that those who now travel to the keys by plane from Barbados, St Lucia, and elsewhere would switch to AIA, given that the number and variety of flights to and from these other countries would always exceed those to and from the mainland.

More particularly, our regional hub, the totally renovated and expanded Grantley Adams airport in Barbados, is now one the finest and most comfortable airport in the entire Eastern Caribbean. With so many duty free shops, restaurants, private lounges, and other services, why would any long-distance traveller want to use the relatively small, bargain-basement AIA as an in-transit point instead?

And who is going to run AIA if and when it is ever completed? Many Vincentians were pleasantly surprised and heartened when the prime minister announced a few years ago that a private overseas entity would be contracted to manage the airport, given the public's perception of poor and indifferent performance by the current government personnel running E.T. Joshua Airport. Now we are told that airport management will be in the hands of "a new wholly owned government company ... staffed by a number of suitably trained and qualified persons" none of whom appear to have been selected as yet.

On the surface, it seems as if either the government and the airport development company were unable to attract qualified and seasoned outsiders to manage the airport or that these same authorities were afraid to give away decision making to an arms-length and impartial entity. Either possibility is worrying in an age where more and more public airports are being surrendered to outside specialists in the name of professional management, cost containment, and the avoidance of conflict of interest or outright corruption.

4. Supply Chain

Issues of supply have always plagued SVG and will continue to do so whether an airport is built or not. Again, much of this has to do with scale and level of development, since it is impossible to stock the array of hard goods needed, not to mention spare parts, for such a small, relatively poor population. This is also true of local food items, many of which are only seasonally available or prohibitively expensive.

But the most important part of the AIA supply chain is not how to fill empty shelves in the shops of Kingstown but how to fill empty seats on the planes that are supposed to land at Argyle. All scheduled airline flights start with no seats sold. The nagging question is what concrete plans have been made to minimize the number of seats that go unsold? Or is the ULP government simply going to pay for these unsold seats or offer other extortionary concessions, praying that years down the road these seats will actually be paid for by their occupants?

5. Competition

Competition killed Target in Canada. Competition will also kill AIA, even as the value-added from any new visitors is dwarfed by the airport's huge operational and ancillary costs. On the one hand, running a full-service international airport is a very expensive proposition; on the other, there are simply too many highly developed, moderately-priced, tourism-friendly winter holiday destinations in the Caribbean and elsewhere to choose from -- nearly all of whom have long retired their airport construction or renovation debts -- to allow SVG to stand out as a highly desirable place for tens of thousands of new foreigners to visit.

The entire Caribbean archipelago and surrounding area is brimming with all manner of desirable holiday destinations. Cuba, a relatively cheap but wondrous place to visit, has seen its tourist industry triple in recent years. If relations with the United States normalize, as many expect they soon will, there will be a flood of tourists from America, with serious negative implications for travel to well-established archipelago destinations, including relatively inexpensive tourism leaders like Puerto Rico and the Dominican Republic.

Where will this leave tiny and unknown St Vincent Island in the ensuing competition for visitors? Likely at the same place it is for cruise-ship passengers: dead last. This is no empty hypothesis; the fact is most Caribbean Sea countries with large cruise-ship visitors also have large overnight airline visitors and vice versa (http://www.onecaribbean.org/wp-content/uploads/6AUGLattab13.pdf).

Conclusion

In the short term, bankruptcy is a terrible thing. Target's 17,600 employees will soon lose their jobs. Many will also lose their homes when they can't pay their mortgages. Millions are owed by the corporation in unpaid taxes, rent, and debt charges. All these will take a great deal of time to clear up as the bankruptcy process unfolds. But in the long term, bankruptcy and the liquidation of assets that follows can have a cleansing and rejuvenating effect as vibrant, better-managed enterprises take their place, often hiring many of the very employees that were laid off.

Not so for most troubled government-owned commercial enterprises, which are resuscitated time and again by one fiscally-challenged government after another until they are finally euthanized or transferred to the private sector where they belonged in the first place.

And so it will be for AIA: a slow and painful death or a desperate distressed-asset sale to some yet unknown vulture capitalist.

****

ENDNOTE

This is the fourth in a series of seven essays on the folly of the proposed Argyle International Airport. The first three may be found at:

Get ready for a November election in St Vincent and the Grenadines! But which November?
Lessons for Argyle International Airport from Canada's Montreal-Mirabel International Airport
Lessons for Argyle International Airport from the cruise ship industry

C. ben-David
 
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Comments:

Vinci Vin:

Ben-David: This series continue to be beautifully presented, well researched and relevantly argued. You are doing a job that the opposition party failed to do when the airport issue first came about and are failling to do now. So you are serving our homeland as only a true patriot can do.

Thanks,

Vin

C. ben-David:

Many thanks, Vin, for your kind comments. I only pray that those who have followed these essays make up their own minds on the basis of the evidence, putting partisan politics aside, by just concentrating on the fundamental issue of whether we actually need and will benefit from AIA.

Observer:

Continuous attacks on AIA. While everyone is entitled to their own opinion, I found it strange that some people continuously wishing for the project to fail. God forbid if this were to happen, would those folks rejoice?

Well according to Caribbean News Now, Published on February 11th, 2015. "RECORD TOURIST ARRIVALS AND EARNINGS FOR THE CARIBBEAN IN 2014".

Wait there is more good news. "There was strong demand throughout 2014 and I am particularly pleased with our performance during the summer period when our growth rate was almost twice that of summer of 2013". That was the chairman of the CARIBBEAN TOURISM ORGANIZATION (CTO), RICHARD SEALY.

He went on to say: The 26.3 (MILLION) VISITORS REPRESENT 1.3 MILLION more than in 2013, itself a record year for the Caribbean . "These visitors CONTRIBUTED a record (US$29.2 BILLION) to the CARIBBEAN ECONOMIES, a 3.9 per cent rise over the US 28 BILLION that visitors spent in 2013".

"UNWTO FORCASTS INTERNATIONAL TOURISM GROWTH BY 4 PERCENT IN 2015. LATEST UNWTO WORLD TOURISM BAROMETER. FOR 2015, UNWTO FARCASTS INTERNATIONAL TOURISM TO BY THREE TO FOUR PERCENT, FURTHER CONTRIBUTING TO THE GLOBAL ECONOMIC RECOVERY. THE 4.7 PERCENT OVERALL INCREASE IS THE FIFTH CONSECUTIVE YEAR OF ABOVE AVERAGE GROWTH SINCE THE 2009 ECONOMIC CRISIS".

"BY SUB-REGION, NORTH AMERICA (UP EIGHT PERCENT) SAW THE BEST RESULTS, FOLLOWED BY NORTH-EAST ASIA, SOUTH ASIA, SOUTHERN AND MEDITERRANEAN EUROPE, NORTHERN EUROPE AND THE CARIBBEAN, ALL INCREASING BY SEVEN PERCENT. AS IN RECENT YEARS, THE GROWTH IN INTERNATIONAL TOURISM RECEIPTS IN 2014 IS EXPECTED TO HAVE FOLLOWED THAT OF ARRIVALS FAIRLY CLOSE (THE 2014 RESULTS FOR INTERNATIONAL TOURISM RECEIPTS WILL BE RELEASED IN APRIL 2015). IN 2013, INTERNATIONAL TOURISM RECEIPTS REACHED US$1,187 BILLION, US$ 230 BILLION MORE THAN IN THE PRE-CRISIS YEAR OF 2008".

This is from the UNWTO, website.

Tell us if the ULP upon assuming office in 2001, went about building AIA without consultations, surveys, debates, and expertise? My brother, you can write as much as you wish about the AIA. That is your rights. The realty is AIA is here to stay regardless of what you and others thinks. What I want you to do, is conduct a scientific poll and you'll see the results.

Am a sailor man who travels regularly. Over the years I've encountered passengers who told me that they've visited SVG on several occasions. Most of them speaks positively about SVG, and said they'll come again. I also gives them a copy of the latest INNS AND OUTS MAGAZINE.

C. ben-David:

Unfortunately for us, the record tourist arrivals for the Caribbean you mention don't apply to SVG which has seen a decline or stagnation in tourist arrivals over the past several years as have some other Caribbean countries including Babados.


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