Wal-Mart, Retail Sector Has Much To Gain By Opening Cuba

Retail behemoth Wal-Mart Stores may not admit it but retail experts don’t doubt there is already a team in Bentonville mulling the opportunities that may await just 90 miles off the south Florida coast.

Political action is still in the early stages with respect to relaxing U.S. travel restrictions to Cuba for U.S. tourists, but the opportunities to open commerce with the island nation are openly discussed across multiple business sectors, including retail.

Dr. Raja Kali, professor of global economics at the University of Arkansas, told The City Wire that the stars are lining up for more open relations with Cuba. For example, falling oil prices have hit Venezuela hard – a country that was Cuba’s major supporting nation.

“Cuba has been left to fend for itself,” he said.

Kali said there is a huge economic benefit to Cuba at stake in working with the U.S. government to relax controls that could foster U.S. investment in the island nation.

The trade embargo imposed in 1960 by the U.S. has hurt Cuba, but it also has affected the U.S.

In a study published in 2012, the U.S. Chamber of Commerce estimated it cost the U.S. economy $1.2 billion per year in lost sales and exports. Cuban officials pegged the embargo’s cost to the island at $685 million annually.

RETAIL OPPORTUNITY
“Despite some obvious limitations — it is an island and a population with almost no current economic power still operating under a highly restrictive Communist government – Cuba does have over 11 million people and what can only reasonably be expected to become a substantial, and growing, number of tourists,” said Ryan Matthews CEO of Black Monk Consulting.

He said Cuba is a “nascent mega-market for retail, especially if capitalism begins to sink its seductive tendrils into the fertile fields of a post-Socialist society.”

Matthews said Cuba seems an ideal market for Wal-Mart.

“I’d be surprised if there wasn’t a team in Bentonville already working on a preliminary strategy. Walmart has learned the hard way about entrance into Latin American markets and it has vast institutional knowledge of how to cater to poor shoppers, balancing expectations and aspirations against dignity and respect. Seems like a no-brainer to me,” Matthews said.

Wal-Mart Stores did not return a request for comment on this story. The retailer is in its 60-day quiet period before it reports earnings Feb. 19.

INSIDE CUBA
Dr. Kali said Cuba is an anomaly in that it’s a tiny, poor island nation with a highly developed biosciences and health sector. He said Cuba is a major developer of vaccines that are used within the third world. He said there are opportunities for this sector within Cuba to flourish if trade with the western world is eased. This could put more money into Cuba’s economy. Also, the sugar, tobacco and coffee industries all hold potential for Cuba.

He said companies like Monsanto and Cargill could potentially work with Cuba to increase agricultural output with better efficiencies. Kali said Cuba trades with much of the world including Canada.

On the flip side, Cuban consumers have very little disposable income ($20 per month on average) and are in need of basic staples like cooking oil and toilet paper. Increasing the wealth among Cuban consumers could be done only if government controls inside Cuba are relaxed, he said.

He said economically the scope of opening Cuba would be on par with some of the European Eastern Block nations after the fall of the Berlin Wall in the late 1980s. Romania, one of those block nations, was closed off for decades but now has growing tourism, tech and financial services sectors.

“Cuba too, has a lot it could gain with these U.S. talks and potential easing of commerce barriers,” Kali said.

He said Cuban officials can look at Taiwan or Singapore to learn how small island export nations can win when they trade with consuming countries like the U.S.

TOUGH MARKET
No one thinks it will be an easy road into Cuba even if the U.S. government is able to relax trade and tourism rules and the Cuban economy begins to improve.

“Cuba is a complicated and volatile market, yet (President) Obama’s recent decision to open diplomatic relations might pave the way for opportunity,” said Carol Spieckerman, CEO of newmarketbuilders in Bentonville.

She said Cuba is an attractive market, not only because of its native population, but also the thousands of U.S. tourists and more than 1 million Canadian travelers who visit the country annually. Spieckerman said tourism should ratchet upward if talks go well and regulations and sanctions ease.

“At the same time, Wal-Mart would have to be ready for things to go haywire at the drop of a hat as any business operating there is subject to the whims of the state. Given that Internet connectivity is sparse and expensive, Cuba would not qualify as a market that Walmart could effectively address digitally, at least for the short term, so (physical) stores would be the answer,” Spieckerman said.

She doesn’t necessarily see the small formats as the way Wal-Mart might enter Cuba. Spieckerman said small stores set up to serve the tourists may look like a good way for retailers to tiptoe into the new market, but in so doing they could be be seen as more of a threat to local businesses than if Wal-Mart were to open a supercenter in Havana.

‘HUNGRY CONSUMER MARKET’
Carl Tannenbaum, chief economist with Northern Trust, said there is ample opportunity for American businesses if Cuba’s doors are opened.

“Major league baseball would be an early winner and of course tourism. But it’s important to note that U.S. hotels lost loads of money when Cuba closed its doors around 1960. They will likely tread cautiously if the doors reopen. Retailers like Wal-Mart also have an opportunity to get in on the ground floor of this largely untapped hungry consumer market,” Tannenbaum told The City Wire.

Jason Long, CEO of St. Louis-based Shift Marketing Group, also sees Wal-Mart “dipping their toe in the water in Cuba with new stores.”

“The upside may not be huge – at least initially, but the downside could be mitigated with a slower rollout. It would take time and energy to learn the market, but if there is a U.S. retailer who could pull it off it would be Wal-Mart. I also like the home improvement (and) hardware retail opportunities. I think Home Depot and the Hardware Coops would want to take a close look at Cuba as well,” Long said.

GOVERNMENT ACTIONS
The political arena is split on the topic of opening Cuba to U.S. tourism and commerce. But a bipartisan group last week introduced a bill in the Senate that seeks to lift the Cuba travel ban. U.S. Sen. John Boozman, R-Ark., was part of the bipartisan group.

The Freedom to Travel to Cuba Act of 2015 aims to legislatively address the administration’s proposal to loosen travel restrictions to Cuba and remove restrictions on banking transactions incidental to travel. An identical bill is being introduced this week in the House by U.S. Reps. Jim McGovern, D-Mass., and Mark Sanford, R-S.C.

“I really do believe that the way you change the world is through personal relationships. If we are serious about bringing real change to Cuba, we need to expose the Cuban people to our democratic ideals. That clearly hasn’t been accomplished with this travel ban in place. It’s outdated, inconsistent and lifting it would be a good first step toward overall reform,” Boozman said.

Boozman also has supported efforts to end the embargo of U.S. agricultural exports to Cuba because it would create new markets for Arkansas farmers.

Arkansas agri leaders quickly noted that the poultry and rice industries could benefit from more open trade with Cuba when the easing of restrictions was first revealed in December.

That said, Boozman says he would like to see Cuba work on improving human rights in country.

The Senate group stopped short of trying to lift the U.S. trade embargo against Cuba. Instead, they are taking baby steps forward and aiming for a smaller victory by trying to lift the ban on U.S. citizens and legal U.S. residents traveling to Cuba as tourists.

Last month the Obama administration eased restrictions on travel to Cuba for Americans whose trips fit into one of 12 approved categories, including educational, religious and humanitarian reasons. But only Congress can lift the ban on tourist travel to Cuba.

In December, President Obama announced that he and Cuban President Raul Castro would work toward normalizing relations between the two nations. The historic deal includes the establishment of embassies in Washington and Havana.

The president’s action has been opposed by Senate Majority Leader Mitch McConnell, R-Ky., and House Speaker John Boehner, R-Ohio. Only Congress can lift the trade embargo, approve a U.S. ambassador to Cuba and fund embassies there.