December 22, 2014
Is Cuba in U.S. retail’s future?
While considering the lofty expectations and numerous hurdles, last week’s surprising move by the U.S. government to restore diplomatic relations with Cuba and re-evaluate the decades-long embargo may just create some opportunities for U.S. retailing and classic American brands.
The historic move also loosens some travel restrictions and allows some exports, including construction materials, farm equipment and telecommunications.
Congress has to approve any importing and exporting of goods in what promises to be a contentious fight. The communist nation likewise would have to accelerate economic reforms designed to expand private enterprise and attract foreign investment.
From an import standpoint, American brands may suddenly have the opportunity to sell to a nation only 90 miles away from the Florida Straits. Yet companies would be selling into an impoverished island nation where staples like meat, cooking oil and toilet paper are often scarce. While well educated and ranked equal to developed nations in health indicators, the average Cuban government employee takes home $20 a month. The nation’s infrastructure is crumbling, internet access remains scant, and the government controls the media. A hatred of the U.S. has been instilled into its citizens for decades.
A tourism boom, however, may offer opportunities to reach foreign tourists with American brands and boost the local Cuban economy. Lifting the embargo and a steady broadening of economic freedoms also promises to further develop the country, although issues such as human rights and free speech will be closely watched.
Cuba’s largest exports include sugar, tobacco products and nickel. Beyond baseball players, the big luxury items are cigars and rum.
The U.S. appears more eager to buy Cuban goods with many reports pointing to a "fascination" with Cuba. Part of that appeal is due to its proximity and the fact that many Cubans have migrated to the U.S. and brought much of its culture.
Part of the allure, however, has been because the island and its exports have been largely off-limits to Americans. Many are even wondering how demand may change for its treasured Cuban cigars if sales to the U.S. become legal. Gary Kolesaire, co-owner of The Tobacco Shop of Ridgewood, New Jersey told northjersey.com, "We always want the forbidden fruit. There’s your demand."
- A prudent shift toward Cuba – The Virginian-Pilot
- Travel, trade with the U.S. are among Cubans’ top hopes – Los Angeles Times
- Hope and some fear in Cuba amid thaw with US – Associated Press
- U.S. Eases Cuba Restrictions: What’s the Footwear Impact? – Footwear News
- Moran: Obama can ease regulations on wheat exports to Cuba- Associated Press
- What U.S. Companies Can Expect in Cuba – New York Times
- As US-Cuba relations thaw, fight for the soul of Cuban rum could begin anew – The Guardian
- From ‘I Love Lucy’ to pop music, Cuba’s influence on America runs deep – MSNBC
- Five Industries Set To Benefit From The U.S.-Cuba Thaw – Forbes
- Is the mystique of a Cuban cigar all smoke? – northjersey.com
BrainTrust
Recent Discussions
Discussion Questions
What opportunities would the lifting of the economic embargo with Cuba and ending the broad travel ban offer to U.S. retailers and American brands?
Poll
The chance for American retailers and brands to capture market share in Cuba depends on its residents improving their standard of living in a dramatic fashion. Low take-home pay and other standards of living make it hard to imagine a thriving trade in discretionary goods anytime soon. Last week’s policy moves open the door just a bit, but real progress is going to take years.
Frankly, it’s going to take a regime change committed to economic development even under the umbrella of a so-called “Communist” regime—similar to what has happened in China over the past 40 years—before you start finding a branch of the Gap on the Malecon.
It’s a double-edged sword unfortunately. The more we trade and the more we prop up the country, the more leverage we give to the dictatorship that rules Cuba.
Working in the grocery business I would hope our wholesalers that supply the Caribbean nations would see new opportunity. It could be a long time before Publix opens a store in Havana or Save-A-Lot has a new franchise. I’m encouraged by the retail success of major retailers in Puerto Rico. This territory is also extremely poor, residents dependent on the government for food and income, yet retailers have some of their best stores on the island. Opportunities are endless, but hopefully Cubans will eventually view us as they do Canadians and the British. Immediate needs appear to be cars and a Home Depot.
I don’t think the people living in Cuba feel pressure of living in a “dictatorship.” They do feel economic pressures. The world has changed a lot in 60 years.
I think we’ll find it going both ways, with Cuba returning as a tourist destination (and thus, a market for certain U.S. retailers—Home Depot, anyone?) and also as an exporter. Cuban cigars remain a real luxury.
Me, I just want to get down there to take some photographs before it morphs into Miami South.
I love seeing how my inner circle of colleagues are celebrating over “new markets” opening up in China and Myanmar but in the same breath talk about Cuba’s oppressive regime. Everybody has been doing business with Cuba in spite of the U.S. sanctions.
The biggest service will be information services for communication and marketing and financial remittance.
The most immediate opportunity for U.S. retailers and brands will be to support the American (and Canadian and European) tourists that are bound to flock to Cuba when all travel bans are lifted. I can easily see the drug store chains and quick-serve restaurants getting quick traction in the resort areas in and around Havana, and the duty-free and higher-end retailers building out a presence in the airport. On the brand side, the most likely categories to build an early presence will be entertainment and HBC, with sporting goods a quick follower.
Today’s Cuba does not represent an opportunity for U.S. retailers—commitment to socialism and lack of marked disposable income are structural hurdles. However, Cuba may offer a new production (cut/sew) opportunity for those footwear and apparel brands prepared to make investments and ready to market a “made in Cuba” campaign.
Regardless, this is a wonderful opening that will challenge business and politicians on both sides of the Florida Straits with immediate benefits to tourism.
In the U.S. there is likely to be a fascination with goods from Cuba and there will be a ready-made market for some favorite products from home among immigrants. There may well be some fascination with U.S. products in Cuba. However, knowing what will sell well in the market depends upon what we learn about Cuban consumers and how they change over the next few years.
Once the new Congress is in session, I believe the salsa music and the euphoria of a new era of cooperation and relationship building will come crashing back to earth. Once the new House and Senate are back, there will ultimately be many conditions and caveats added before the funding of an embassy and freer trade begins.
With that backdrop, I agree with Dick Seesel that until the brothers Castro finally succumb to secondhand cigar smoke and the vagaries of old age, there will likely be very limited economic opportunities for U.S. retailers and brands due to very little purchasing power from the masses.
On the other hand, with the price of oil and accordingly the economic support they receive from Venezuela waning, Raul Castro could be forced to concede to some concessions to activate positive economic outcomes from a U.S. relationship. I am not holding my breath, and would not put any near-term benefit from Cuba in my business plan until we see how this plays out.
It brings in a new market of 13 million consumers who will be starving for modernity and brands.
My bet?
When Raul Castro shuffles off to the People’s Retirement Home he’ll take most of the vestiges of Cuba’s Communist Party with him. The challenge—for both Cuba and marketers—will be developing the market rather than treating it like a gold rush in a Latin version of the Wild West.
Cuba isn’t going to—and probably shouldn’t—move from isolationist communism to pure free market capitalism. That might destabilize the island. But, that said, there are clear opportunities to fast-track the notion of a free market economy.
U.S. retailers may have some early advantage but I’m sure there are lots of Latin American retailers also eyeing the market and—as demonstrated by the Chinese, the Vietnamese and the Russians—former hardline communists sometimes make the best hardline capitalists when the flags change.
Reconciliation with Cuba is long overdue, it seems to me. Yes there are some old resentments between our two countries, but I believe both stand to gain from a brisk trade in goods and tourism.
Cuba needs manufactured goods and food that will help raise the quality of life for its people. It stands to gain tourism revenues that will help it pay for those items. Its exports will find ready markets in the U.S. too.
For decades, we have tended to demonize Cuba as an oppressive regime while at the same time lauding its vibrant culture. Talk about cognitive dissonance. A more open relationship with America will surely dilute both traits. With the inevitable arrival of American-style retail stores, Cubans stand to gain fuller pantries while sacrificing some of their unique identity.
The big question here is whether Cubans will embrace modernity and the freedom it requires. It’s hard to imagine that the average Cuban will want to cling to old ways in the face of all that Western culture has to offer. That said, it will take many years for Cuba’s economy to recover from the damage that has been done to it. Forever 21 may arrive before Neiman Marcus does.
Travel is already a huge industry for Cuba. Seems all my Canadian friends have been there-done that. I think we all have smuggled our share of Cuban cigars out of Canada and Caribbean countries. I don’t believe people in Cuba are living on $20 a month. They must be getting their food, housing and health care taken care of. If we are going to develop some trade with Cuba, their people will need to be in control of more consumer spending. Canada has had an open relationship with Cuba and I don’t see any Canadian Tire stores open or Canadian bank branches. So it could be just a one-way street of exports coming out of Cuba.
Although the economy in Cuba is anything but robust, Cubans would love the availability of many U.S. brands. Additionally, Americans have been breaking laws importing Cuban products for decades. This is a huge opportunity for both economies.
“…companies would be selling into an impoverished island nation.”
After the enthusiasm subsides, that pretty much sums it up.
Cuba is such a poor nation at this time. It is going to take several years for them to catch up and be able to export enough goods successfully. T-shirts and beach shoes are not going to bring in enough revenue to make the boat float. Once the economy starts to flourish, gambling will again be a big revenue tax producer.
The three necessary items for a retailer are disposable income, supply chain and locations. There is very little disposable income , there is no supply chain and the acquisition of sites will depend on political coverage which is risky, or financial coverage which is illegal for US firms.
Disposable income will not increase as long as the socialist model is static. The embargo is not going to be lifted under this congress without Cuban change and a more liberal congress is at least two years away. The shrinking cigar industry was lost to other Caribbean countries who now not only have better product, but also the brand names. Davidoff the premier European tobacconist long ago gave up on Cuban cigars because of their quality. Rum exports will be tough to increase with Bacardi’s Puerto Rican plant and the strength of cheap spiced rum with the 20s crowd. Tourism had been dependent on gambling and nightlife. Gambling is over saturated on the East Coast and the traditional show girl routines that made old Havana famous now survive only in the dowdier Las Vegas casinos.
If things start to improve, the first retailers will be larger hypermarket type stores in port cities that can import almost all of their product in containers. Think Carrefour in 1980.
If there is a mini revolution there still might be claims on property ownership. If land was purchased from the communist state it could be lost. In any event legal actions in a foreign country are always dicey.
It won’t happen overnight. But, American tourism and new housing will dramatically change Cuba. Retailers will immediately follow. Cuba’s Communism will quickly evolve into China’s version of Communism—full of great Capitalists. Cuba will be more transparent as the government can no longer control the transfer of information.
The opportunities will begin with an emerging middle class that the USA will create. The Cuban community in Miami will eventually ensure the bridge.
Miami will be negatively affected as Havana will become a compelling competitor for tourist, retirement and corporate dollars. Plus, many of the foreign dollars directed toward Miami will be diverted to Havana where greater growth/profit opportunities can be anticipated.
Think BRICC. Economic growth and stability will be Raul Castro’s legacy.
Cuba is a lower case third world country without the means to self sustain. Their offering to the emerging one world economy is, at present, low wages and cheap beach front property for development. The tools, technology and investment moneys needed to elevate the country’s infrastructure will be put in place as a long term investment with ROI at best a decade away. In short, this endeavor will attract visionaries with highly creative skill sets and an abundance of patience with a philanthropic zeal to sustain the magnitude of this effort.
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The chance for American retailers and brands to capture market share in Cuba depends on its residents improving their standard of living in a dramatic fashion. Low take-home pay and other standards of living make it hard to imagine a thriving trade in discretionary goods anytime soon. Last week’s policy moves open the door just a bit, but real progress is going to take years.
Frankly, it’s going to take a regime change committed to economic development even under the umbrella of a so-called “Communist” regime—similar to what has happened in China over the past 40 years—before you start finding a branch of the Gap on the Malecon.
It’s a double-edged sword unfortunately. The more we trade and the more we prop up the country, the more leverage we give to the dictatorship that rules Cuba.
Working in the grocery business I would hope our wholesalers that supply the Caribbean nations would see new opportunity. It could be a long time before Publix opens a store in Havana or Save-A-Lot has a new franchise. I’m encouraged by the retail success of major retailers in Puerto Rico. This territory is also extremely poor, residents dependent on the government for food and income, yet retailers have some of their best stores on the island. Opportunities are endless, but hopefully Cubans will eventually view us as they do Canadians and the British. Immediate needs appear to be cars and a Home Depot.
I don’t think the people living in Cuba feel pressure of living in a “dictatorship.” They do feel economic pressures. The world has changed a lot in 60 years.
I think we’ll find it going both ways, with Cuba returning as a tourist destination (and thus, a market for certain U.S. retailers—Home Depot, anyone?) and also as an exporter. Cuban cigars remain a real luxury.
Me, I just want to get down there to take some photographs before it morphs into Miami South.
I love seeing how my inner circle of colleagues are celebrating over “new markets” opening up in China and Myanmar but in the same breath talk about Cuba’s oppressive regime. Everybody has been doing business with Cuba in spite of the U.S. sanctions.
The biggest service will be information services for communication and marketing and financial remittance.
The most immediate opportunity for U.S. retailers and brands will be to support the American (and Canadian and European) tourists that are bound to flock to Cuba when all travel bans are lifted. I can easily see the drug store chains and quick-serve restaurants getting quick traction in the resort areas in and around Havana, and the duty-free and higher-end retailers building out a presence in the airport. On the brand side, the most likely categories to build an early presence will be entertainment and HBC, with sporting goods a quick follower.
Today’s Cuba does not represent an opportunity for U.S. retailers—commitment to socialism and lack of marked disposable income are structural hurdles. However, Cuba may offer a new production (cut/sew) opportunity for those footwear and apparel brands prepared to make investments and ready to market a “made in Cuba” campaign.
Regardless, this is a wonderful opening that will challenge business and politicians on both sides of the Florida Straits with immediate benefits to tourism.
In the U.S. there is likely to be a fascination with goods from Cuba and there will be a ready-made market for some favorite products from home among immigrants. There may well be some fascination with U.S. products in Cuba. However, knowing what will sell well in the market depends upon what we learn about Cuban consumers and how they change over the next few years.
Once the new Congress is in session, I believe the salsa music and the euphoria of a new era of cooperation and relationship building will come crashing back to earth. Once the new House and Senate are back, there will ultimately be many conditions and caveats added before the funding of an embassy and freer trade begins.
With that backdrop, I agree with Dick Seesel that until the brothers Castro finally succumb to secondhand cigar smoke and the vagaries of old age, there will likely be very limited economic opportunities for U.S. retailers and brands due to very little purchasing power from the masses.
On the other hand, with the price of oil and accordingly the economic support they receive from Venezuela waning, Raul Castro could be forced to concede to some concessions to activate positive economic outcomes from a U.S. relationship. I am not holding my breath, and would not put any near-term benefit from Cuba in my business plan until we see how this plays out.
It brings in a new market of 13 million consumers who will be starving for modernity and brands.
My bet?
When Raul Castro shuffles off to the People’s Retirement Home he’ll take most of the vestiges of Cuba’s Communist Party with him. The challenge—for both Cuba and marketers—will be developing the market rather than treating it like a gold rush in a Latin version of the Wild West.
Cuba isn’t going to—and probably shouldn’t—move from isolationist communism to pure free market capitalism. That might destabilize the island. But, that said, there are clear opportunities to fast-track the notion of a free market economy.
U.S. retailers may have some early advantage but I’m sure there are lots of Latin American retailers also eyeing the market and—as demonstrated by the Chinese, the Vietnamese and the Russians—former hardline communists sometimes make the best hardline capitalists when the flags change.
Reconciliation with Cuba is long overdue, it seems to me. Yes there are some old resentments between our two countries, but I believe both stand to gain from a brisk trade in goods and tourism.
Cuba needs manufactured goods and food that will help raise the quality of life for its people. It stands to gain tourism revenues that will help it pay for those items. Its exports will find ready markets in the U.S. too.
For decades, we have tended to demonize Cuba as an oppressive regime while at the same time lauding its vibrant culture. Talk about cognitive dissonance. A more open relationship with America will surely dilute both traits. With the inevitable arrival of American-style retail stores, Cubans stand to gain fuller pantries while sacrificing some of their unique identity.
The big question here is whether Cubans will embrace modernity and the freedom it requires. It’s hard to imagine that the average Cuban will want to cling to old ways in the face of all that Western culture has to offer. That said, it will take many years for Cuba’s economy to recover from the damage that has been done to it. Forever 21 may arrive before Neiman Marcus does.
Travel is already a huge industry for Cuba. Seems all my Canadian friends have been there-done that. I think we all have smuggled our share of Cuban cigars out of Canada and Caribbean countries. I don’t believe people in Cuba are living on $20 a month. They must be getting their food, housing and health care taken care of. If we are going to develop some trade with Cuba, their people will need to be in control of more consumer spending. Canada has had an open relationship with Cuba and I don’t see any Canadian Tire stores open or Canadian bank branches. So it could be just a one-way street of exports coming out of Cuba.
Although the economy in Cuba is anything but robust, Cubans would love the availability of many U.S. brands. Additionally, Americans have been breaking laws importing Cuban products for decades. This is a huge opportunity for both economies.
“…companies would be selling into an impoverished island nation.”
After the enthusiasm subsides, that pretty much sums it up.
Cuba is such a poor nation at this time. It is going to take several years for them to catch up and be able to export enough goods successfully. T-shirts and beach shoes are not going to bring in enough revenue to make the boat float. Once the economy starts to flourish, gambling will again be a big revenue tax producer.
The three necessary items for a retailer are disposable income, supply chain and locations. There is very little disposable income , there is no supply chain and the acquisition of sites will depend on political coverage which is risky, or financial coverage which is illegal for US firms.
Disposable income will not increase as long as the socialist model is static. The embargo is not going to be lifted under this congress without Cuban change and a more liberal congress is at least two years away. The shrinking cigar industry was lost to other Caribbean countries who now not only have better product, but also the brand names. Davidoff the premier European tobacconist long ago gave up on Cuban cigars because of their quality. Rum exports will be tough to increase with Bacardi’s Puerto Rican plant and the strength of cheap spiced rum with the 20s crowd. Tourism had been dependent on gambling and nightlife. Gambling is over saturated on the East Coast and the traditional show girl routines that made old Havana famous now survive only in the dowdier Las Vegas casinos.
If things start to improve, the first retailers will be larger hypermarket type stores in port cities that can import almost all of their product in containers. Think Carrefour in 1980.
If there is a mini revolution there still might be claims on property ownership. If land was purchased from the communist state it could be lost. In any event legal actions in a foreign country are always dicey.
It won’t happen overnight. But, American tourism and new housing will dramatically change Cuba. Retailers will immediately follow. Cuba’s Communism will quickly evolve into China’s version of Communism—full of great Capitalists. Cuba will be more transparent as the government can no longer control the transfer of information.
The opportunities will begin with an emerging middle class that the USA will create. The Cuban community in Miami will eventually ensure the bridge.
Miami will be negatively affected as Havana will become a compelling competitor for tourist, retirement and corporate dollars. Plus, many of the foreign dollars directed toward Miami will be diverted to Havana where greater growth/profit opportunities can be anticipated.
Think BRICC. Economic growth and stability will be Raul Castro’s legacy.
Cuba is a lower case third world country without the means to self sustain. Their offering to the emerging one world economy is, at present, low wages and cheap beach front property for development. The tools, technology and investment moneys needed to elevate the country’s infrastructure will be put in place as a long term investment with ROI at best a decade away. In short, this endeavor will attract visionaries with highly creative skill sets and an abundance of patience with a philanthropic zeal to sustain the magnitude of this effort.