Pent-Up Spending Energy

American Demographics, Nov, 1999 by Kendra Parker

Westgate Plaza, a shopping center in Lorain, Ohio, has seen better days. Fifteen years ago, the downtown plaza boasted two grocery stores, a discount department store, a drug store, and about a dozen other retailers. Today, it's known more for what stores it doesn't have than those it does.

Most people in Lorain now drive 20 minutes to a mall in the suburbs to shop, and who can blame them? It has everything they're looking for, from department stores to sit-down restaurants.

But soon, the city's nearly 70,000 residents may be able to shop closer to home. Westgate was recently purchased, says city planner Don Romancak, adding, "Some significant money will be put in to rehabilitate the center and bring tenants in." Those new stores will come none too soon. "I believe a lot of people would like to have a certain level of convenience in their neighborhood, be it a hardware store or grocery store," Romancak says. "We hear a lot of people reminiscing about how the downtown used to be, and how they'd like it to come back."

There are many cities like Lorain across the country, where local residents of economically distressed urban areas have been largely abandoned by the retail industry and forced to travel miles to shop. And those folks aren't just window shopping. America's inner-city neighborhoods possessed an estimated $331 billion in retail purchasing power last year - one-third of the total buying potential of the central cities in which they are located, according to a recent study by the U.S. Department of Housing and Urban Development. (Central cities are defined as either the city with the largest population in a metropolitan statistical area, or each additional city in an MSA that meets certain population, employment, and employment/ residence ratios.)

In most areas of the country, each person is served by 18 square feet of retail space, says Russell Pratt, president and founder of San Francisco-based Community Marketplace Development Institute, an organization that helps bring retailers into underserved urban areas.

In inner cities, that number drops to between 5 feet and 8 feet. In the 48 inner-city areas, including Lorain, where HUD found a "retail gap" - residents' purchasing power outweighed sales - retailers lost out on $8.7 billion in sales last year.

Although inner-city residents earn much less than their surrounding urban neighbors, they tend to buy relatively more. People who live in inner cities make just 54 percent of what other central city residents earn, but their expenditures are 62 percent higher, according to special analyses by the U.S. Treasury Department of the Bureau of Labor Statistics' Consumer Expenditure Survey. Consumer expenditures per residential square mile average $33,500 in a low-income, inner-city area, compared to $25,900 in other parts of the cities. In fact, those in inner cities spend 67 percent more on clothing and 89 percent more on food eaten at home than other central-city residents.

Not surprisingly, grocery stores have been among the first retailers to enter or strengthen their positions in these urban markets. Those chains include Pathmark, Stop and Shop, Giant Foods, and Safeway, as well as wholesalers like Rich Foods, Fleming Foods, and Certified Grocers. "In trying to get one person to make the first move, [community development organizations] tend to target grocery stores," says Eric Cohen, vice president of Arlington, Virginia-based CACI Marketing Systems, a consumer information and market research firm. "People use them as an anchor to build other retail around."

The Kroger Co., the nation's largest food retailer, has served inner-city residents for a number of years, says Gary Rhodes, manager of media relations. At the end of 1998, the chain operated 105 stores in inner cities, with more stores proposed for construction, he says. One of those new locations in downtown Detroit is part of an ambitious 23,000-square-foot shopping center called The Shops at Northeast Village. Several smaller, as-yet-unnamed retailers, including a video store, a dollar store, a take-out pizza chain, and a women's apparel retailer, are slated to join Kroger.

The Shops at Northeast, which is expected to open next year, will bring the suburban shopping experience to the inner city, says developer William Watch, president of First Commercial Realty and Development Co., Inc. in Southfield, Michigan.

"One of our battles was that the people in the city administration wanted us to rebuild the storefronts that were there," Watch says. "We didn't want to do that. We were buying them to tear them down, to build a shopping center with well-lit, secure parking, which would attract retailers like Kroger."

How do developers and retailers choose the best inner-city locations? Ultimately, population density is the biggest draw. At Home Depot's future location in South Los Angeles, at the new Chesterfield Square shopping center, 1 million people live within a five-mile radius of the site, and 500,000 people live within a three-mile radius. The area's average income is $38,000. In addition to focusing on income levels, CACI's Cohen says retailers considering inner city sites often examine other demographic elements that may affect sales, such as age, ethnicity, number of children in the household, crime rates, traffic volume, and the propensity of area residents to buy certain types of products.