An Analysis of Retail Markets in America's Inner Cities

RETAILinINNER CITIES
(WAL-MART SUPERCENTER, HOWELLL MILL, ATLANTA)
National retailers
have been moving,
albeit slowly, into
high-density urban
areas for much
of the past decade.
Wal-Mart is the
latest, and most
visible, company
to target this
emerging market.
(WAL-MART, CHICAGO)
kets require retailers and developers not only
to adapt their cookie-cutter suburban models
to suit urban conditions, including vertical
architecture, but also to gear the stores to
the preferences of diverse, multiethnic, multilingual
customers. Several pioneer retailers
already have blazed trails into select cities,
providing a model for others to follow. These
companies have shown that penetrating the
inner-city market is not as prohibitively difficult
as it once seemed, and that the reward
can be worth the effort. With retail venues in
the suburbs already well covered, analysts
suggest that inner cities are virtually the only
remaining domestic market with significant
growth opportunities.
Moreover, unlike the Chinese, residents
of U.S. inner cities already have well-honed
shopping instincts, arguably at least as well
developed as those of their suburban counterparts.
Clearly, Wal-Mart has recognized the
similarities of the new foreign and domestic
target markets and is adapting its rigid formats
to meet local needs.
Last fall, the Initiative for a Competitive
Inner City (ICIC), a national, nonprofit economic
development organization that focuses
on improving the economy in low-income
urban neighborhoods, published the findings
of a comprehensive study of retail markets in
100 of the nation’s largest cities. The inner
city is defined by ICIC as core urban neighborhoods
in which the poverty rate and unemployment
rate of residents are 1.5 times or
more than they are in their metropolitan statistical
areas (MSAs). The study, conducted in
collaboration with the Boston Consulting
Group, found that in inner cities with more
than 10,000 households, the retail market is
approximately $122 billion. It also found that
approximately 35 percent of that total, or $42
billion, currently is served by businesses
located outside the inner city. Unmet needs
range across all retail categories. Restaurants,
bars, and apparel shops are relatively well
represented in inner cities, but grocery stores,
pharmacies, and building supply centers,
among others, are still in short supply.
“The inner-city retail opportunity is
immense,” says Michael Porter, a Harvard
Business School professor who founded ICIC
in 1994. “Retail is one of the biggest economic
development opportunities in the inner
city. It has tremendous win/win potential for
both the community and retailers. But the
potential remains unheeded,” he adds.
The most recent study by ICIC follows up
on inner-city retail market research it had conducted
in 1997. When the two studies are
compared, aggregate totals suggest that little
has changed in the inner-city retail market
during the intervening years. Both the size
of the market and the size of the unmet
demand are relatively unchanged. But Porter
contends that the aggregate figures mask the
substantial growth of retail establishments in
individual cities that has occurred over the
past decade. According to the study, inner
cities in Boston, San Diego, Denver, Oakland,
Columbus, Ohio, and Harlem have significantly
increased both retail businesses and
retail jobs. In cities at the other end of the
spectrum—Buffalo, Louisville, Jacksonville,
Detroit, Memphis, and St. Louis, among
others—the retail supply gap has actually
widened, the study found. [The complete
study is available at www.icic.org.]
Explanations vary as to why certain cities
are able to attract retail establishments while
others are not. What is not in question, however,
is the positive impact that new retail
stores have on both inner-city neighborhoods
and residents. In inner cities where retail has
penetrated, improvements in both the local
economy and the physical environment are
easily detectable. The study found that in
the top 50 inner cities—in terms of retail
development—the size of the retail establishments
has increased by approximately 17 percent.
According to Porter, increased size is an
indication of both consolidation—folding
many smaller stores into a few larger ones—
and greater efficiency. Both trends result in
better service and lower prices for consumers.
Moreover, consolidation has produced more—
not fewer—retail jobs.
In most cases, retail development radically
improves the appearance of long-neglected
urban neighborhoods, replacing vacant, sometimes
contaminated, lots with new buildings
and a flow of shoppers. Sister Virginia Morrison,
executive director of the Grove Hall
Neighborhood Development Association,
located in Roxbury, Massachusetts, the heart
of Boston’s inner city, claims the five-acre
JANUARY 2007 URBAN LAND 99