Low Income Urban Areas Hold Untapped Potential, Retailers and Developers Say

Urban areas marked by lower income and higher population density have often been overlooked by retailers, according to executives at Starbucks and Nike, two national chains that are making a push into those markets. They say that beneath the surface, these areas represent an expanding opportunity with untapped and understudied buying power.

The characteristics of these areas require a unique business approach, executives say. U.S. consumer spending has increased 97 percent since 2000, with the highest levels of growth in underserved, minority markets, according to data from the International Council of Shopping Centers, known as ICSC. Hispanic Americans and African Americans held $2.8 trillion in buying power combined in 2018, while the buying power of Native Americas has grown to $115 billion in 2018, almost triple than in 2000.

“Not every retailer sees the spending power of urban environments, many have not figured out how to crack that egg,” Robin Zeigler, chief operating officer of Cedar Realty Trust, a landlord and developer of open-air shopping centers in the U.S. northeast. She made the comments during a panel discussion at the ICSC New York Deal Making conference in New York.

One category of retailer has picked up on the opportunity: the dollar store. Dollar General, Family Dollar and Dollar Tree, and low-price grocers.

"Aldi and Lidl combined will open 3,000 stores next year,” according to Nick A. Egelanian, president of retail real estate consulting firm SiteWorks. “The trend is income disparity and it is very real. It is a vastly growing portion of America that buys goods paycheck to paycheck, about 70 percent. Why do you think Walmart is the largest grocer in 65 percent of states?”

Athletic gear seller Nike and Starbucks, which typically carry higher-priced merchandise, are breaking into these markets in a different manner by developing a retail concept dubbed the community store. These stores hire most of their employees locally and work with nonprofit organizations, with a goal of spurring growth and fostering a deeper connection with their neighborhoods.

“Community stores are part of a special Starbucks initiative to support youth and economic development in diverse, underserved areas of the country. Each community store seeks to hire from the neighborhood and partner with local women- and minority-owned businesses. Community stores also feature classroom space to provide in-store job training for young people ages 16 to 24 who aren’t in school or working,” Starbucks wrote in a blog post about its 12th and newest community store, which opened in Dallas last week.

Rahel Fikre, store development manager for the mid-Atlantic region at Starbucks, said, “One thing we did differently in the last couple of years was start opening community stores. When we launched community stores we focused on areas of lower income in urban neighborhoods that lacked food services."

A similar idea on a smaller scale is furniture retailer Raymour and Flannigan, which hosts in-house community events like fundraisers and concerts in each of its 95 stores in the U.S. Northeast.

Nike and Starbucks are “the best examples of retailers in underserved markets, but they are an anomaly among retailers,” said Cedar Realty Trust's Zeigler.

These urban, low-income markets are underserved even though analysts say the United States as a whole has too much retail space. About 15.3 billion square feet of retail real estate exists within the U.S., of which 7 billion square feet are shopping centers, according to data from CoStar Market Analytics. The U.S. has about 24.5 square feet of retail space per person on average, compared to 4.5 square feet in Europe, Egelanian said.

To tap the opportunity, Nike Real Estate Manager Natalie Hooper said, "When we went into downtown Detroit, which at the time had negative growth, we went into a block with little going on and hired locally to be part of the community and to be authentic.” Its community store employees volunteer for initiatives such as the Boys and Girls Club, she said.

When building in lower-income urban markets, the importance of community engagement is critical, said Zeigler. For instance, when looking for untapped markets, Cedar Realty Trust focuses on “food deserts” or those areas in need of fresh food or close-by grocery stores, she added. As a byproduct of the structure of grocery-anchored shopping centers, they develop space for stores that provide food, sell convenience items and offer retail services.

“When you are a developer deciding to build in an urban community, you are really committing to that neighborhood,” Zeigler said. “To be successful, you have to reach out to key stakeholders in the community, local politicians, community leaders and residents, to hear their needs and wants and make sure the community is invested in what you’re building,” she noted. “You must make sure you are embracing that. That footwork is critical all the way.”

Dealing with a deteriorating state of buildings is also part of the footwork for developers or retailers going into some lower income markets.

“Space and capital is an issue in these markets, but we will put in the capital to make it work. We will invest in creative ways to make it work as a business case,” Hooper said. The Brooklyn community store opened in a former club and had to be gutted and retrofitted, for example.

Cedar Realty is in-development of a 1 million-square-foot, mixed use development in southern Philadelphia called South Quarter Crossing, which will have 800,000 square feet of retail, 27,000 square feet of office space and 210 apartment units. In Washington, D.C., it has built a 150,000-square foot shopping center called East River Park (pictured, above) and in August the company acquired an adjacent 62,000-square-foot retail property to expand the center.

“In our more urban centers where we have grocery-anchored shopping centers, there is protection from any digital divide,” Zeigler added, noting that Cedar Realty Trust’s developments are typically insulated from e-commerce. “This is not the consumer in suburban or wealthy urban markets doing online grocery shopping. In urban markets they don’t shop like that. They go at least once per week to the grocery store, sometimes more. In urban markets, they don’t shop on Zappos.com. They take their kids to the shoe store.”
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