US, UK retailers feel upmarket pinch

Posted On Monday, 15 April 2002 10:28 Published by
Rate this item
(0 votes)
Conventional wisdom among real estate investors has long been that making money out of retail property required both upmarket retailers and upmarket consumers
Conventional wisdom among real estate investors has long been that making money out of retail property required both upmarket retailers and upmarket consumers.

But the collapse of the luxury goods market last year, an event hastened by the events of September 11, is now causing some retailers and their landlords to rethink this mantra.

Geoffrey Booth, director of retail development at the Washington DC-based Urban Land Institute, says that even before September 11 the fiercely competitive retailing environment coupled with the unfettered development of new US malls had been forcing the issue on to the agenda.

'With everybody moving upmarket, there was a growth pattern that suggested retailers should move upmarket,' Mr Booth says.

The explosion in personal wealth in the US during the past decade made that strategy viable. But the recession, and the particular woes of the retail sector, are now forcing a rethink.

And that rethink, he says, is prompting retailers and landlords to reconsider the urban inner-city: a hub of high-density, low-income and frequently foreign-born shoppers.

'This is a matter of survival,' he says. Some landlords and tenants figured this out years ago. Michael Berne, a retail real estate analyst working for Thor Equities - an investor in urban ethnic markets - notes that some of the US's highest grossing centres in terms of sales per square foot are in working- class neighbourhoods.

New York's Queens Center, in the heart of its immigrant capital, claims sales per square foot of more than $900 a year, three times the national average. Kings Plaza Shopping Center, in Brooklyn, is reaping sales at more than $500 per square foot, in the top 1 per cent of US malls.

The latest US census data recorded sharp growth among African-American, Asian and Hispanic populations and has caused retailers to take notice. 'The census data made this move a no-brainer,' he says.

In short, retailers seeking to expand their markets need to reach out to working-class neighbourhoods.

'Lots of stores that traditionally focused on mall locations are now looking at urban centres,' he says. 'They have realised that poor people buy things too.'

The shopping strip along Fordham Road, in the largely Hispanic Bronx, 'has assumed mythical proportions in the real estate industry', he says. 'Outside of Manhattan, you can't get any better than that.'

Fordham Road now hosts Gap and Starbucks, solidly mid-market retailers, despite its largely working-class clientele. Indeed, according to data from the Initiative for a Competitive Inner City - a research organisation formed by Michael Porter, a Harvard University Business School professor - the US inner city is a golden opportunity for retailers.

ICIC says US inner cities account for roughly $85bn in spending each year, 7 per cent of all US retail spending, and that about 25 per cent of inner city demand is unmet by retailers.

A report by the ICIC and PwC, the professional services firm, concluded that inner cities - defined as economically distressed urban communities with median household income at least 25 per cent below the city average and a poverty rate 50 per cent above the city average - 'represent potential sales opportunities that can rival those of suburban retail developments'.

An ICIC survey of attitudes among inner-city shoppers, for instance, found that African-American households spend, in absolute dollars, roughly 20 per cent more each year on women's clothing than the average US household.

African-American shoppers bought women's athletic shoes more than twice as frequently as the average US shopper and men's athletic clothing more than four times as frequently as the national average.

US retailers are not alone in trying to exploit new markets in downmarket urban centres. Capital & Regional, the UK leisure and property specialist, has built a portfolio of malls catering to precisely that segment of the population in the UK.

Ken Ford, chief executive of the Mall Corp - a venture formed with Morley Fund Management to own and operate malls under its own Mall brand name - says that the sheer density of populations in some urban areas can make for highly profitable retail developments.

The Mall Corp's Wood Green Centre in west London, for instance, is located within a 10-minute walk for roughly 250,000 people.

'If you can provide a balance of experience and convenience on their doorstep, they will come to you,' he says.

However, Mr Berne warns that simply planting a shopping centre in a densely- populated urban area is no formula for success. On the contrary, most efforts of this type in the US have failed.

For centres to be truly successful, Mr Berne says, they must rely on more than those who live locally. Brooklyn's Fulton Street Mall, for instance, draws daytime shoppers from the municipal office buildings surrounding the area, while The Gallery at Market East in Center City Philadelphia has also been able to attract non-resident shoppers.

Meanwhile, the quality of the mall is also a determinant of its success.

'The number one thing these shoppers want is to be respected,' Mr Berne says. 'They can spot developers who just want to get them in and out of there in a hurry. They want their sensibilities and aspirations catered to. They want to feel they are just as important as white, suburban shoppers.'

Mr Ford agrees. 'They appreciate being appreciated,' he says.

Financial Times

Publisher: Financial Times
Source: Financial Times

Most Popular

SA property visionary John Rabie announces new global property joint venture

Mar 15, 2021
Capital, the Geneva based property investment, development and asset management-business,…

Repo rate unchanged at 3.5%

Mar 25, 2021
The Monetary Policy Committee has decided against altering the repo rate, deciding to…

Court finds against EAAB in battle for FFCs

Mar 16, 2021
Tony C
In a scathing judgement handed down from the High Court on 15 March, the failure of the…

KZN residential property market poised for upswing

Mar 15, 2021
Over the past three years, the KwaZulu Natal (KZN) property market has enjoyed…

SARB to hold but is a rate hike around the corner?

Mar 16, 2021
SARB_to hold_rate_hike
The South African Reserve Bank (SARB) is set to hold the repo rate at the 23-25 March…

Please publish modules in offcanvas position.