Major Retailers Fleeing Cities for Other Markets

Major retailers are abandoning cities to expand in rural areas and overseas, leaving inner-city residents eager to shop in well-known stores underserved, according to two studies released Thursday.

The Boston-based Initiative for a Competitive Inner City made its conclusions from a study that focused primarily on Atlanta, Boston, Chicago, Miami, Oakland, Calif., and New York’s Harlem, and one that surveyed 1,205 inner-city households nationwide.

According to the studies, consumers in America’s inner cities possess more than $85 billion in annual retail spending power, which accounts for nearly 7% of the total retail spending in the United States.

But that demand is largely unmet. Only a handful of national retailers, such as Sears and Pathmark, operate stores in urban America; virtually no discount chains such as Wal-Mart are located in inner cities.

“Prejudice in this country exists beyond social circles, it extends into business,” said John Konarski, vice president of research at the International Council of Shopping Centers, a New York-based trade group. “For many years, there have been stereotypes that cause retailers to shy away from opening stores in inner cities.

“But there is good money to be made in the inner cities,” he said. “People there need to eat, they need clothing, they need things for their homes, and they have money to spend.”

In fact, inner-city consumers spend about 21% more each year on men’s clothes and 24% more on children’s clothes than the average American shopper, the studies found.

Grocery store sales can be as much as 40% higher per foot in inner cities, while sales at drug stores in these areas can be as much as twice the regional average, the studies reported.

“Incomes in inner cities have grown dramatically, and people want to shop,” said Drew Greenwald, president of Grid Properties, which is building Harlem USA, a large shopping complex in upper Manhattan that will include a Disney store, Gap, HMV Records and Old Navy.

“Give them good stores, and they will come,” he said. “But when they can’t find them, they take their shopping elsewhere.”

There is some evidence of major retailers recognizing the buying power of inner-city consumers. Rite Aid has found great success with its Harlem store, where more prescriptions are filled than at any of the 110 other Rite Aid stores in New York City. Kmart’s store in Boston’s inner city is the highest grossing store for the chain in Massachusetts, according to the studies.

In Harlem, at least two major shopping projects are planned. Besides Harlem USA, developers are working on a retail complex in an old factory that will be anchored by Home Depot and Costco stores.

“For a long time, there was the myth that you couldn’t make money in inner cities because of crime, and people made less money,” said Konarski, of the shopping center trade group. “But some smart retailers are beginning to realize the huge potential that’s been virtually untapped in the inner cities.”

The studies were coordinated primarily by ICIC, the Boston Consulting Group and Management Horizons, the retail consulting unit of Price Waterhouse. The ICIC is a not-for-profit organization established in 1994 to encourage inner-city development.