Retailers Jumping on the Latino Bandwagon
Major retailers are rushing to embrace a long-ignored customer base in Los Angeles County: working-class Latino communities.
National chain stores that have avoided these minority neighborhoods in the past are now elbowing each other to get into new shopping centers in such places as Pico Rivera, Norwalk and East Los Angeles.
The reason is profitability. Retailers that formerly insisted on locations in affluent or suburban neighborhoods have discovered that stores in so-called infill sites--the retail industry buzzword for working-class, urban neighborhoods--can perform as well, and sometimes better than, outlets in upper-middle-class areas.
“A lot of these retailers are looking for another avenue of growth and they are realizing the untapped potential of a lot of these working-class neighborhoods,” said Rick Kuhle, president of Vestar Development Co. of Phoenix, which is building new shopping centers in Paramount, Pico Rivera and Norwalk.
As for Vestar, “We are 100% sold” on the value of infill areas for new shopping centers, Kuhle said. The company began to explore these opportunities in the wake of the success of an earlier project in Paramount and the conversion of a former Navy hospital in Long Beach into a regional shopping center.
The demand among retailers is robust for locations in working-class, largely Latino neighborhoods. While still months from completion, Vestar’s new Pico Rivera center is 70% leased. The centers in Paramount and Norwalk are both 100% leased.
Among the tenants in those centers are Wal-Mart, Sony Theaters, Starbucks, Ross, Staples, Best Buy, the Gap, Old Navy, AMC Theatres and Office Max. Vestar is also in negotiations with Ben & Jerry’s to open an ice cream shop in Paramount.
Another Phoenix-based developer, Univest, plans to convert an old office building and warehouse into a 1-million-square-foot center at the landmark Sears building in East Los Angeles, although a company executive said it is too early to disclose the names of tenants.
“Latino buying power is finally getting some attention,” said Los Angeles City Councilman Nick Pacheco, who represents East L.A. and who has been championing the project. “It’s unfortunate that it took so long,” he added.
Sears has historically done well at the East L.A. store, which does not surprise Pacheco. “To a Latino, it’s a no-brainer that you would have good sales, [especially] in the family and children’s departments, because we are very family oriented,” he said.
Wal-Mart is among the chain stores actively pursuing new locations in Latino neighborhoods. Following the success of its Paramount store, which opened in 1994, Wal-Mart has targeted infill markets and aging urban locations for new stores, including the former Macy’s building in the Baldwin Hills-Crenshaw Plaza, a former Broadway department store site in Panorama City, and a redevelopment area in Long Beach.
“We realized we were under-serving those who live in the metro areas, and that there is a huge customer base we would love to serve with our type of retail,” said Cynthia Lin, the chain’s community affairs director for the Pacific region.
Wal-Mart views new locations in urban neighborhoods as “a natural evolution in our growth,” said Lin, who added that the Arkansas-based chain “continues to look at metro markets, infill areas and redevelopment opportunities that make good business sense.”
If developers are doing well in working-class, Latino neighborhoods, why have retailers been reluctant to cash in on the quickly growing markets?
In the past, developers and store owners followed affluent consumers to high-end neighborhoods or new suburbs. For the most part, those same retailers ignored aging central city areas.
“We were leapfrogged [by retailers] to develop Orange County” and other suburban areas, according to Thomas Lynch, Norwalk’s assistant city manager.
Many cities with a high percentage of working-class and minority residents have struggled with the perception that their cities were too poor and too risky for the kind of retail that flourishes in more affluent neighborhoods.
Site-selection officials for chain stores are often reluctant to locate stores in working-class neighborhoods in the belief that stores in those neighborhoods experience more theft and require more security than stores in middle-class areas, according to Alfred Gobar, a Placentia-based retail consultant.
In his experience, however, stores in inner-city locations “work out pretty well, often better than people think they are going to.”
The lack of retail stores meant that residents of Norwalk, which is 50% Latino, had to travel outside the city to find quality shopping and entertainment, according to Lynch.
“The city was sort of a void as a market area,” he said.
Perceptions began to change, however, when market research and census figures showed that many former working-class neighborhoods were becoming middle-class enclaves, where average household income is reaching and exceeding the $40,000 to $50,000 level that many retailers identify as a high-end market.
In Paramount and Pico Rivera, where about 70% of residents are Latino, the average household income is $41,661 and $43,420 respectively. Additionally, at least 540,000 people within a five-mile radius of Pico Rivera have average household income of $50,000 or more annually, according to Vestar’s market research.
Population density is another factor bringing high-end retailers to Latino neighborhoods. Retailers favor high-density areas, even if incomes are lower than in more-affluent areas, because sales volume tends to be higher, according to consultant Gobar.
A further issue is that working-class and lower-middle-class families often spend nearly as much as middle-income people on such things as food, gasoline and other basic items, according to Gobar.
While some retailers try to design their centers to reflect Latino culture, Vestar has chosen not to theme their projects, according to Kuhle.
Shoppers in Pico Rivera and Norwalk, he said, “are third- and fourth-generation Americans,” adding that, “Culturally, they have been Americanized in a lot of respects.”
“They want and deserve the choices that a lot of other people have in shopping,” Kuhle said.
