Big business discovers the inner-city market

October 21, 1997|By Neal R. Peirce

CHICAGO -- For years, corporations have been encouraged to get involved in the cities' minority neighborhoods because it's the right thing to do.

Now there's a new message: Do it or you're missing important niche markets in the fiercely competitive new global economy.

The message seems to be taking. Ameritech, the Midwest's husky telecommunications company, noticed how hot prepaid long distance cards are in Mexico and is starting to market them heavily in Hispanic Chicago neighborhoods.

Allstate Insurance has a Neighborhood Partnership model of working with low- to moderate-income neighborhoods to fix hazards and talk candidly with homeowners about deficiencies.

Born in Philadelphia in the early '90s, the effort has spawned thousands of new policies and turned big Allstate losses into solid profits across some 20 cities.

Chicago's big Harris Bank is taking inner city neighborhoods very seriously, too.

Incomes still lag. But Harris has found that customers from those neighborhoods turn out to be more loyal, buying more products, from checking services to savings accounts, than their suburban counterparts.

The Bank of America Illinois discovered its low-income-neighborhood business lending growing faster than its other income segment portfolios.

CEO William Goodyear now chairs the new Neighborhood Markets initiative of the Social Compact, a nationwide coalition of corporate chieftains looking for ways to increase private investment in those neighborhoods.

Chicago will be the proving ground, says Social Compact Executive Director Lynn Reilly Whiteside, for the coalition's new set of market indicators designed to show how some corporations have learned to sell profitably in the inner city -- and how others might.

The government-generated statistics -- lower family incomes, teen-age pregnancies, crime, infant mortality -- are overwhelmingly negative.

Spending power

But the new indicators will show that if you measure on a square-mile basis, more dense inner cities often have substantially more spending power than sprawling affluent suburbs.

Many strengths in inner-city neighborhoods go unrecognized: pockets of rising homeownership, active (often ethnically based) shopping cores, and new small businesses like the remarkable number of computer and design firms now springing up in urban neighborhoods coast to coast. The indicators aim to capture these pluses.

"Follow the money" will be the message: Poor people spend a lot more money than government statistics ever catch. Most of it is spent in the unreported cash economy, ranging from home repair to auto maintenance. Estimates of these services run into the hundreds of billions of dollars a year.

Corporations furiously searching out markets in far-flung corners the world need to remember, say the Social Compact leaders, that a third of all U.S. consumer expenditures -- $869 billion a year -- are by households with less than $30,000 income.

But, people may ask, will corporations simply exploit inner-city neighborhoods, leaving them no better off?

Not necessarily, replies Robert Weissbourd, executive vice president of Shorebank, a Chicago institution famed for registering profits even while rejuvenating depressed South Side communities.

Remember, he says, that the problem of poor neighborhoods isn't just lack of money. It's isolation from the economic mainstreams of their regions -- from banks to retailers, suppliers to manufacturers.

As a neighborhood slips, financing of new businesses, insurance underwriting, corporate investment, job referrals all shrivel up. But create new contacts, Mr. Weissbourd notes, and the downward spiral can be reversed on all those counts.

Indeed, any new investment interest from the outside -- a franchise restaurant, bank outlet, quality food market, hardware store -- helps reverse decline.

Suddenly, residents and workers can get what they want locally and no longer have to spend time and money traveling elsewhere.

"A cineplex," Mr. Weissbourd adds, "just came to our neighborhood. Some people ask how, beyond a few jobs, it will help. I say it makes the neighborhood more attractive for people to stay, invest, spend money here. It sends a message that it's worth investing here."

The most safely investable inner city neighborhoods, argues Social Compact's Ms. Whiteside, are those with strong grass-roots organizations -- community development corporations, affiliates of the Neighborhood Reinvestment Corp., or community development banks like a Shorebank.

They know local conditions, they can help assemble land and provide reliable local candidates for opening jobs. So it makes economic sense for corporations to work with them.

Hispanic heart

Little Village is an old Slavic neighborhood on Chicago's West Side. It's close to some of the city's worst urban devastation. But it has become the Hispanic heart of the Midwest.

Aided by Neighborhood Housing, Little Village's home values have tripled since 1979. This clicked on neighborhood has a retail base -- 1,400 registered businesses and $1.4 billion in yearly payrolls -- second only to ritzy North Michigan Avenue.

Social Compact's long-term goal: a lot more Little Villages, first in Chicago, then across the United States. Its message to corporations: The cities are a market you can't afford to ignore.

Neal R. Peirce writes a column on state and urban affairs.

Pub Date: 10/21/97

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