Cities may be retail's next target

Many store operators have abandoned America's inner cities for suburbia. Now, some retailers are setting up shop downtown again -- to their profit.

February 28, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rick Levin found the next frontier of retailing not in the wide open spaces of suburbia but amid boarded-up rowhouses and corner liquor stores in a stretch of East Baltimore.

In a strip center on North Caroline Street with a supermarket and a Chinese carryout, Levin set out to create an oasis two years ago, putting one of his largest Downtown Locker Room stores in a former drugstore. He stocked it with hooded sweat shirts and Nike basketball shoes, hired local help, lighted the vast space with wall sconces, covered the floor in gleaming hardwood and pumped music through the speakers. People are still buying.

"We knew the city. We weren't intimidated by the city," said Levin, who runs the 18-store urban athletic apparel chain in Baltimore and Washington with partner Tony Trantas. The partners expect to open five more inner-city stores before entering a third urban market and can't help but hope competitors stay away.

Chances are they won't for long.

Four decades after retailers began abandoning the inner cities to follow the migration to the suburbs, rundown shopping districts and poorly served residential neighborhoods in Baltimore and other U.S. cities are poised for a retail rebirth, industry experts and urban planners say. Racing to grow in a booming economy, retailers -- including the mass discounters -- can build only so many stores in increasingly crowded suburbia, the experts say.

Inner cities, an $85 billion market that's about a quarter under-served, represent a key emerging market, says Boston-based Initiative for a Competitive Inner City, a national, nonprofit group working to bolster inner-city economies. ICIC is working with affiliates in Baltimore and three other cities to strengthen local stores and attract big chains.

Such a turnaround is not unthinkable, said Karl Steidtmann, chief retail economist for PricewaterhouseCoopers. When the first shopping malls sprouted after World War II, "retail wasn't done in the suburbs. It was done downtown. It was unreasonable to think [otherwise]. But the power of vision transformed American society," Steidtmann said. Now, "we're at the cusp of another transformation."

Major drugstore chains have led the way in Baltimore and other cities, with Rite Aid Corp., Walgreen Co. and Duane Reade Corp. building stores in inner-city neighborhoods. "Drugstores are walking away with inner-city opportunities because the discount retailers and others have left that opportunity open to them," Steidtmann told a standing-room crowd of retailers last month at the National Retail Federation's annual convention in New York.

The inner city "doesn't fit the profile of what [the national chains are] looking for as an expansion location," Steidtmann said. The suburbs are "the environment they know. It's the real estate they know. It fits the economic model they work off of.

"At the same time, the inner city always had the perception of being high cost, crime-ridden and having relatively poor customers."

Preference for apparel

New research on consumer shopping patterns in low-income, high-unemployment areas could help dispel those perceptions.

A survey of 1,205 households by PricewaterhouseCoopers and the ICIC showed that inner-city consumers prefer shopping for apparel over other retail goods, are less price driven and show greater brand loyalty.

Compared with the average U.S. household, inner-city African-Americans spend 20 percent more annually on women's apparel, nearly 75 percent more on men's and twice as much on children's. Discount department stores are preferred but largely unavailable.

Although retailers are reluctant to reveal sales and profits, anecdotal evidence shows national chains making money in cities, said Anne S. Habiby, ICIC director of research. Many have started in edge areas that abut prosperous neighborhoods, only to get the lion's share of business from the poorer side of town, she said.

One of the largest inner-city malls under construction, in Harlem in New York, boasts tenants Old Navy and the Disney Store. Sears, Roebuck and Co. ranks its Bronx, N.Y., store as the chain's top performer, and Kmart and Home Depot do well in urban locations.

Ashley Stewart, a Secaucus, N.J., women's plus-sized apparel chain, has flourished in inner-city Baltimore. It recently added two new stores at Mondawmin Mall -- 100% Girls, for girls, and Body & Soul, which sells lingerie.

As malls go, Mondawmin in West Baltimore has higher sales per square foot than some suburban counterparts despite the lack of anchor stores, according to its owner, Columbia-based Rouse Co.

Levin, whose 15-year-old Downtown Locker Room has more than $20 million in annual sales, said the urban stores have cheaper rents, fewer competitors and greater profits than the chain's few suburban outlets.

Hoping for rejuvenation

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