Realizing the Inner City Retail Opportunity
Progress and New Directions

ICIC’s retail research continues to generate interest with an August 1st New York Times "Square Feet" column mention. In addition, the 2007 winter issue of IEDC’s Economic Development Journal and the January issue of Urban Land highlighted ICIC’s new report, "Realizing the Inner City Retail Opportunity: Progress and New Directions," which was researched and written in conjunction with the Boston Consulting Group and is an in-depth examination of the inner city retail markets in the 100 largest U.S. cities. Read more.

The report is a follow-up on ICIC’s 1997 study of inner city retail conditions, which found that the inner city retail market was large (high population density offset relatively low household incomes) and that much of the demand was being met by retail establishments located outside the inner city neighborhoods. The study found similar aggregate figures, i.e., the market is still substantial and underserved. But it also showed evidence of significant progress in individual cities. A significant number of cities have made great strides attracting retail businesses while many other cities have either stagnated or even regressed. The results suggest that a closer examination of the factors that produced both outcomes would be extremely instructive. Inner city retail is one of the biggest economic development opportunities in the inner city. It has tremendous win/win potential for both the community and retailers, including indigenous inner city retailers. But much demand remains unfilled. We believe that with new strategies derived from the successful experiences we have documented, the gap between supply and demand can be closed.

ICIC’s future retail work will include examining the drivers behind city success and failure, identifying new retail models and bellwether companies, and formulating strategies to address logistics, security issues, workforce training and community interaction. Our work will also analyze best practices and failed initiatives.

Why is Retail Important to Inner Cities?

Attracting retail businesses to inner cities has multiple benefits: easy access to reasonably priced goods and services for consumers; jobs for residents; neighborhood improvement and catalyst for further development; and business opportunities for retailers and developers.

The 2006 retail study, which draws heavily upon ICIC’s proprietary State of the Inner City Economies database shows, that in a significant percentage of the largest inner cities:

The number of inner city retail establishments has decreased while the size of the establishments and the number of retail jobs have increased. This pattern suggests greater efficiency and a broader range of available products at market prices.

Inner cities remain a significant untapped retail market. Unmet demand is estimated to be over $40 billion. To put this in perspective, the $40+ billion inner city retail gap is larger than the total retail markets of twenty-six states.

Some large retailers have discovered inner city markets while others hesitate to stray from traditional settings. Those that have entered and succeeded in the inner city market have shown patience and the ability to adapt to local conditions.

Indigenous retailers have succeeded by providing products and services targeted to the preferences of inner city consumers. They often complement, rather than compete with, large national companies.

Keys to success in targeting product seldeveloping retail in inner city include identifying market opportunities, adapting store format and operationsection, focusing on employee training and retention, and connecting with the community.

The diverse inner city demographic is steadily seeping across urban boundaries into suburban and even rural markets. The first wave of inner city retailers has adapted to the needs of the inner city’s low-to-moderate-income, niche-product focused population. Consequently, they will have a "first mover" advantage in the new-look U.S. retail marketplace of the future.

However, perhaps one of the most important findings has to do with cities themselves. Certain cities are adding retail businesses and retail jobs faster than others and success has been achieved in widely varying conditions. Determining what the conditions for success and failure are, and what strategies should be developed to address these disparities will form the cornerstones of ICIC’s future research.

For more information please contact, Teresa Lynch, Director of Research at tlynch@icic.org

ICIC Publications