In the Arizona desert near the Mexican border, an experiment is under way — Hispanic Retail Group (HRG), a company formed by Forest City Enterprises, The Legaspi Co. and Streetscape Equities, is spending $12 million to reposition the 300,000 sq. ft. Southgate Mall to attract Hispanic shoppers.
The mall is just one of many properties HRG hopes to dress up in Latin garb. The company's goal, in fact, is to invest $100 million in the growing sector over the next three years, according to Andres Friedman, vice president of Forest City Commercial Development's Western Division and project manager of HRG.
Friedman, 37, knows the market intimately. He was born in Chilé and reared in Mexico. “Everybody understands the growth and purchasing power of these ethnic groups, but they've not yet figured out how to reach them,” he says.
Forest City and its partners are innovators of sorts because the shopping center industry as a whole has yet to reach ethnic consumers, despite the prospect of capturing hefty revenues.
Surprisingly, the majority of retail real estate owners across the nation have no formal strategy for tapping the wallets of these growing populations. The regional mall industry, for example, isn't doing much to accommodate different ethnicities, experts say. Most efforts to target specific groups are occurring at neighborhood centers owned by small, regional operators rather than large institutions.
Large owners shy away
Although African-Americans, Asian-Americans, and Hispanics are migrating out of traditionally diverse markets like Los Angeles and New York, and expanding their combined buying power to more than $1 trillion, most national retail real estate owners are hesitant to put ethnic retailers in their centers, says Gwen McKenzie, a broker with Sperry Van Ness, a national real estatefirm. There's always the concern that a center might be “too ethnic,” turning off the mainstream shopping population.
When it comes to African-American shoppers, of course, owners don't have to worry about language barriers or whether or not the customer is a first- or third-generation American. Instead, owners have to think about bringing on retailers that cater to African-American tastes — stores like Ashley Stewart, a plus-size clothing retailer with more than 170 stores nationwide, and Citi Trends, which markets itself as an urban apparel retailer.
Both have leased space at Lamar Crossing, an infill development in a depressed area of Memphis that counts 93,000 people in the immediate trade area — nearly 70% of them black. The 68,400 sq. ft. shopping center is being developed by a Chattanooga, Tenn.-based partnership.
The perfect tenant
Finding the right tenant is not easy; sometimes national-credit tenants can't perform as well as obscure local merchants. “We have seen many big names fail, while others that aren't known to the general public make it,” says Jack Nourafshan, president of Los Angeles-based Reliable Properties. More than 80% of Reliable Properties' centers are leased to local and regional tenants rather than national chains.
Large mall owners such as Simon Property Group, however, are less inclined to modify their tenant mix to appeal to a certain demographic group and have a marked preference for national-credit tenants. For example, Simon's malls in the Rio Grande Valley in South Texas, where the population is 90% Hispanic, feature much the same tenant mix as its malls in other less ethnic areas, says Carmen Soto, manager of Valle Vista Mall in Harlingen.
Valle Vista and its sister property, La Plaza Mall in nearby McAllen, do try, however, to lure Mexican nationals from the nearby Mexican cities of Reynosa and Monterrey by staffing bilingual employees who understand that these ethnic shoppers expect top-notch, personal service.
Similarly, Serramonte Center in Daly City, Calif., which boasts the largest Filipino population in the U.S., recently added Bench to its tenant lineup, says Dick Bartlett, mall manager. Owned by Philippines-based Suyen Corp., Bench is the Philippines' largest apparel retailer and can boast international credit.
“Given the large population of Asian-Americans here, it makes sense to bring in a retailer like Bench,” Bartlett says. “But we have to make sure that we're catering to the entire market while respecting diversity.”
That's not to say all retail owners aren't willing to lease space to retailers that target minority consumers. Minneapolis-based Ryan Cos. decided to forego national retailers when redeveloping a former Sears store and distribution center into a 1 million sq. ft., mixed-use development to be completed this year.
The $130 million project, dubbed Midtown Exchange, will include Midtown Global Market, a 73,000 sq. ft. space devoted to ethnic shops.
“The primary option was to lease the space to national retailers,” says Rick Collins, vice president of development for Ryan Cos. “We felt that the end product wouldn't have been as significant a contribution, nor would it be as unique.”
Over the next several decades, the face of America is going to change dramatically with the total number of minorities representing about 50% of the U.S. population by 2050. Today, roughly one-third of the 298 million people in the U.S. are African-American, Asian or Hispanic, according to the 5th Edition of Racial and Ethnic Diversity. About 12%, or 35 million, are foreign-born.
Over the past six years, Hispanics surpassed blacks as the largest minority at 41 million. By 2050, the Hispanic and Asian populations in this country will triple, while the black population will grow by less than 10% and the white non-Hispanic population will increase by only 7%, according to the U.S. Census Bureau.
From the perspective of household creation over the next five years, Hispanic and Asian households are forecast to grow about 17%, creating 1.5 million new Hispanic and 600,000 Asian households.
In spite of the large influx of immigrants over the past two decades, most of America's future population growth will come from births, says Arturo Sneider, founding partner of Primestor Development Inc., a Beverly Hills, Calif.-based firm that develops and manages shopping centers in Latino areas.
This prediction is key because it signals that first-generation ethnic groups are giving way to the second and third generations that have, to a larger degree, assimilated into American culture.
That means that owners will need to focus on which elements of culture are passed down to following generations and how their shopping behavior differs from earlier generations.
First-generation shoppers want goods and services that remind them of home. For the Hispanic community, that means authentic products, Spanish rather than English signage, and bilingual store employees. Ultimately, the amount of time someone has lived in the U.S. is a differentiating factor, experts say.
It also follows that Hispanic shoppers born in the U.S. who speak English fluently are less interested in authentic products, Friedman says. “The more acculturated one is, the fewer ethnic retailers are needed,” he says. “Hispanic retail doesn't necessarily mean Hispanic retailers.”
For example, the Hispanics that will shop at Southgate Mall in Yuma, Ariz., have adapted their tastes to more mainstream retailers compared to another HRG project in El Centro, Calif., where the population is still predominantly first- generation.
HRG's efforts to bring Hispanic shoppers to Southgate Mall will be subtle. Specifically, the firm plans to recruit a Latino grocer and to offer more children's retailers and jewelry stores, because Hispanic consumers tend to spend money on their children and buy more jewelry than mainstream America. Finally, HRG expects to bring in a more complimentary mix of quick-serve restaurants to appeal to Hispanic taste buds.
Indeed, cultural preferences may last long after accents and “foreign ways” have faded. “Ethnic groups cling to their home culture for many generations and they're not going to give it up,” says Scarlett Wesley, Ph.D., assistant professor at the University of Kentucky and co-author of a Hispanic consumer study.
Ahead of the curve
When it comes to spending, Asian households are second to none — paying out $44,923 per year — roughly 10% more than the average American household. Although few developers or real estate owners have successfully grabbed a piece of Asian expenditures, Seattle-based Lorig Associates has done well with Uwajimaya Village, a mixed-use development near downtown. The $38 million project was completed in 2001 and is now fully occupied.
Uwajimaya Village offers 70,000 sq. ft. of ground floor retail space and 176 apartments. The retail space is anchored by the Uwajimaya Asian Food and Gift emporium and also features a food court with seven Asian bistros, a full-service Chinese restaurant, a Kinokuniya bookstore and other national retailers.
Similarly, Sand Hill Property Co. realized the potential of the Asian market in 1997 when it redeveloped a 114,000 sq. ft. retail property from a failing traditional neighborhood center into Cupertino Village, an Asian-themed shopping center.Two “Westernized” Asians — Peter and Suzanna Pau — head Sand Hill.
Like most retail center owners that target specific ethnic groups, the San Mateo, Calif.-based company is a local real estate firm with connections to the ethnic population.
Cupertino Village, located in Silicon Valley, is anchored by 99 Ranch Market, an Asian grocery store.
While it has other Asian tenants, it offers mainstream American goods because its target consumers are second- and third-generation Asians, says Pau.
So while Sand Hill spent $6 million in renovations and put a $28 million loan on the property in 1998, the company recently sold it for $65 million to an affiliate of Kimco Realty Corp. — a tidy profit.
Compared to Asians, Hispanics have less disposable income, but spend more (and more often) on groceries because they prefer fresh produce, meat and bakery items.
These sections in mainstream grocery stores such as Albertson's or Kroger are far too small, which is why so many of them fail in heavily Hispanic areas, says Sneider of Primestor Development.
Sneider helped to convert five dark Albertson's in Southern California into El Supers, a Hispanic supermarket chain owned by Southgate, Calif.-based Grupo Commercial Chedraui. The stores have used the exact footprint of the Albertson's stores but are doing almost 80% more volume.
The key? El Super renovated the stores with expanded produce, meat and bakery sections and simplified the buildout so the stores didn't appear too finished.
While centers like Cupertino Village are a rarity in the world of retail real estate, there's every reason to expect that more minorities will own retail real estate and that existing owners will become more sensitive to ethnic retailing.
“It's tough to convince people of the opportunity,” Friedman says. “The challenge is not whether the opportunity exists. It's how to develop a knowledge base to take advantage of it.”
Jennifer Popovec is a Dallas-based writer.
Ethnic Retail Migration
As retailing has evolved to the point where the national retail chains have edged out local mom-and-pop merchants, ethnic retailing has regressed. Unlike local retailers, large national retailers are not doing a very good job meeting the needs of their ethnic consumers, says Scarlett Wesley, Ph.D., an assistant professor at the University of Kentucky and co-author of a study on Hispanic shopping patterns.
“If I had to give [retailers] a grade, it would probably be an ‘F’,” says Wesley. Ethnic retailing emerged in the U.S. in the early 20th century, says Wesley, when minority enclaves in larger cities such as New York and Los Angeles gave birth to shops that catered to ethnic shoppers.
New York's Chinatown, for example, teems with neighborhood grocers that stock Asian delicacies, while local shops provide shoes and clothes in sizes and styles that appeal to Asian customers, says Deborah Fowler, Ph.D., an associate professor at Texas Tech University and Wesley's co-author.
Similarly, ethnic retailing emerged in Los Angeles in the 1940s as more Hispanic immigrants moved into the downtown area, recalls Jose Legaspi, a principal with The Legaspi Co., a Los Angeles-based firm that has specialized in Hispanic real estate for 25 years.
Over time, mom-and-pop ethnic retailers have expanded their product offerings to fill a void in the market, says Legaspi.
For example, plenty of Hispanic grocery stores started off as bodegas (Hispanic convenience stores) and most apparel stores started off as bridal salons.
Today, retailers such as 99 Ranch Market, a grocery store headquartered in Buena Park, Calif. that targets Asian consumers, and Famsa, a furniture and electronics store that caters to Hispanic shoppers primarily in the Southwest, not only provide the goods that ethnic shoppers want, but they also understand their buying habits.
As ethnic populations in traditional cultural centers move to less traditional markets, the need for ethnic retailing will only grow.
“Within the next 10 years, there will be many more cities with large ethnic populations,” says Wesley, “and retailers in these markets are going to have to adapt.”
— Jennifer Popovec
Role of Psychographics
To successfully attract ethnic shoppers, developers and owners must get inside the heads of consumers, says Andrew Erlich, cross cultural psychologist and president of Erlich Transcultural Consultants, a Los Angeles-based firm.
There's a dearth of behavioral research for ethnic shoppers. Demographic information available on Hispanics, Asians and African-Americans is plentiful, but the body of psychographic research (behavioral data rather than demographic facts) for these particular ethnic groups is actually shockingly thin, especially compared to the voluminous amounts of data available on non-ethnic consumers.
So, the size, growth prospects, location and purchasing power of Hispanics is well researched, but attitudes and behaviors — the things that motivate them to shop — remain a puzzle.
“Most retail real estate owners have little or no understanding of the hearts and minds of ethnic consumers,” says Jack Nourafshan, president of Reliable Properties, a Los Angeles-based owner and developer that specializes in ethnically diverse neighborhoods.
Specifically, Nourafshan is referring to creating a shopping environment that appeals to indigenous cultural and lifestyle preferences.
Nourafshan points to the fact that first-generation Hispanic consumers usually pay cash and rarely use credit. This limits their spending for large, expensive items, particularly with national retailers that can't modify their financing programs towith little or no credit history.
With this in mind, Nourafshan leased space in Figueroa Shopping Center in Los Angeles to a local furniture store that offers customers the option to buy or rent. Moreover, the retailer has the ability to offer credit to Hispanics with scant credit.
Additionally, Hispanics tend to view shopping as a multigenerational event. “It's very common in the Hispanic culture for grandma, mom and the kids to all go shopping together,” say Andres Friedman, vice president of Forest City Commercial Development's Western Division. Friedman also is project manager of Hispanic Retail Group (HRG), a joint venture between Forest City, The Legaspi Co. and Streetscape Equities.
HRG is redeveloping the 300,000 sq. ft. Southgate Mall in Yuma, Ariz., with an eye toward Hispanic behavior rather than demographics.
The firm plans to expand the seating areas and restroom facilities throughout to make it easier for Hispanics to shop with their families.
“Some of these changes may seem small,” says Friedman, “but we're betting that they'll make a big difference to the Hispanic shopper.”
— Jennifer Popovec