With few attractive spots left in suburbia, many retailers are scratching their heads. Adding new stores is one of the tried-and-true ways that companies grow sales and profits, but now that the best locations in affluent communities are tapped out, setting up stores in downtown, urban locations has become a growth prospect that's hard to pass up. The population density makes such locations attractive, but tapping into the urban market also has its challenges. Even the biggest retailers in the business -- including Wal-Mart and Home Depot -- are trying to figure out how to introduce stores in urban markets (see BW Online, 4/6/02, "Reading Home Depot's Fuzzy Blueprint").
Joseph Sitt, chairman and CEO of real estate investment and development company Thor Equities, says urban shoppers -- typically minorities -- are a fast growing demographic that's vastly under-served. The Brooklyn-born retailer turned real estate developer aims to change that by building shopping centers in several downtown areas to attract brand-name retailers. "The suburban market has been saturated. The number of retail stores per person is way more in the suburbs than in the urban marketplace. So it's a tempting opportunity for retailers to take the urban proposition up," he says.
TREATED LIKE GARBAGE. Sitt says he learned a lot about urban retailing through running Ashley Stewart, a $300 million chain of 300 women's apparel stores that he founded in 1991. Most of these shops are located in urban areas. His real estate projects are located in the Flatbush section of Brooklyn and Harlem, both in New York City, as well as Chicago and Atlanta. Shopping centers in New Orleans and Bayonne, N.J. are already open.
"I think the bigger void in these areas is going higher scale," Sitt says, noting that developers before him tended to neglect urban shopping-center properties and treat them, as he puts it, like "garbage cans." Sitt says his Brooklyn shopping center, due to open toward the end of 2002, will instead bear comparison to Las Vegas' posh Bellagio hotel, with Romanesque fixtures, skylights, and granite floors.
BusinessWeek Online Reporter Amy Tsao interviewed Sitt on May 29 to get his views on the future of retailing in urban areas. Here are edited excerpts of their conversation:
Q: Which retailers have been interested in urban stores?
A: Wal-Mart (WMT), Target (TGT), Victoria's Secret, Foot Locker (Z), H&M, Toys 'R' Us (TOY), United Retail's (URGI) Avenue, and Lerner Shops and Bath & Body Works, which are owned by Limited (LTD). But one of the first to get in these areas was Gap (GPS) and Old Navy. Of Old Navy's top 10 stores, I think three are in urban/ethnic locales. Gap may have its problems elsewhere, but its urban stores are on fire. Kmart (KM) is touting its urban retail presence as a competitive advantage. If it didn't have those stores, things might be even worse than they are at Kmart.
Q: What are the biggest concerns about retailing in urban areas?
A: Security, theft of merchandise. Historically, security costs a lot. There's a general discomfort operating in these areas. We provide a loss-prevention consulting service to our retail tenants. By having good security for the whole property, we help lower that cost for our tenants.
Q: How do you address retailers' concerns?
A: Every time a retailer points out a cost concern, we work hard to eliminate that extra cost. For example, on garbage-pickup frequency, we have a special dedicated bin where tenants can dispose [of their garbage] when they want to, vs. waiting for the weekly pickup time. This is a service suburban malls offer. We also provide basic services like air conditioning, painted walls, and lighting. A lot of times, local inner-city operators don't get involved in that part of construction.
Q: What are the advantages for big chains in the inner city?
A: It's a lot harder to get a retailer to come here than, say, to the town center of Stamford, Conn. For those that do it, though, they find gold. They can't get enough and they find that it helps their brand equity. This customer is a trendsetter. If I were Abercrombie & Fitch (ANF), I would want to come here. It explodes brand equity to the next level. Look at how Tommy Hilfiger (TOM) and Timberland (TBL) jumped to the next level of hip.
Q: What does opening one of your shopping centers mean for a community?
A: When you have retail gentrification, it doesn't displace anybody. It acts as a vehicle to beget more jobs -- and better quality jobs. It brings services locally and improves the quality of life. It saves people from having to leave to shop in other areas. Our approach is that local retailing is critical. We can't be successful unless we have local retailers that understand the wants and needs of their communities. So we have a mix of regional and national retailers.