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Ethnic Power Fuels Store Growth

Laura Kennedy - Kiplinger Business Resource Center
09/06/2009

Kiplinger Business Resource Center

Desperate developers and mall owners are benefiting from the population trend.

Stores catering to ethnic groups are a hot commodity for mall owners. As thousands of storefronts go empty, ethnic targeted retailers and services are providing glimmers of hope for struggling real estate owners and developers. Mall owners desperate to fill space will offer low-rent deals to such retailers. The new ethnic stores can transform an entire shopping center. For one thing, the fast growing group of retailers can attract customers from far away. And once they're at the mall, those shoppers tend to stay and make purchases at neighboring stores, too.

"What's unique about ethnic centers is they can become destination centers," says Reza Etedali, CEO and founder of Reza Investment Group, a retail real estate investment advisory firm that puts a special focus on ethnic retail developments. "People reach [out] to go look for them. Sometimes you don't need to be in a high-profile location as long as you have the right tenants." La Gran Plaza in Fort Worth, Texas, is a prime example. Five years ago, The Legaspi Company developers bought the 1.1 million square foot mall when it was only 10% occupied. Now, after redevelopment and repositioning to the Hispanic market, the mall is 85% full.

The mall houses Hispanic targeted retailers, such as grocery stores and Mexican apparel stores, as well as a Radio Shack, Foot Locker and Burlington Coat Factory. Jose Legaspi, who runs the Legaspi Company, says that the primary market for the center is customers who live 20 to 30 miles away. "At a regular mall, they're lucky if they can pull from five miles," he says.

Ethnic targeted grocery stores also tend to have more-loyal customers than their broader-based supermarket counterparts, says Ian Brown, a senior vice president in California with Grubb & Ellis, the commercial real estate advisory firm. Meanwhile, "the traditional supermarkets are really having problems trying to figure out what their niche is," he says.

Consumer loyalty is good for other retailers and service providers looking to drum up business in the same area. For instance, in California, Charles Schwab locates its investment services offices in the same shopping centers where popular Asian retailer 99 Ranch Market sets up shop; travel agencies, restaurants and others do the same.

Many ethnic retailers can stay busy amid downturns because they sell necessities, such as food and sundries, or provide basic services. Immigrants in particular have downshifted during the recession with more ease than other groups, according to Emil Morales, senior vice president of the multicultural sector at TNS, a market research firm. "They know how to be thrifty shoppers" at all types of stores, he says.

Owners will offer the new mall tenants low rents and perks. Look for mostly Asian and Hispanic stores to spur the growth, but some Middle Eastern retailers and restaurants also drive traffic in certain areas.

The expansion of the American palate is driving a more diverse clientele to the stores, buttressing the strong growth from the ethnic groups themselves. Developers can also capitalize on Americans' and immigrants' growing support of multiethnic offerings. Diamond Jamboree, a shopping center in Irvine, Calif., that opened last September, is distinctive in that it caters to many different Asian markets.

"Unlike other ‘ethnic' plazas that cater to a specific immigrant group, by virtue of the fact [that the center is in] Irvine, it's very pan-Asian," says Thomas Tseng, a principal and cofounder of New American Dimensions, a multicultural marketing research firm. The center is anchored by Asian grocer HMart and features a Taiwanese coffee shop next to a Korean tofu restaurant, among other stores. Tseng and Etedali, both based in California, see the multiethnic trend spreading countrywide. "We're seeing melting pot concepts where one grocer is not particularly focused on one ethnic group, but is focusing on a variety of ethnic groups," says Etedali.

Ethnic buying power is rising, so the investments are good long-term bets. Hispanic buying power in the U.S. is set to grow by 46% over the next five years, while for Asians, the number will leap close to 48%, according to the Selig Center for Economic Growth at the University of Georgia. That compares with a likely 30% increase for the total U.S. population over that span.

Ethnic enclaves in California, Las Vegas, Atlanta and Chicago are particularly ripe for growth. Hispanic buying power in North Carolina as well as in Georgia will grow almost 60% in the next five years, and Asian buying power in each of those two states will increase around 55%.


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All contents © 2009 The Kiplinger Washington Editors

 

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