Inside Site Selection:

Retailers’ search for strategic

business locations

March 2008
WWW.ICSC.ORG | WWW.SOCIALCOMPACT.ORG
Acknowledgments

The Inside Site Selection report would not be possible but for the generous
contributions of time, treasury and talent of the International Council of Shopping
Centers (ICSC) and its Underserved Urban Markets Task Force.

Social Compact gratefully acknowledges the crucial support of ICSC’s Director of

Community Relations Cynthia Stewart, whose leadership and ability to identify tools
for better investments in inner cities is helpful and crucial to Social Compact’s efforts.

Social Compact would like to specially recognize and acknowledge that the present
research builds on previous research work from ICSC with Business for Social
Responsibility. In addition, we recognize the need and call for future quantitative
analysis of retail trade areas, underserved markets and their relationship.

The field has seen important efforts regarding economic development through private
sector investments. Acknowledging the role of cities such as Chicago, Washington,
D.C., and Louisville and the efforts made by leaders like John Fisher, Assistant Director
of the City of Louisville Economic Department, and Michael Stevens, Executive
Director of the Capitol Riverfront Business Improvement District, and Fran Spence,
City of Chicago, is essential.

Special thanks are in order to the Underserved Markets Task Force, in particular to
Harvey Gutman, Lyneir Richardson, Lamont Blackstone, Norris Eber, and Cynthia
Kratchman. Social Compact would also like to extend thanks to Alyssa Lee of the
Urban Markets Initiative at the Brookings Institution.

Finally, this work would not have been possible without the continued leadership and
support of Social Compact's dedicated Board of Directors.

1
 ICSC Underserved Markets Task Force

Chair John Haake

Norris Eber Vice President
Executive Vice President, Ed Smith & Associates
Asset Management & Acquisitions Troy, MI
Joseph Freed & Associates LLC
Palatine, IL Lawrence E. Kilduff
President
G. Lamont Blackstone The Kilduff Company
Principal Mequon, WI
G.L. Blackstone & Associates
Mount Vernon, NY Cynthia J. Kratchman
Landmark Commercial Real Estate
Glen E. Boyer Farmington Hills, MI
Director, RE Market Research
Ross Stores, Inc. Joan Primo
Newark, CA Principal
The Strategic Edge
John Cirillo Southfield, MI
Director, Site Market Research
New York & Company Lynier Richardson
New York, NY Vice President
General Growth Properties Inc.
Thomas J. Connolly, CLS Chicago, IL
Divisional Vice President
Walgreen Co. Michael A Schmid
Deerfield IL Director of Market Research
Lowe’s Companies Inc.
Tim Corzine Mooresville, NC
Manager, Research & Planning
Target Corporation Frances Spencer, SCSM, SCMD
Minneapolis, MN City of Chicago, Asst. Commissioner
Dept of Planning & Development
Hon. Paris Glendening Chicago, IL
President
Smart Growth America Michael G. Stevens
Washington, D.C. Executive Director
Capitol Riverfront Business
Harvey M. Gutman Improvement District
President Washington, D.C.
Brookside Advisors LLC
Glastonbury, CT Deborah Weinswig
Retail Analyst
Citigroup Smith Barney
New York, NY

Staff:

Michael P. Niemira Cynthia Stewart

Chief Economist, Director of Research
International Council of Shopping Centers
1221 Avenue of the Americas
New York, NY 10020-1099
Phone. (646) 728-3472
mniemira@icsc.org
Director, Community Relations
International Council of Shopping Centers
1399 New York Ave. NW, Ste. 720
Washington, D.C. 2005-4725
Phone: (864) 968-9342
cstewart@icsc.org

2
Analysis conducted and written by
Social Compact
738 7th St. SE
Washington, D.C. 20003
Phone: (202) 547 2581
jtalmage@socialcompact.org

3
Social Compact is a national not-for-profit corporation led by a board of business
leaders whose mission is to help strengthen neighborhoods by stimulating private
market investment in underserved communities. Social Compact accomplishes this
through a variety of tools developed to accurately measure community economic
indicators and to provide this information as a resource to community organizations,
government decision makers and the private sector. Social Compact is at the forefront
of identifying the market potential of these areas and believes that a public–private
partnership that involves community members and leverages private investment is the
most sustainable form of community economic development.

Social Compact’s primary analytic tool is the Neighborhood Market DrillDown,

developed to address some of the key barriers to private investment in and around
inner-city neighborhoods – a lack of dependable market information and negative
stereotypes. The Neighborhood Market DrillDown uses numerous sources of market
data to identify the fundamental business attributes and market characteristics of urban
communities. Poverty and deficiency data is replaced with business indicators of
market strength. Some of the best private market analysis models, designed for the
suburban market, are adapted to respond to the unique characteristics of the inner
city in order to capture density, hidden populations, cash economies and micro-market
development patterns that are not captured by traditional market analyses.

This innovative work was piloted in Chicago in 1998 with generous support from State
Farm, the Ford Foundation and the MacArthur Foundation. To date, Social Compact
has conducted DrillDowns in over 300 neighborhoods across the country in
Baltimore, MD; Cleveland, OH; Cincinnati, OH; Detroit, MI; Houston, TX;
Jacksonville, FL; Los Angeles, CA; Miami, FL; New York, NY; Oakland, CA; San
Francisco, CA; Santa Ana, CA; and Washington, D.C. Social Compact has found these
communities to be larger, safer and with far greater buying power than previously
thought. The business investment in economic development leveraged by this
information is the best indicator of its success.

Cumulatively, Social Compact has identified:

• Aggregate household income $32 billion (29%) higher than census trend projections
• 350,000 more households than census trend projections
• 1 million more residents than census trend projections

4
INSIDE SITE SELECTION: Retailers’ search for strategic business locations

Retail development is often heralded as a pathway to urban economic development

that benefits both the business community and neighborhood residents. Despite this

insight, many retailers encounter difficulties in identifying profitable store or branch

locations in inner-city markets. Challenges such as nontraditional housing

arrangements, ethnic diversity and prevalent cash economies together with certain

“urban myths”1 complicate the process of adapting suburban store models to the

urban landscape and catering to the needs and preferences of urban consumers (Miara,

2007). Understanding retailers’ site-selection processes in urban areas will lead to a

better understanding of the variety of challenges faced by retailers. The siting of new

stores or branches can determine the retailer’s success (or lack thereof). While all

retailers use market and demographic data to assess a potential site, a large

informational void exists regarding which indicators and data sources drive key

decisions, how they impact decisions and why.

The following paper presents the findings of a joint research effort between Social

Compact and the International Council of Shopping Centers (ICSC) aimed at bridging

this knowledge gap by conducting in-depth interviews with retailers from a wide range

of industries. The consultations yielded several interesting and valuable conclusions,

illustrated by the following key findings:

• Despite similarities found in retailers’ site-selection processes, varied

approaches make site selection appear more of an art than science.

1
These myths include the belief that supermarkets cannot be successful in the inner city and that local
residents will not make good employees. For a larger discussion about these myths see Gutman, 2008.

5
 • Site specifications, including indicators of market viability, vary widely.

Comparing businesses within the same industry reduces some of this variation,

yet it still exists.

• Two fundamental indicators, median household income and the total number of

households and/or people, drive retailers’ site selection in any given market.

Specialized retailers, however, may rely on additional indicators such as number

of college graduates, ethnic composition, housing prices, etc.

• Retailers expressed particular interest in finding data that reliably captures

change at the neighborhood level. When talking about change, retailers focus

on future change. They want to know what to expect in the future, for

example, how a neighborhood will change one, two or five years from now.

• Retailers are unaware of some new and informative data sets (i.e., Home

Mortgage Disclosure Act data, HMDA) that can provide the type of

neighborhood indicators they wish to include in their site-selection analysis.

• Retailers cite three common barriers to locating in inner-city neighborhoods:

land availability, market demand to support a particular business and evidence

of that market demand. In addition to these indicators, construction and

operations costs and the approval/zoning requirements factor into the site-

selection process.

• Retailers, aware of the potential in inner cities, are making concerted efforts to

better understand urban markets.

Methodology

ICSC provided Social Compact with fundamental connections and contact

information for 45 retailers representing the following retail categories: financial

services, big box retail, apparel and shoes, books, grocers, home improvement and

6
home accents. In addition, Social Compact, utilizing its own network, increased the

number of possible respondents from the following industries: financial services, big

box retail and grocers. The finalized contact list consisted of 53 different retailers.

Identifying the appropriate contact and obtaining their responses proved lengthy

and impossible in many instances. On average, Social Compact made at least three

attempts before obtaining a response from those retailers that did participate in this

project. Social Compact was unable to reach an overwhelming 72% of potential

respondents after trying to contact them at least five times.2

Social Compact completed a total of 13 in-depth interviews. All respondents were

asked a list of 13 general questions based on the following four themes:3

1. Indicators that drive retailers’ site-selection process

2. Data sets most commonly used by retailers

3. Indicators retailers wish to obtain yet are unable to

4. Factors that can transform an undesirable site into an attractive one

In some cases, interviewees’ responses prompted researchers to improvise with

additional follow-up questions. All but two interviews were conducted over the phone,

lasting between 25 to 60 minutes.4 Different factors, such as interviewee’s time,

availability and willingness to share information, affected the length of each interview.

These same factors likely contributed to the overall low response rate.

Findings

The in-depth interviews revealed significant and valuable information for the

field of economic development. In order to honor confidentiality of all parties involved,

2
Social Compact researchers made a minimum of five attempts to contact retailers over a three-month
period (in some cases researchers made up to 10 attempts).
3
See Appendix A for the list of questions.
4
Thanks to Social Compact’s strong relationship with two of the retailers, two of the interviews were
conducted in person and included a visit to the retailers’ headquarters.

7
the report uses general themes to organize the responses and, when appropriate,

responses are further broken down by retail category. With specific examples, both

the individual’s and retailers’ names remain anonymous.

A. Confidentiality

The first and most obvious finding of the study is that retailers are hesitant, and

many times unwilling, to talk openly about their site-selection processes. In an

increasingly competitive market, defined by ever-changing characteristics and growing

diversity, retailers make great efforts to conduct accurate market research and site

evaluation. Given that effective site selection remains a crucial component to the

establishment and maintenance of profitable businesses, it is no wonder that obtaining

detailed information about this process is an enormous challenge.

Upon contact, retailers were informed that interview responses would remain

anonymous and that findings would only be presented in generalized themes. Despite

this clarification, only 23% of those contacted agreed to participate in the interviews.

The other 77% either refused to participate or were unreachable. In addition, out of

those who agreed to participate, only three were willing to answer all of the questions

openly and without hesitation. Other respondents, at some point or another, stated

that the information sought was proprietary. In addition, all retailers commented that

their willingness to participate in the research was due to one, or all, of the following

reasons:

1. Social Compact’s status as a not-for-profit organization,

2. the retailer’s own strong relationship with ICSC and/or

3. their knowledge of Social Compact’s efforts to promote sustainable economic

development in a variety of cities across the United States.

8
 B. The Site-Selection Process

All retailers interviewed have a real estate department that leads the site-selection

process. In addition, at least half of them hire outside real estate agents to work with

the internal team. Generally, all retailers follow the four steps described below:

1. Determine the number of stores they want to open, the time frame for

opening and in which cities.

2. Gather demographic and business data to determine where, within each city,

market demand can support their business.

3. Do some groundwork5 to assess:

a. land availability in a location that makes sense (i.e., a business selling

breakfast products would want a location in an area with substantial

morning traffic),

b. the location’s visibility, access routes and the existing neighborhood

customer base and

c. potential barriers to successful retail development.

4. All the information is then placed in proprietary models that incorporate

performance data from existing stores. Retailers use these models to estimate

the potential performance of a store at the selected location. Consequently, as

retailers open new stores or branches in similar neighborhoods their predictive

models become more and more accurate.

While these steps describe the general site-selection process that all retailers

follow, there are certain variances and caveats worth noting. At least half of the

retailers interviewed mentioned that the data gathered for the site-selection process

5
This particular step (the groundwork) is not common to all industries. Big box retailers and grocery
stores are most likely to conduct such kind of assessments. Retailers from other industries might or might
not partake in such a process.

9
does not always match their intuition, especially with respect to inner-city

neighborhoods. In this case, retailers respond by:

1. seeking alternative data that corresponds to their intuition,

2. gathering evidence about the market potential of certain areas,

3. conducting their own field research to do a “reality check” about the site under

consideration and/or

4. investigating incentives that could potentially decrease the cost of opening

stores.

For example, one interviewee shared that, in cases where traditional market data

does not match their intuition about a neighborhood’s market potential, the real estate

team takes a trip to the site and nearby supermarkets. According to this respondent,

visiting a neighborhood grocer provides a sense of that particular neighborhood’s

demographics (ethnic composition, age, etc.).

C. Driving Indicators

When assessing a potential location all retailers pay close attention to the total

number of people and/or households in an area and household income. It is important

to note that nine of the respondents affirmed that median household income gives a

better measure of household buying power than average household income. In fact,

three out of those nine mentioned that they only take into consideration median

household income. All interviewees agree that, in urban areas, determining a site’s

suitability involves not only income or the number of households per se. They consider

the complex relationship between these two indicators in addition to social

characteristics such as homeownership, educational attainment and average household

size, as well as physical characteristics concerning traffic, access, visibility and nearby

competitors.

10
 Indicators that impact site selection also vary by industry and specialization. While

a children’s clothing store considers school enrollment data, a home repair store will

likely examine homeownership or home sale values.

Table 1 depicts the list of indicators (in alphabetical order) that respondents use

when determining new store locations. Table 2 indicates the minimum site requisites

by industry and the desired trade area. The two tables demonstrate the range of

information retailers depend upon to aid their site selection and the variety of

characteristics that can define an ideal market.

Table 1. Site-Selection Indicators

1. Average Household Size
2. Average Income
3. Competition (presence, type and location)
4. Crime
5. Daytime Population
6. Educational Attainment
7. Ethnic Composition
8. Homeownership
9. Home Sale Values
10. Income Change
11. Major Employers in the Area
12. Median Income
13. Neighborhood Orientation
14. Number of Households
15. Pedestrian Traffic
16. Population Change
17. Population Size
18. Visibility

D. Data Sources

All respondents affirmed that the data used in market predictability models comes

from a variety of sources. Eight of the 13 retailers affirmed that they combine data

purchased from proprietary sources (i.e., PopStats) with data that they collect on their

11
own. Among interviewees, the most commonly used data sources are: U.S. Census

Bureau, Claritas,6 PopStats and the United States Postal Service (USPS).

Table 2. Minimum Requirements and Trade Areas

INDUSTRY INDICATORS URBAN SUBURBAN
Grocers 1. Number of People Varies
2. Population Size 50 K
3. Median Income 30 K
4. Trade Area 1- to 2-mi. radius 2-mi. radius
Traditional Financial Service 1. Number of Households 10 to 12 K
Providers
2. Median Income Varies
3. Trade Area 1–mi. radius 2-mi. radius
Big Box Retailers 1. Number of Households Varies
2. Median Income Varies
3. Trade Area 3- to 5–mi. radius Varies

Retailers’ data-collection methods vary and range from sophisticated customer surveys

to simple tactics such as observing and counting patrons in a grocery store.

E. Desired Indicators

Retailers expressed a general satisfaction with their ability to gather data and/or

find alternate ways (such as site visits) to successfully evaluate a potential site.

However, when asked which market indicators they desire that are currently

unavailable to them, the three most common answers were: indicators that show

short-term neighborhood change, ethnic composition and educational attainment.

Table 3 contains a complete list (in alphabetical order) of all the answers to this

question. Once again, special emphasis should be placed on the fact that when talking

about neighborhood change the focus is on future change. The big question is, how

would this neighborhood look one, two or five years from now?

6
Claritas is a marketing information company that generates census-derived economic and demographic
profiles to inform businesses and their decision-making process.

12
 Interviewees’ responses indicate that retailers may be unaware of the extent of

data currently available. For example, at least half of retailers interviewed mentioned

that they would like to have data that demonstrates neighborhood change. However,

these retailers also affirmed they did not use, nor were they familiar with, Home

Mortgage Disclosure Act (HMDA) data. HMDA data sets contain the annual incomes

and ethnicity of individuals who purchase homes and home sale values – information

that can help determine neighborhood change over time.

Table 3. Unavailable but Desired Indicators

1. Daytime Population
2. Educational Attainment
3. Ethnic Composition
4. Household Change
5. Income Change
6. Pedestrian Traffic
7. Population Change

F. Barriers to Retail Development

While a number of possible impediments factor into opening a store in a particular

location, this study reveals that the three most common barriers in urban settings

include land availability, sufficient market demand for a particular business and evidence

of that market demand.

It is important to note that such barriers do not necessarily impede retail

development. At least three of the retailers interviewed mentioned that some

obstacles, such as a presence of gangs, the homeless and drug users, might initially

cause concern. However, if the retailer thinks the location makes sense for business,

they will take the measures necessary to respond to such barriers. In this particular

case, the retailer simply provided additional security in and around the store. In certain

instances, however, barriers unrelated to market potential, such as those mentioned

13
above, may prevent retailers from opening stores in certain locations. This is more an

exception than a norm.

G. The Power of the People

One interesting and important factor that governments and developers should

consider in their retail attraction strategy is the power of the people. One interviewee

shared how residents pursued them to open a location in a neighborhood that did not

meet their selection criteria. Determined to attract this particular retailer, area

residents organized a series of visits to the company and wrote individual and group

letters asking the retailer to consider a location in their neighborhood. According to

this retailer, the company’s main goals of serving and honoring the customer’s opinion

factored into the decision to open a store in that location.

H. Predictability

Overall, retailers affirmed the accuracy of their models when predicting new store

revenues. Although urban stores perform differently from each other in different cities

and neighborhoods, at least five interviewees affirmed that in many cases sales volumes

of inner-city stores surpassed their expectations. Respondents also noted that as they

open more locations in urban areas, in general, and in inner cities, in particular, their

models continue to improve, enhancing their understanding of these markets.

In addition, it is important to note that sales volumes do not always align with

profits. Determining the most “profitable” items in a particular market is another piece

of the puzzle that retailers struggle to figure out. In cases with high sales volumes but

low profits, it takes retailers longer to determine the high-profit products purchased

by customers on a regular basis. Some retailers, aware that urban markets present

sizable untapped potential, make ongoing efforts to better understand the complexities

of the urban market. Other, less responsible, retailers respond by selling frequently

14
purchased products at higher prices in the stores where sales volumes do not

correspond to sales revenues.

Findings by Industry

Access to traditional financial services and fresh food are essential components of

comprehensive community development, yet many mainstream financial institutions

and supermarkets tend not to invest in the inner city as they are largely unaware of

the economic potential. As a result, many urban neighborhoods have fewer traditional

financial institutions and grocery stores per capita than suburban neighborhoods. Given

Social Compact’s concern with access to groceries and financial services, and because

of government and residents’ desire for big box retailers, this study presents a few

additional insights for each of these industries.

A. Grocery Providers

An absence of affordable, quality food does not necessarily result from lack of

market demand and can lead to demonstrable health complications such as obesity,

diabetes and hypertension (Gallagher, 2006). Understanding the demand for groceries

in communities is essential to development professionals and legislators as many urban

areas have begun crafting incentives for grocers to locate in their communities.

Compared to other retailers, grocery providers have a more complicated process for

site selection due to certain characteristics specific to the industry, such as the sale of

perishable goods and customer demand for low-priced products.

Interviewees noted that the vast majority of inner-city grocers have large sales

volumes that, in many instances, do not necessarily translate to profits, citing stores

that struggle to make a profit although they are crowded at any time of the day.

“People buy a lot of items,” said one respondent, “but not the products that have

profit margins. Other retailers solve this problem by raising prices in inner cities. [We]

15
don’t. We are trying to get a better sense of products where we can make a profit in

these neighborhoods. In the mean time, we prefer not to service the areas where we

cannot offer good prices. In suburban areas people tend to have higher incomes and

take home a basket of products that contains products with higher profit margins.”

The grocery industry appears to be one of the best at understanding the

investment potential and complexities of urban markets. Respondents’ answers

revealed that although grocery retailers use a variety of indicators, the number one

decision-driver for store location in urban neighborhoods is population density within

the trade area.

Grocers’ site selection begins by gathering market information (including income

and population) at the neighborhood and block group level. Using these numbers, a

proprietary formula tells them the average amount a household will likely spend on

groceries. The model then assesses how resident expenditures, within a given trade

area, may be impacted by barriers such as competing stores, transportation and social

barriers (i.e., real or imagined boundaries and perceptions of safety7). Retailers also

clarified that their site evaluation does not concentrate on a one-time snapshot of a

particular neighborhood; rather it incorporates analysis of historic trends, current

numbers and projections of the future population.

Market competition appears to be another fundamental factor for this industry.

Grocery providers explained that competition does not necessarily include all those

that sell food. In fact, large supermarkets claim their fundamental competition comes

only from other full-service supermarkets and/or large discount stores, such as Target

7
A few respondents mentioned that visits to the site are important to the site-selection process
because important factors may not be apparent in the data. For instance, respondents revealed that
when a low-income neighborhood borders a high-income neighborhood, it is very unlikely that people
from one neighborhood will go to the stores located in the other. A product mix which may not meet
the needs of some residents, perceptions of safety and relative discomfort when navigating other
neighborhoods are likely to contribute to such behavior.

16
and Wal-Mart superstores, which also provide numerous food products. Grocers take

into account the presence of mini marts, drugstores and/or convenience stores, but do

not consider them major competitors. When competing stores exist in a particular

neighborhood, retailers affirmed that competitors’ performance in those

neighborhoods becomes a critical indicator of market strength. Other, less important,

factors (such as parking, traffic counts and crime) vary city by city.

While grocery providers agree that it is hard to define a trade area for inner cities,

because it varies by location, an urban grocer generally serves customers within a two-

mile radius of the store. Obviously, there are exceptions. For instance, one respondent

affirmed that, “in Chicago, density is so high that the trade area is significantly smaller.”

However, when assessing their competition, grocers consider the presence of other

grocery retailers within a three-mile radius. Several interviewees stated that grocery

retailers measure demand as a ratio of grocery retail space per capita; a trade area is

considered underserved when the grocery store space servicing one person is less

than 3 sq. ft.

Specialty grocery providers (such as organic grocers) have an even more

complicated task when conducting their site-selection process. In this case,

respondents affirmed, it is not simply about population density but concentrations of

specific customers. Specialized retailers in all industries – not only in the grocery

industry – use indicators such as number of college graduates or homeowners to

determine market demand. With a middle-income or wealthier targeted market,

retailers feel comfortable using census or census-derived data because of the likelihood

of this population segment to be accurately portrayed by census demographics. In

instances where the targeted market consists of lower-income residents, retailers

struggle to find accurate and timely data.

17
 When asked which government interventions can make a site more attractive,

grocers responded by noting that most incentives will only subsidize a very small, and

in many cases, insignificant amount of a grocery store’s expenses. For instance, one

respondent revealed that rent makes up 2% of the grocer’s fixed costs. According to

the Food Marketing Institute (FMI) the median rent percentage to sales in 2006 was

1.7%. That same respondent affirmed that, in some cases, even with an offer of a

location free of charge, they still turned down the offer. Grocery providers also

observed that government incentives are generally small and likely to come with

restrictions. Pedestrian traffic appears to be the one thing that can encourage new

private investments according to most respondents.

B. Financial Institutions

Limited access to traditional banking and financial services has long been a barrier

to wealth creation in marginalized communities. This lack of access often translates to

higher costs for basic financial transactions (Barr, 2004). Communities facing a high

presence of check-cashing institutions, pay-day loan centers and other predatory

financial service providers fall victim to higher transaction fees; a recent study found

that “borrowers pay $4.2 billion every year in excessive payday lending fees” (King et.

al, 2006).

The site-selection process for traditional financial institutions is also unique when

compared to other retailers. According to respondents from this industry, a key

indicator of market viability is the total number of households. In general, banks think

that a market of 10,000 to 12,000 households is likely to sustain a branch and generate

the desired profit. In suburban areas this number of households is generally

encompassed within a two-mile radius, while in high-density urban areas, a one-mile

radius will suffice.

18
 While market size is the key indicator that drives financial service providers’ site

selection, other indicators, such as income, are also important. This industry looks at

income differently from most industries. In general, retailers look for locations with a

number of households with a specified median or average income range. In the case of

traditional financial service providers, such as banks and credit unions, different

institutions cater to different niche markets. Thus, while some banks will look for a

particular population size with a median income higher than $50,000, others will

concentrate, for instance, on servicing lower- and middle-income households, focusing

on neighborhoods with a median income below a particular range.

Other important indicators for banks’ site selection include competition,

household density, population and income change, and pedestrian traffic. Interviewees

affirm that neighborhood change and pedestrian traffic matter most in urban areas, yet

this data is particularly hard to find. Thus, site selection in urban areas becomes more

complex. However, differences between urban and suburban bank branches are not

reflected in branch performance rather in the product mix that a bank branch will

offer.

For the most part, traditional financial institutions obtain data for their site-

selection analysis from the census or census-derived data. In fact, most respondents

within this industry affirmed that their regular data provider is Claritas. Respondents

noted that although they are aware of its particular flaws, they prefer census-derived

data because of the standardization of the data set obtainable for any geographic area.

Nonetheless, some financial service providers do use more nuanced and up-to-date

data sources, such as USPS postal counts, to validate what they intuitively know about

particular sites but cannot justify with data they traditionally use.

19
 Respondents from traditional financial institutions mentioned that a lot of their

business relies on local commercial and pedestrian activity. According to the

respondents, “finding good real estate” in developed areas is a challenge.

Consequently, cities need to promote redevelopment of retail cores in underserved

neighborhoods to make it easier for traditional financial service retailers to penetrate

inner cities.

C. Big Box Retailers

Big box retailers (i.e., Target, Wal-Mart, Best Buy, Linens-N-Things) have two

characteristics that make their site selection different from other retailers. First, big

box stores tend to have a suburban prototype for which finding an urban location is

unlikely and often impossible. One respondent from this category affirmed that “in

urban areas, the size and configuration of space is often a challenge and generally

requires dealing with more than one floor level.” Thus, these types of retailers need

either to adapt their store formats to urban locations or limit themselves to serving

suburban and/or suburban-like neighborhoods. In urban areas being flexible with size

plans, fixture plans and layout is essential. This is one of the disadvantages, and added

costs, that big box retailers face when moving into inner-city neighborhoods. Some

retailers have found innovative ways to make up for these added costs, such as

working in partnership with local governments and community-based organizations

(CBOs), particularly community development corporations (CDCs). These local

partners help with a variety of tasks such as assembling, cleaning and preparing sites;

support with infrastructure investment; as well as organizing community support.

Consequently, local groups (public and private) play a critical function in site-selection

processes for big box retailers in inner cities (ICIC, 2002). For those retailers who

have demonstrated their flexibility by developing urban models and adapting to the site

20
constraints of urban settings (i.e., building vertically instead of adhering to single-story

models), the payoffs are visible (ICIC, 2002).

Retail Development Perspectives: Implications for City Officials

The breadth of information revealed through these retailer surveys highlights the myriad approaches and

dynamic nature of retailer site selection processes which has significant implications for city officials:

1. Retailers look at locations from varying research perspectives. Cities should familiarize themselves with

these perspectives in order to understand what kind of retail is best suited for each potential development

site. Regularly scheduled forums as well as informal dialogues between city officials and retail site research

firms and developers can help cities in this effort. For urban areas, retail research firms includes three

types of research companies: 1) large institutional research companies like Claritas, Map Info, Asterop,

Experian; 2) non-profit national companies with research skills like Social Compact, LISC’s Metro Edge,

and ICIC and 3) regional retail site location experts like Matt Casey of MPC or Elliot Olson of Dakota.

ICSC’s research capabilities will also be useful in these efforts.

2. Retailers might be unaware of future growth and development plans around a particular location and

therefore require as much information about a site and city as possible. Cities should provide retailers

with future development plans, which might contain evidence that can change retailers’ decisions about a

site.

3. When contacting and talking to retailers, it is important that the city demonstrates commitment to the

project and willingness to smooth the process. Cities should be ready to overcome obstacles through

different methods such as reconsidering business licensing and permitting costs and complexity and

discussing incentives and benefits in the sites under consideration, etc.

4. Retailers are likely to move quickly when they believe a competitor might “steal” their site. Consequently,

cities should make sure retailers are aware that they are not the only possible option.

5. Not all development projects need to be prepared/organized as a “home-run.” Cities should recognize

that even small shopping centers or store renovations can be an important first step to future and more

substantial development.

Harvey Gutman, Brookside Advisors LLC

21
 The second unique characteristic about big box stores is that they are destination

retailers. Destination retailers face different challenges in the site-selection and

maintenance process given their ability to attract customers from a larger trade area

than other retailers. Similarly, where the desired market meets the retailer’s criteria,

big box stores do not depend on neighboring stores to generate customer traffic. A

typical trade area for a big box retailer in urban areas ranges from a three- to five-mile

ring radii, compared to other retailers’ one- or two-mile ring radii.

Respondents representing big box retail affirmed that finding a qualified, well-

trained pool of employees creates another barrier that they encounter in most inner-

city neighborhoods. Local players, can, and many times do, play an important role in

recruiting and training local workers, particularly CDCs, which can qualify for federal

grants that support such efforts. Thus, creativity and knowledge of the different

resources available for economic development become crucial. Other barriers

reported by big box retailers included parking, signage, visibility and real estate costs.

Many of these constraints (including the inability to find urban space that

accommodates suburban store models) are also true for large, full-service grocery

stores.

Conclusions

The secrecy surrounding retailers’ site selection in urban markets is not

surprising given its importance and the high level of competition within the retail

sector. While this study is unable to answer why there is such a disconnection

between retailers and available data sources, the following reasons may potentially

explain the situation:

22
 1. Traditional data providers, such as Claritas, dominate the field as the preferred

source of information regardless of other, sometimes more complete and/or

accurate, alternatives.

2. New data providers, such as the Federal Financial Institutions Examination

Council, have yet to successfully advertise their data products to retailers.

Further analysis is likely to provide more insights in this regard. What remains

apparent is that, rather than any one method, a combination of the analytics retailers

currently use to measure urban markets is likely to provide a more clear

understanding of inner-city market potential.

Furthermore, this study provides evidence regarding two fundamental aspects

about retailers. First, when analyzing site locations, retailers apply a variety of lenses.

Second, site-selection decisions are based on a large number of neighborhood

indicators and characteristics. Given this reality, it is apparent that both cities and

retailers will benefit from becoming better acquainted with the perspectives and

approaches of each other. In so doing, cities should share as much information about a

site as possible especially because cities may possess rich resources of past, present

and future, untapped and underutilized data that could have an impact on location

decisions. Cities’ supplemental information regarding development plans, phasing or

incentives uniquely available to certain sites could also be useful to retailers. Broader

dialogue and increased collaboration between cities and retailers can only serve to

bridge the information gap, resulting in shared understanding around urban

development.

The study does confirm that determining new store locations depends, in large

part, on retailers’ intuition and experience in particular markets and the field.

Nonetheless, findings reveal at least three important characteristics of retailers’

23
decision-making procedures regarding new store placement. First, all retailers follow a

few general patterns and sets of indicators to establish new store/branch locations.

Second, partly because of the differences between urban and suburban areas, retailers

want data that can help them effectively understand demographic change and

consumer behavior in urban areas. Finally, retailers need information on some existing

data sets that can provide the kind of indicators that they want.

Finally, the study highlights the need for further research regarding the

following two issues:

1. indicators (sources, adequate measures, hierarchy, etc.) and

2. how to measure, assess and/or quantify change in urban areas.

More specifically, the current analysis identifies three main areas for future

research: surveys, case studies and workshops. The surveys should focus on the

following two themes: a) determining general patterns and characteristics of urban and

suburban stores and b) obtaining further insight regarding indicators retailers use in

their site-selection processes. The current study barely scratches the surface regarding

indicators relevance, availability and usage.

The case studies should focus on both successful and unsuccessful urban retail

to shed a light on factors that can alter stores’ performance in underserved urban

markets. These studies are also likely to highlight differences between urban and

suburban retail.

Finally, the workshops would provide the ideal setting to connect retailers,

developers and city officials. These efforts would likely generate mutual understanding,

identify commonalities amongst both parties and ascertain areas in which both

stakeholders could benefit from collaborating with one another.

24
BIBLIOGRAPHY

Barr, M. (2004). Banking the Poor: Policies to Bring Low-Income Americans Into the
Financial Mainstream. Washington, D.C.: The Brookings Institution.

Gallagher, M. (2006). Examining the Impact of Food Deserts on Public Health in Chicago.
Chicago, IL: Mari Gallagher Research and Consulting Group.

Gillham, Oliver. (2002). The Limitless City. A Primer on the Urban Sprawl Debate.
Washington, D.C.: Island Press.

Gottdiener, Mark, and Ray Hutchison. (2000). The New Urban Sociology. Boston, MA: The
McGraw-Hill Companies.

Gutman, Harvey M. (Spring 2008). The Inner City Supermarket – Myths and Reality.
ICSC Shopping for Retail 2008. (forthcoming).

Kaufman, Phil, and Steven M. Lutz. (May-August 1997). Competing Forces Affect Food Prices
for Low-Income Households. FoodReview, pp. 8-12.

King, U., L. Parrish and O. Tanik. (November 2006). Financial Quicksand: Payday lending sinks
borrowers in debt with $4.2 billion in predatory fees every year. Durham, N.C.: Center for
Responsible Lending.

Miara, James. (2007). Retail in Inner Cities. Washington, D.C.: Urban Land Institute.

Porter, Michael E. (July 2002). The Changing Models of Inner City Grocery Retailing.
Boston, MA: Initiative for a Competitive Inner City.

25
Appendix A: List of General Questions for Retailers

1. Can you describe, in general terms, your business’ site-selection process?

2. What indicators does your business focus on when evaluating site selection? (i.e.,
how do you examine income density: are you more focused on median household
income rather than average household income; per capita income; aggregate income?
etc.)

3. Do you look at: ethnicity, crime and traffic counts data? If so, from which source do
you obtain this information?

4. What data and sources of data do you use for determining new store locations? Do
you use census or census-derived data?

5. What are the indicators that are more relevant for your site-selection process?

6. Are you willing to look at alternate data sources? What indicators or factors would
be attractive in an alternative data source?

7. What are the minimum necessary conditions that must be met before your business
chooses to place a new store or branch in an inner-city neighborhood? Are these
conditions different in suburban areas?

8. What is the trade area for businesses’ inner-city branches? Is the trade area different
in suburban areas?

9. When making site location decisions, does collocation with retailers factor into the
decision? If so, how? Does the presence of competing or sister businesses affect your
site-selection process? If so, how?

10. Do you limit the number of stores or branches that you place in a particular trade
area? For instance, would you place one store or branch 10 blocks away from
another? Is there a minimum distance between your stores or branches? If so, how is
that distance determined?

11. How do you see urban markets? Are you considering any locations in urban
markets? Does the average size of your branch limit your ability to enter urban
markets?

12. Can you think of any types of possible interventions (i.e., street-scaping, improved
access to parking, increased police presence, etc.) that might be necessary to reduce
barriers to entry in urban markets?

13. How do your inner-city stores or branches perform when compared to your
suburban ones?

26