LONG BEACH, Calif. -- Inner-city supermarket sites can yield fat volumes if chains can work out the locational snags, real estate executives from Lucky Stores and Ralphs Grocery Co. said at a shopping center symposium here.
Bernie Labowitz, real estate manager for American Stores Properties, Buena Park, Calif., and Patrick Barber, group vice president of real estate for Ralphs, Compton, Calif., spoke in a panel discussion this month at the Small Center Symposium held by the International Council of Shopping Centers, a New York-based shopping center trade group.
Much of the talk at the event -- whose attendees included retailers, developers and municipal officials -- revolved around political problems encountered by retailers and developers who try to build stores in inner-city locations.
According to Labowitz, the Lucky Stores division of American Stores Co., Salt Lake City, has not always been enthusiastic about opening stores in such areas. "But top management has changed over the years, and that has had an impact," he noted.
Inner-city locations are desirable, he said, "because of the bottom-line results."
"Although rents are two or three times higher than in the suburbs because space is so limited, retailers can do a tremendous volume there, despite higher shrink and security costs," Labowitz explained. Security costs usually are shared with other stores in the shopping center, he added, and in some areas a police substation may be included as a tenant in the center to discourage potential theft. "But we now understand how these stores work, and we're seeing better results at stores in locations we once questioned. And it's only a matter of time until we get more involved in inner-city locations," Labowitz said. However, political forces have often made it more difficult for Lucky to obtain inner-city locations, Labowitz noted, "and that has been a source of frustration for us." Barber remarked on the 12-year struggle Ralphs has had trying to open a store at an inner-city location that will serve a population of 93,000 people within a 1-mile radius. "This is a classic example and a worst-case scenario of what can happen and how politics can hold you up," he said. Although Ralphs has owned the land since 1984, it was only recently that store construction began, Barber said, "and politics played a big part in the delay." Lou Collier, a consultant with ties to the African-American community, responded to the two retailers' comments, saying, "The local community delayed Ralphs because the people there felt Ralphs would destroy the smaller markets in the area. And it was the community that came to Lucky to build a store in their area." Retailers and developers should consider partnerships with inner-city communities, Collier said. "And you need to have someone to facilitate the process, because if you go in with a typical management attitude, the community will assume you view them simply as a commodity to make money off of," he explained. Urban residents have "many misconceptions" about supermarkets, according to Barber, who worked for Boys Markets, a chain heavily involved in the black community before Ralphs acquired it last year.
"On average, customers in those areas spend $30 a week at the supermarket, so if there are 15,000 people in the area, that's a potential $450,000 in sales," Barber said.
"But 20% of the business goes to nonsupermarket outlets that attack us and try to get into our business, and mom-and-pop stores get some of the action. In addition, a number of independents operate nonunion stores, which gives them a huge cost advantage, and we must deal with all these operators and compete on price, variety and quality while keeping our costs manageable." Labowitz said he agreed that all operators, regardless of size or format, are supermarket competitors if they sell food, "including a snack shop in a gas station down the street." Asked if chain stores really merchandise to the community, as they claim to do, Barber said, "It's fashionable to say we do, but it's not always true." He cited the Tianguis stores that Vons Cos., Arcadia, Calif., operated in the Hispanic community. "It was a noble experiment, but we knew from day one it would fail because it's hard for a company with 200 stores to focus the time and energy of management to make any one or any 10 stores the best they can be," he said. Ralphs has the ability to merchandise to consumers in the inner city because it operates a number of stores in the area, Labowitz noted. "We don't have that luxury at Lucky," he said. "We tried a Hispanic format, but it was just money out the window." Asked about competition from supercenters, Labowitz said Lucky competes with some Wal-Mart and Kmart supercenters in California's central valley, "and it's up to us to make it better for consumers to shop at a Lucky instead of one of the big-box stores by offering better convenience and service." Responding to a question on whether Ralphs would rather be in a shopping center with a club store or a supercenter, Barber said, "Our perception is that warehouse membership clubs have less impact on our individual stores, and we wouldn't mind being in the same center with them to get the benefits from the traffic they draw. "Supercenters, however, are direct competitors, and we'd prefer not to see them at all. But we don't expect supercenters to be a factor in southern California for a long time because of the cost of land."