Despite the large retail purchasing power of their residents, many of the Nation's inner-city neighborhoods suffer from significant "out-shopping"they have too little retail to meet demand and tap the buying power of their own residents. A significant information gap inhibits inner-city business development, including retail expansion. Traditional sources of business data are often illsuited to measure special features of the urban economy. However, inner-city residents typically spend a higher proportion of household income on retail items, especially food and apparel, than other households.
The economic potential in America's low-income communities, both urban and rural, is enormous, according to New Markets: The Untapped Retail Buying Power In America's Inner Cities, recently released by the U.S. Department of Housing and Urban Development. The report focuses primarily on the strong growth potential in many inner-city neighborhoods that are currently underserved by retail stores. The barriers to business development in these new markets include, most notably, the lack of access to capital and technical expertise. Closing this capital gap is the hallmark of President Clinton's proposed New Markets Initiative for inner cities and distressed rural areas.
Although rural and urban economies differ in many ways, major untapped markets exist in rural America, too. Thanks to the information revolution and other economic trends, businesses are increasingly mobile. Businesses can reach their customers from strategic rural locations that offer competitive advantages, such as inexpensive land and lower average labor costs. Creative businesses, often in partnership with governments, nonprofits, and faith-based organizations, are making profits and growing the job base in many rural communities.
New Markets finds that inner-city neighborhoods possess enormous retail purchasing powerestimated at $331 billion last year, or one-third of the $1.1 trillion total for the central cities in which those neighborhoods are located.
The report also finds that despite their huge buying power, many of America's inner-city communities are under-retailed, with sales that fall significantly short of residents' retail purchasing power. The total shortfall was $8.7 billion last year for the 48 inner-city areas in which HUD found a retail gap. Retail sales in the economically distressed inner-city neighborhoods of Chicago fell $2.3 billion short of the retail buying power of residents in those communities. Inner-city neighborhoods had an aggregate retail gap of more than $379 million last year in Washington, D.C., of $445.5 million in Watts, of $441 million in Detroit, of $658 million in Newark, and of $49.6 million in East St. Louis, Illinois.
Urban locations, particularly inner-city neighborhoods targeted by the President's New Markets Initiative, typically offer a critical advantage for retailers: density of demand. The higher population density of most inner-city neighborhoods more than balances out the higher average household incomes in spread-out suburban areas. There are new markets in rural America as well, including communities that have had high poverty and jobless rates for decadesareas such as Appalachia, the Mississippi Delta, Indian Country, and the Colonias. Rural communities have often been more isolated from the investment capital that cities attract because they often present a narrower economic base, at least initially; a dispersed labor force; and modest infrastructure. The counties in the Mississippi Delta have $95.7 billion in retail purchasing power, the counties in the Kentucky Highlands in Appalachia have more than $1.3 billion, and the Pine Ridge Reservation in South Dakota has $60 million.
To help close the capital gap that acts as a barrier to business development in new markets, the New Markets Initiative will build a national network of private investment institutions to provide the capital and expertise needed for businesses to flourish in inner cities and distressed rural communities. The private sector will provide the time, energy, and creativity needed for successful investment in low- and moderate-income areas, while entrepreneurial and forward-looking governments help create the needed institutional framework. Together, they can help bring jobs, quality retail markets, and a stronger tax base to all communities, especially those that face economic distress.
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