May Issue: E Pluribus Retail

America’s diversity drives investment, development.
Diversity

At the corner of 51st Street and Lake Park Avenue in Chicago, a pioneering project is taking shape. When it opens next year, City Hyde Park will offer 144 market-rate apartments and another 36 affordable units in a 15-story tower marked by stacked concrete panels and cantilevered balconies designed by the Studio Gang, a Chicago-based design firm.

But the real milestone of the Silliman Group’s $115 million project is embodied on the ground floor: Hyde Park’s first Whole Foods. The upscale grocery chain’s debut represents a rare, if not unprecedented, embrace by a national retailer of a neighborhood that has gone through a half century of tumultuous change. Once almost exclusively white, the area has evolved through white flight and a controversial urban renewal program to become the vibrant, ethnically diverse community that it is today.
Hyde Park is a microcosm of the transformation of a nation that is becoming younger and more culturally diverse every year. By mid-century, the United States will be a “majority minority” nation. In 2010, slightly more than six in 10 Americans were classified as white non-Hispanic; by 2060, fewer than five in 10 will be, according to the U.S. Census Bureau.

As it gets younger, the country is also becoming more diverse. Among Baby Boomers age 50 to 60, 29 percent are members of multicultural communities, defined here as Hispanic plus non-white. Likewise, 35 percent of their counterparts between 45 and 50 are multicultural. But fast forward a couple of generations and the trend becomes clearer. Among Millennials 20 to 29, nearly 45 percent are in diverse populations. And 51 percent of children nine years old or younger are multicultural.

That represents both a remarkable challenge and a remarkable opportunity for retail real estate investors, developers, advisors and retailers themselves: How to serve a population that is getting younger and more diverse. And it also reflects untapped opportunity that often seems to hide in plain sight.

This paradox is amply illustrated by the example of retailers’ inadequate attention to Hispanic Americans. Millions of them reside in urban neighborhoods that rank among “the densest and most vibrant in the nation, and yet very little high-density development is occurring,” said Arturo Sneider, CEO of Primestor Development.

Founded in Los Angeles more than two decades ago, the firm has made a mission of creating high-quality urban retail centers, often in areas with a large Hispanic population. Sneider named a variety of categories for which Hispanic customers offer unrealized potential markets, ranging from sporting goods and sit-down restaurants to fashion-forward retail and men’s apparel. Taking a broader view, Sneider sees the most attractive setting for urban retail as dense, mixed-use projects that fully integrate housing, transportation, entertainment and shopping.

To explore the links between demographic trends and retail real estate strategy, CPE annually teams up with the Nielsen Co. The goals of the collaboration are to highlight major demographic trends that are influencing retail real estate and provide resources for investment and development strategy. This year’s focus is on multiculturalism’s impact on retail real estate.
Fast-Track Diversity
For retail real estate decision-makers, the trends indicate that diversity is growing fastest in a handful of urban centers. From 2015 to 2020, multicultural populations will increase fastest in California, Texas, Florida and New York. “In general, these are the high-growth states, given that diversity is the growth driver for the nation overall, as non-Hispanic white populations decline or flatline,” explained Mike Mancini, Nielsen’s director of thought leadership for consumer activation.

marshallsjpgBut Nielsen’s analysis also underscores the concentrated nature of that growth. Out of 3,143 counties in the U.S., nearly one-third of the growth in multicultural populations from 2015 tot 2020 will be generated by only 25 counties, even though those counties comprise only 20 percent of the total U.S. population. Each of the top three counties will gain more than 200,000 new multicultural residents: Los Angeles County; Harris County, Texas, which encompasses Houston; and Maricopa County, Ariz., which overlaps with Greater Phoenix.

The next 13 counties among the top 25 will gain at least 100,000 new multicultural residents by 2020. True to form, the big four states are also heavily represented among that group, but so are Las Vegas and King County, Wash., which includes Seattle. (View a detailed breakdown of the fastest-growing U.S. counties.)

Evaluating the opportunities, however, requires recognizing that demographic change is also unfolding beyond the largest markets, if perhaps on a smaller scale. Nielsen includes 75 counties in its second quintile (the next 20 percent of the U.S. population), and 33 of them are outside the four fastest-growing multicultural states. For example:
■ Wake County, N.C., the home of Raleigh, will increase its population of one million by 50,000 new multicultural residents.
■ Atlanta comprises about 90 percent of Fulton County, Ga., which is on track to add 49,000 minority residents to its population of 1.1 million.
■ Columbus is both the capital of Ohio and the seat of Franklin County, which has a population of more than 1.2 million. It will add about 37,000 multicultural residents by 2020, according to Nielsen.
■ Oklahoma County, whose seat is Oklahoma City, will grow its 773,000 or so residents by about 33,000 minority residents.

Retail property owners, investors and managers with a presence in diverse communities are likely aware that Hispanic Americans account for the fastest-growing segment of the population. As Nielsen points out, by 2020 they will comprise about 54 percent of U.S. population growth. That proportion will jump to 64 percent by 2030 and 85 percent by 2060.
Though “Hispanic” and other major categories are useful for grouping retail consumers, however, they only partly reveal the diversity of each group. As Nielsen Pop-Facts Demographics points out, the 55 million Hispanic Americans represent 21 countries of origin plus Puerto Rico. The overwhelming majority—62.8 percent—cite Mexican heritage; origins in Puerto Rico are reported by 9.3 percent, and Cuba is represented by 3.5 percent.

The nearly 16 million Americans of Asian heritage are similarly diverse: Topping the list of countries of origin is mainland China (22.3 percent), India (19.3 percent) and the Philippines (17.3 percent). Among other Asian countries of origin, only Vietnam, at 11 percent, exceeds double digits.
Mixed Record
The retail sector’s track record of acknowledging and meeting the needs of a diverse nation is mixed, creating both opportunity and room for improvement. Some executives point to progress in bringing national brands to once-overlooked communities.

“Operators such as Marshall’s, Ross Dress for Less, Michael’s, ULTA (Beauty) and Petco have done an outstanding job in opening and operating stores in such communities,” said Sneider. Those retailers, he explained, “have gone aggressively into local hiring, local community integration efforts and very targeted bilingual social media. They exemplify an understanding that the Latino consumer is connected, active, price-sensitive, savvy and very loyal.”

Last year, Primestor opened azalea, a 375,000-square-foot open-air regional center located in South Gate, a city in southeastern Los Angeles County. The center’s marketing materials tout attractive demographics: nearly 390,000 residents within a three-mile radius and more than 900,000 within five miles; 36 percent of households with annual income of at least $50,000; a trade area with $6.5 billion in buying power; and, significantly, a population that is 85 percent Latino.

At the heart of Primestor’s approach is creating a partnership with the community in order to tailor the retail center to its needs. “It was important to the community that we build a modern project that shows the progressive and forward-thinking mentality of this vibrant city,” Sneider recalled. “Having young and, often, large families, the neighbors wanted a large area in which kids could play in the pop-up fountain because of the limited park space in the area; we delivered on that.”

Primestor also listened carefully to the community’s ideas about the selection of food at azalea, and the result was a lineup that includes non-ethnic and mainstream choices for both sit-down and fast-casual dining. Even the unusual choice of the community’s name, inspired by South Gate’s official city emblem, was selected with community input. (Read CPE’s in-depth article on Sneider and Primestor, “Pioneer Spirit,” which appeared in the October 2014 issue.)

Not every retailer has sought to be part of such community effforts, however. In fact, with some noteworthy exceptions, “the retailers have not done a good job of appealing to multi-ethnic and multicultural communities,” argues Jeff Green, veteran retail real estate consultant and principal of Phoenix-based Jeff Green Associates. “I think what retailers need to realize is that the pot is stirring even more.”

Among retailers that have been ahead of their time in embracing diversity, he cites Estee Lauder and its 30-year-old MAC (Make-Up Art Cosmetics), products geared to customers of all ethnic backgrounds. On the retail development side, he cites Silliman Group’s City Hyde Park and its retail anchor for providing leadership.
“You’ve got to give Whole Foods credit,” Green added, predicting that the grocery chain’s vote of confidence will open the door to other national retailers. It could also hasten the reversal of a longtime tendency among local residents to travel outside the neighborhood for most of their shopping. “Retailers are waking up to Hyde Park,” Green said.
Fresh Flavors
For retail real estate stakeholders, success in majority-minority and diverse markets calls for recognizing both commonality and cultural nuances. Though generalizations should always be taken with a grain of salt, the custom of making multiple weekly trips to the food market is often carried on in Asian-American and Latin American households. “If you can really … capitalize on that, you can increase your sales substantially,” said David Jamieson, Kimco Realty Corp.’s senior vice president for asset management.

Cultural traditions are flavoring Kimco’s redevelopment of Cupertino Village, an upscale 98,000-square-foot grocery-anchored center in Cupertino, Calif. Of note, the property is located across the site where Apple is building a spaceship-like new headquarters.

To serve a trade area with a strong Asian-American contingent, Cupertino Village features retailers to match. Its anchor, 99 Ranch Market, is a specialty grocer owned by Tawa Supermarket Inc. that features items associated with Asian cultures. For Kimco, the store was an attractive choice because of its reputation as a customer magnet. “What we’ve been told is that they pull from approximately 20 miles out,” Jamieson said.
Asian-flavored touches also mark a 24,000-square-foot expansion project currently underway. Landscaping for the expansion will complement existing features that incorporate feng shui, the ancient Chinese art and science of creating harmony in a space, while adding a new modern aesthetic, Jamieson explained.

As the United States evolves toward ever-greater diversity, another compelling issue to watch is one that dates back before the nation’s founding. As Jamieson put it: “Now, as the second generation and third generation became a more prevalent force, where do the traditional sides of their culture get preserved, and where does it blend in?”
No two communities, families or individuals will answer that question in exactly the same way. Retailers, investors and developers will need to follow that ever-evolving, winding path to maintain the inside track to success.