Understanding the Retail Business Potential of Inner Cities

By Weiler, Stephan; Silverstein, Jesse et al. | Journal of Economic Issues, December 2003 | Go to article overview

Understanding the Retail Business Potential of Inner Cities


Weiler, Stephan, Silverstein, Jesse, Chalmers, Kace, Lacey, Erin, Rogers, William, Widner, Benjamin, Journal of Economic Issues


Inner city areas are often significantly "under-stored" (Loukaitou-Sideris 2000), with inadequate opportunities for residents to shop near their homes. More residents are transit dependent in inner cities than in the general metro area, making them even more constrained to local choices. But which types of establishments are needed in which locations? Given their isolation from the economic mainstream, marginalized communities may be the least able to provide information regarding development possibilities. Yet they would also be likely to benefit substantially from such knowledge, given that inner city markets are the focus of less attention than those of economically successful communities.

This paper develops methods to bridge this informational gap. Such gaps produce particularly regressive forms of market failure, where economic isolation and stagnation reinforce each other. Business opportunities are likely to exist in the inner city, but private capital's focus needs to be reoriented to such possibilities. Public entities may help more by analyzing and providing information than by organizing and implementing top-down programs. Universities may be particularly well suited to bridging informational gaps (Weiler 2000a). In that spirit, this study represents a further effort in constructing a new form of public-private partnership, where each party concentrates on its relative advantage. Under this scenario, publicly supported actors analyze and disseminate promising economic information, while private actors construct and manage the resultant entrepreneurial efforts.

Retail sales gaps have been found to be significant for a number of cities. Boston, New York City, Miami, Chicago, Atlanta, Oakland, Baltimore, and Memphis have been examined closely (BCC and ICIC 1998; Porter 1997; and REDC 1998). The U.S. Department of Housing and Urban Development (HUD) published a report estimating retail sales gaps for dozens of cities across the nation (HUD 1999), which highlights many substantial retail gaps in inner city areas. However, total dollar sales gaps do not provide important details about specific shopping needs that go unmet, such as the lack of grocery stores. Inner city areas can be large and often need to be understood as separate market areas. Finally, most studies have been done with proprietary data and analytical methods, which makes standardized comparisons virtually impossible. Given these concerns, municipalities need standardized methods to address specific retail needs by geographic area.

This paper asserts that missing information is a key element hindering economic development in inner city areas and sets forth a replicable method to provide such information on potential retail business opportunities in such areas. The key element of this method is a set of econometric techniques that can be applied to publicly available data to estimate retail sales gaps using Denver, Colorado, as a case study. The technique is equally applicable to more rural areas facing similar gaps, which suggest similar opportunities. While the issue of missing information and resulting methodologies are the major scholarly contributions of this paper, the case study of inner-city areas in Denver itself suggests numerous retail gaps that present the practical potential for private capital to leverage socially beneficial entrepreneurship. Objective clarification of business opportunities is likely to be especially useful for resource-constrained potential local entrepreneurs and their small-scale shops, who can use such information to sharpen business plans and support financing applications.

The next section evaluates previous research in the area of inner city gaps. The third section considers informational barriers to entry in inner city markets. A detailed description of our methodology is presented in the fourth section.

The Overlooked Promise of Inner Cities

When many retailers consider locating in the inner city, they think of the drawbacks and decide to move elsewhere.

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