Editor’s note: Robert Weissbourd is executive vice president of Shorebank Chicago Companies. Shelly Herman is managing director of Shorebank Advisory Services. Christopher Berry is a senior consultant to Shorebank on modeling, data analysis and research related to inner city business markets. Shorebank Corporation is a Chicago-based community development bank.
Businesses of all sizes searching for new markets are finding the most lucrative opportunities in their own backyards. America’s inner cities offer dramatically underserved markets with an immediate and vast potential for growth. For example, Chicago’s South Shore neighborhood -- still frequently stereotyped as a place populated by the poor, unemployed and disinvested - has nearly twice the buying power of Kenilworth, one of the city’s wealthiest suburbs. As a result of high population density, South Shore also has more households with incomes greater than $50,000 than its affluent suburban counterpart.
Nationally, over one-third of all consumer expenditures are made by individuals with reported annual incomes of under $30,000 - a staggering $920 billion of purchases a year. Despite these demographics, demand continues to outstrip supply in almost every retail and service sector in the urban market. Residents in neighborhoods like South Shore are forced to travel outside their communities to meet even their most basic retail and service needs. This phenomenon of expenditure leakage is nearly twice as high in South Shore as the average Chicago community.
How can the market opportunity be so great, yet go virtually unseen? What defines economies and moves markets is information: market intelligence on who the best customers are, what they want, where to find them, and how best to reach them. In our Information Age-economy, market intelligence is the single most valuable commodity to business. Yet, the traditional market data needed to identify business opportunities in inner city neighborhoods is frequently unavailable or unreliable. This lack of essential market information has prevented most businesses from identifying and investing in the significant opportunities in the inner city.
Some corporations, such as Bank of America, State Farm Insurance, Del-Ray Farms, and Walgreen’s, have ventured into the inner city - often in spite of their data and models indicating little potential - and have found rapidly growing markets and high returns. These success stories, combined with new data confirming unexpectedly strong economic activity, have led to a growing recognition of untapped markets in the inner city. However, companies still need practical, operational tools in market and site selection to move from recognizing broad market potential in urban neighborhoods to identifying a particular site, product mix and marketing opportunities.
Data unavailable
Specialized business data and models on inner city market potential have been unavailable in the past. Conventional business data sources - ranging from census income data to private vendor household databases - grossly underestimate inner city market potential, or often do not even exist for inner city markets. In an effort to close this “inner city information gap,” Chicago-based Shorebank Corporation created The Business of Neighborhood Markets Initiative. The Initiative is working with corporations, private data vendors and market research firms to create new market intelligence, specialized tools and operating partnerships for profitable inner city investment.
Shorebank, a community development bank, has been profitably investing in inner city markets for more than 25 years. The Initiative builds upon the institution’s experience to create new capacity for businesses to similarly identify and invest in undervalued markets. Shorebank currently works with companies doing business in the inner city and is looking for more corporations to partner with in the Initiative. An important initial product of the Initiative is The Neighborhood Markets Framework.
In creating the Framework, Shorebank identifies the types of data that companies need to select inner city markets, pinpointing existing, potential and alternative sources of information. Using current models and working with business and market analysts, the Framework extrapolates the key factors businesses use in making market decisions and identifies the conventional data related to each factor. It creates a vehicle for examining how these factors and data sets translate to the inner city and, where they do not, exploring alternatives. Utilizing the Framework, Shorebank and its partners are building an Inner City Economic Database, a comprehensive market-driven database for inner city markets. In its creation, Shorebank serves as a resource to businesses by providing market intelligence.
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The Framework is continually expanding and being refined as new companies and experts become involved in the Initiative. The database similarly grows in scope and utility as additional businesses share their market data and resources with Shorebank. To date, corporations in the banking, insurance, and varied commercial and retail industries (including food, clothing and home repair), as well as market research firms (such as Claritas, The National Opinion Research Center [NORC] and Burrell Communication), are contributing and accessing data, expertise and experience tailored to doing business in the inner city. Shorebank works with individual companies on a strictly confidential basis, with no sharing of private information across companies.
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Key factors
The Framework identifies six key factors that businesses traditionally use to examine and select markets. The first of these is the demand for products based on demographic and expenditure data estimating the aggregate size of the market. The second is business climate, revealing competition, retail synergies, and general information on the economic health and potential of an area. The third factor examines demand for a business’s specific products, identifying market niches. Fourth are findings on market trends, ranging from residential to business to social trends in the neighborhood. The final two factors are operating costs, the cost of doing business in a particular neighborhood, and trade area definition, the unique characteristics defining market access.
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For each of these six factors, the Framework identifies indicators and related data sources to determine how and if they translate in the inner city. If they do not translate, the model identifies new, comparable indicators and data sources that provide an accurate assessment of inner city market potential. Tables I - VI offer a sample of the detailed Framework or taxonomy, identifying conventional and inner city alternative indicators and data sources for each of the six factors used in market and site selection.
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For example, demand is traditionally determined by a number of indicators such as population, consumer spending power, and income (see Table I). In addition to traditional indicators, the Framework includes daytime/workplace population in an effort to more accurately assess demand. It then identifies a new data source – developed by Claritas – for evaluating workplace population. To illustrate, when daytime/workforce data is included in the assessment of Chicago’s Austin neighborhood, a market emerges with differing size, characteristics, and consumer demand than the market composed strictly of its residential population.
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Other non-traditional market and site selection indicators and data sources identified in the framework (and being collected for the Inner City Economic Database) include special census tabulations, tax records, bank records, and data from utility companies and credit agencies. These factors can all play a significant role in better estimating demand in inner city markets.
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This example represents just a fraction of the Initiative’s work in developing the detailed Framework. The Initiative is now beginning to serve businesses looking for specialized inner city data and expertise, and its capacity grows with each new participant. The Shorebank Corporation is looking to partner with more businesses in the Chicago area, seeking companies in diverse industries to provide input on data needs, test new approaches in the inner city, and share information on a confidential basis. The goal is to help businesses profit in the huge, untapped markets in the inner city, creating wealth for businesses and entrepreneurs, and building economically vital neighborhoods.