By  on June 11, 2007

NEW YORK — Retailers must find new ways to target ignored minority groups if they want to keep up with the purchasing power of that rapidly expanding population.

Ethnic markets can be one of the most profitable ventures for retailers and developers, but currently remain largely untapped, said Anthony Buono, executive managing director of retail services at CB Richard Ellis, at the International Council of Shopping Centers annual conference in Las Vegas in May.

"In the United States, ethnic markets remain the biggest opportunity, but the least understood," he said. "There is a lot of money to be made by developers and retailers."

With different cultural beliefs and traditions, however, each demographic requires unique services and merchandise.

"Everyone just bulks each ethnic group into one single category," said Monique Tapie, communications director at Global Advertising Strategies, a marketing consulting firm. "They will target Hispanic, but not people from Mexican or Puerto Rican descent."

By ignoring major demographics, such as Asian-Americans, Hispanics and Eastern Europeans, retailers run the risk of losing new and future customers who have tremendous buying power and who frequently purchase designer, brand-name merchandise.

According to a survey conducted by Global Advertising Strategies, the household incomes of South Asian Americans average $90,000 annually, making them the most lucrative ethnic group in the U.S. In addition, the buying power of this group is slated to reach $77 million in 2008 in the Tristate area alone.

"Strong in cultural beliefs, but flexible in mainstream lifestyle, the South Asian community occupies a niche that is challenging to reach, yet promises to deliver loyal customers in a community that continues to grow rapidly," said Global Advertising Strategies, a marketing consulting firm.

South Asian Americans travel and eat out frequently, are big purchasers of big-ticket electronics and are willing to pay for a high quality of life, Global Advertising said.

But the retail dynamic in the Asian market is vastly different from that of typical American retail centers, making it hard to cater to this population.

"Asians are used to shopping in [stores that are] three stories or more, while in America, most shopping malls and stores are only one or two stories," said Scott Kaplan, senior managing director of the western region for retail at CB Richard Ellis.One of the largest ethnic demographics, the Hispanic market stretches across California, Arizona, New Mexico and Texas, and into Chicago and New York.

But since most Hispanic youths want to be a part of American culture, especially those who come from Mexico and South America, retailers must find ways to subtly connect with these customers, said Derick TeeKing of Fleming + TeeKing Strategic Advisors LLC.

"Maybe they will make a shoe that is white with green and red embellishment or have products that are more colorful," TeeKing said.

In this sector, it is not only the Hispanic retail tenants that are succeeding, but stores like Starbucks, Panda, T.J. Max and Applebee's, which have a large Hispanic following.

"There tends to be the stereotype that Latinos are cheap. But that is not true. They are actually spending more or just about as much as suburban whites," TeeKing said.

"Wall Street is chasing Hispanic developers," Kaplan said. "Originally, they did not want to bank on these developers because they believed the Hispanic market had a lower income. But this is not the case. Retailers are doing well and the tenants' credit are strong."

Retailers and developers are beginning to recognize the importance of downtown locales, and that they can do well in these markets once they find solutions to city issues such as small spaces, security and parking.

According to the Brookings Institution, a Washington nonprofit research group, $3 trillion in public and private funds over the next decade will be invested in U.S. urban communities.

"Traditional retailers would never go into urban markets, but if you do it right, the volumes kick [those] of the suburbs," Kaplan said.

"People are starting to realize that the population is shifting in the U.S. Whether it's the illegal or legal population, it is growing," said Christine Chen, specialty retail analyst at Needham & Co.

While money is being invested across the U.S. to redevelop urban areas, not enough is done by retailers to market products to ethnic markets.

Companies are not using their marketing budgets to do direct marketing to ethnic groups, according to Global Advertising's Tapie. She added, "It costs seven times less to market to ethnic communities then it does in mainstream media. There are over 20 Russian cable television channels that are not being used to sell and market products."And while the moderate players like department stores and mass merchants are starting to see the potential for these markets, luxury retailers have not jumped on board.

"What will be interesting is to see if the higher-end retailers start catering to these demographics and move into urban centers," Chen said.

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