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Taking Notice of the Hispanic Consumer

Cultivating the Hispanic customer base is paying off in Southern California.

A rendering of the Azalea complex.

In the late eighties, developer Arturo Sneider tried hard to no avail to get national tenants to take a chance on the garment district in Los Angeles. They were worried about fitting their cookie-cutter prototypes into an urban environment with awkward retail spaces and a heavily Hispanic customer base that didn’t necessarily share the characteristics of their typical customer bases elsewhere.

“They wouldn’t even return my calls,” recalled Sneider. “At some point, when the census data started coming out, and we were smarter about packaging, I was getting a few calls from people who said, ‘Call that crazy Mexican at Primestor back because he’s been calling us for years.’”

In 1990, Sneider finally convinced a Burger King to set up shop in a two-story location in the garment district after he was exposed to flourishing multistory restaurant formats during a trip to Europe. Now, the district boasts a plethora of national names, like Pizza Hut and McDonald’s. “We had the density,” he said. “We had the foot traffic.”

 

More than two decades later, Sneider’s issues securing tenants haven’t completely disappeared. He figured 40 to 50 percent of tenants that have not dabbled in Hispanic markets remain hesitant to put units in them. Still, there has been significant progress. At Azalea, a 380,000-square-foot regional shopping center being developed by his Los Angeles company Primestor, there will be 40 to 60 retail tenants, and Sneider expects 80 percent to be national or regional players.

Located in South Gate, Calif., a city of about 95,000 that is 95 percent Hispanic, Primestor reports there is purchasing power of $12.5 billion in a five-mile radius of the shopping center. Within a 10-minute drive, there are 1.4 million people in 368,000 households. The company estimates Azalea will generate more than $165 million in new sales in its first year.

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About 85 percent of Azalea’s total space is under contract, and retailers are not due to open until some time between fall 2013 and spring 2014. Stores will include a 160,000-square-foot Wal-Mart and an 18,000-square-foot Forever 21. “Our model has two pieces to it: It is bringing in the national retailers into these communities, while at the same time enabling local entrepreneurs and providing them tenant improvement allowance and incentives to create new businesses,” said Sneider. “Our leasing had been tremendously strong.”

What’s changed? For one, retailers testing Hispanic markets have done well. “The game changer in our business is always sales per square foot. We had mom-and-pop cash businesses that were always staggering, but nobody could believe them,” said Sneider. “Once you have a [national or regional] tenant that opens the door and is doing $400, $500 a foot in clothing or $800 in a restaurant, it speaks for itself.”

Secondly, demographic trends, measured by the U.S. Census, have become hard to ignore. At ICSC’s Hispanic Markets National Conference held Oct. 10 to 11 in Los Angeles, Roberto Ramirez, branch chief of the Ethnicity and Ancestry Statistics Branch Population Division at the U.S. Census Bureau, detailed that there were 52 million Hispanics in the U.S. in 2011, constituting 16.7 percent of the total population. That number is projected to grow to 132.8 million by 2050, when Hispanics are forecast to make up 30.2 percent of the U.S. population.

Ramirez said Hispanics accounted for 55.5 percent of U.S. population growth from 2000 to 2011. Natural increase was responsible for 64.2 percent of the Hispanic growth in the country during that time, and immigration was responsible for 35.8 percent of it. “Latinos are very young, and they have high fertility rates,” he said, pointing out that median age for U.S. Hispanics is 27-years-old versus 37-years-old for the total U.S. population, and that U.S. Hispanic women give birth 2.7 times versus 1.9 for the general American populace.

Monica Gil, senior vice president of government and public affairs at Nielsen, painted a picture of how the growth of U.S. Hispanics has led to a formidable consumer base. She stressed that, if American Hispanics had their own country, it would have the 12th largest economy in the world and that their per capita income is higher than the per capita income in any one of the BRIC, or Brazil, Russia, India and China, nations. In 2010, she highlighted, the buying power of U.S. Hispanics was $1 trillion and that it is projected to rise to $1.5 trillion in 2015. “This is going to be your consumer base,” she told the audience at the conference.

Arthur Coppola, chairman and chief executive officer of The Macerich Co., the Santa Monica, Calif.-based mall owner, manager and developer, is quite familiar with the shifting demographic landscape of the U.S. In 1979, Macerich bought the Panorama Mall in Panorama City, Calif., which he said was first planned city in the San Fernando Valley. Today, Panorama City is now roughly 70 percent Hispanic. As Hispanics moved into the city, Coppola’s partner, he remembered, told him to “dump that thing,” but Coppola refused to divest the Panorama Mall. “We live in Los Angeles. We get the benefit of density and, with that, comes diversity,” he said.

Instead of parting with properties in Hispanic communities, Macerich launched a program it calls Vanguardia in which the company, along with brokerage and development firm The Legaspi Co., positions those properties to cater to Hispanic customers. There are six shopping malls in the Vanguardia program that Coppola said are in areas of California and Arizona that are 50 to 80 percent Hispanic. Besides the Panorama Mall, the centers include Desert Sky Mall in Phoenix and Fiesta Mall in Mesa, Ariz.; and Northridge Mall in Salinas, Pacific View in Ventura and Somersville Towne Center in Antioch, Calif.

While the top 20 malls in Macerich’s portfolio register $650 to $700 in sales a square foot, the Vanguardia malls generate $250 to $450 a square foot and were languishing before Macerich decided to institute the Vanguardia program. Some elements of that program are building a center court with a stage inside the malls as platforms for mariachi bands and cultural activities, leasing tenants such as Curaçao that resonate with Hispanics, putting on events during holidays important to Hispanics, and incubating retail businesses serving Hispanics.

(During a tour of the Panorama Mall, Legaspi Co. president Jose Legaspi said H&M, Wet Seal, Victoria’s Secret and Aéropostale are among the retailers that index higher with Hispanics than non-Hispanics.)

In a shuttered Mervyn’s store at the Desert Sky Mall, Macerich devoted 77,500 square feet to the Mercado de Los Cielos, a marketplace opened about 18 months ago with 200 or so retailers occupying about 250 square feet each. Operating on a month-to-month basis, the retailers sell everything from flowers to meat.

“That was a real game-changer,” said Coppola, noting that the Mercado de Los Cielos exceeded internal leasing expectations. “From a customers’ viewpoint, it was very well received because they’ve seen Mercados in other places,” he said.

Overall, Coppola lauded the success of the Vanguardia program. He said the six Vanguardia shopping centers are producing 5 to 6 percent annual growth in net operating income, compared to 2 to 3 percent from the rest of Macerich’s shopping center portfolio. One Vanguardia shopping center is experiencing declines, but he said, “It is going down at a slower rate than it would have gone down without this additional marketing support.”

Vanguardia is evidence that responding to Hispanic customers pays off. To do so, Macerich made adjustments, underscoring points made by Coppola, Gil and Sneider that Hispanic customers aren’t exactly the same as their non-Hispanic counterparts and adjustments may be warranted.

Gil revealed Neilsen research findings that Hispanics make 143 shopping trips per household a year versus 149 for white non-Hispanics, but Hispanics spend $52 per trip — $5 more than white non-Hispanics. What do they spend on? Dried vegetables and grains, hair care, shortening oil, baby food and women’s fragrances are the top five Hispanic product categories. Hispanic households spend $326 on health and beauty annually, compared to $297 for the total U.S. population.

Retailers frequently think that Hispanics are looking for affordable goods, but Sneider said price isn’t as essential as value and quality.

“Quality is a huge issue to the Latino customer. We look at how it is made, where it is made, is it going to last, is it going to have brand recognition,” he explained.

In discussing doing business in Hispanic communities, Sneider continued that retailers should anticipate “lower per person transaction sales, but triple the volume. You are not going to sell the high-end product as often, but you are going to sell a lot more product, so you have to staff accordingly because you are going to be pushing through a lot more people.”

Although Coppola commended department stores, notably Macy’s, which has stores in two Vanguardia malls, for efforts to understand and satisfy Hispanic customers, he expressed dismay that many national specialty retailers “don’t get it.” However, he concluded, as the Hispanic population in the U.S. climbs,  “They are going to get it.”