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Cities may be retail's next target; Many store operators have abandoned America's inner cities for suburbia. Now, some retailers are setting up shop downtown again -- to their profit.

THE BALTIMORE SUN

Rick Levin found the next frontier of retailing not in the wide open spaces of suburbia but amid boarded-up rowhouses and corner liquor stores in a stretch of East Baltimore.

In a strip center on North Caroline Street with a supermarket and a Chinese carryout, Levin set out to create an oasis two years ago, putting one of his largest Downtown Locker Room stores in a former drugstore. He stocked it with hooded sweat shirts and Nike basketball shoes, hired local help, lighted the vast space with wall sconces, covered the floor in gleaming hardwood and pumped music through the speakers. People are still buying.

"We knew the city. We weren't intimidated by the city," said Levin, who runs the 18-store urban athletic apparel chain in Baltimore and Washington with partner Tony Trantas. The partners expect to open five more inner-city stores before entering a third urban market and can't help but hope competitors stay away.

Chances are they won't for long.

Four decades after retailers began abandoning the inner cities to follow the migration to the suburbs, rundown shopping districts and poorly served residential neighborhoods in Baltimore and other U.S. cities are poised for a retail rebirth, industry experts and urban planners say. Racing to grow in a booming economy, retailers -- including the mass discounters -- can build only so many stores in increasingly crowded suburbia, the experts say.

Inner cities, an $85 billion market that's about a quarter under-served, represent a key emerging market, says Boston-based Initiative for a Competitive Inner City, a national, nonprofit group working to bolster inner-city economies. ICIC is working with affiliates in Baltimore and three other cities to strengthen local stores and attract big chains.

Such a turnaround is not unthinkable, said Karl Steidtmann, chief retail economist for PricewaterhouseCoopers. When the first shopping malls sprouted after World War II, "retail wasn't done in the suburbs. It was done downtown. It was unreasonable to think [otherwise]. But the power of vision transformed American society," Steidtmann said. Now, "we're at the cusp of another transformation."

Major drugstore chains have led the way in Baltimore and other cities, with Rite Aid Corp., Walgreen Co. and Duane Reade Corp. building stores in inner-city neighborhoods. "Drugstores are walking away with inner-city opportunities because the discount retailers and others have left that opportunity open to them," Steidtmann told a standing-room crowd of retailers last month at the National Retail Federation's annual convention in New York.

The inner city "doesn't fit the profile of what [the national chains are] looking for as an expansion location," Steidtmann said. The suburbs are "the environment they know. It's the real estate they know. It fits the economic model they work off of.

"At the same time, the inner city always had the perception of being high cost, crime-ridden and having relatively poor customers."

Preference for apparel

New research on consumer shopping patterns in low-income, high-unemployment areas could help dispel those perceptions.

A survey of 1,205 households by PricewaterhouseCoopers and the ICIC showed that inner-city consumers prefer shopping for apparel over other retail goods, are less price driven and show greater brand loyalty.

Compared with the average U.S. household, inner-city African-Americans spend 20 percent more annually on women's apparel, nearly 75 percent more on men's and twice as much on children's. Discount department stores are preferred but largely unavailable.

Although retailers are reluctant to reveal sales and profits, anecdotal evidence shows national chains making money in cities, said Anne S. Habiby, ICIC director of research. Many have started in edge areas that abut prosperous neighborhoods, only to get the lion's share of business from the poorer side of town, she said.

One of the largest inner-city malls under construction, in Harlem in New York, boasts tenants Old Navy and the Disney Store. Sears, Roebuck and Co. ranks its Bronx, N.Y., store as the chain's top performer, and Kmart and Home Depot do well in urban locations.

Ashley Stewart, a Secaucus, N.J., women's plus-sized apparel chain, has flourished in inner-city Baltimore. It recently added two new stores at Mondawmin Mall -- 100% Girls, for girls, and Body & Soul, which sells lingerie.

As malls go, Mondawmin in West Baltimore has higher sales per square foot than some suburban counterparts despite the lack of anchor stores, according to its owner, Columbia-based Rouse Co.

Levin, whose 15-year-old Downtown Locker Room has more than $20 million in annual sales, said the urban stores have cheaper rents, fewer competitors and greater profits than the chain's few suburban outlets.

Hoping for rejuvenation

Baltimore Advisors, an ICIC affiliate, hopes to use the new findings and experiences of retailers like Levin to help rejuvenate retail in areas such as the city's west side, Charles Street and Highlandtown, said Debora L. Beverly, a principal. An inner-city retailing forum is planned for April at the University of Baltimore.

Efforts to revive the city's traditional retail core have foundered during more than two decades since department stores such as Stewart's and Hutzler's began closing their doors on Howard Street. The city turned Lexington Street into a pedestrian mall, made cosmetic changes in street lighting, banned cars from part of Howard Street to make way for light rail, and tried to remake the area as an arts center. Hutzler's heralded the return of retail with the 1985 opening of a new Hutzler's Palace at Howard and Lexington street. In three years, the store went from designer to discount, then closed.

Current plans have a better chance, city and economic development officials say, because they focus on swaths, not isolated blocks, and try to link redeveloped projects like the Inner Harbor, the University of Maryland, Baltimore, and the Charles Center business district. With the national economy humming, the private sector, not government, is driving growth.

Many inner cities are showing signs of revival, "making it more attractive for retailers to look at [inner cities] with a lot of interest to see if there's a potential for profit," said Kurt Barnard, president of Barnard's Retail Trend Report.

Baltimore's redevelopment efforts include the central business district, bounded by Saratoga, Lombard, Liberty and South streets and Guilford Avenue, and the 200 to 500 blocks of Charles St., which together could handle an additional 161,000 square feet of store space, according to a study done for the Downtown Partnership of Baltimore Inc.

"It's clear that momentum has picked up downtown," said Laurie Schwartz, president of the economic development group. "Employment in downtown is up; there are new developments on the horizon; and residential conversion is under way. It's a matter of packaging the opportunity and showing the expenditure potential that exists, as well as having the kinds of sites they need."

The Charles Street corridor, long the target of rejuvenation efforts, has attracted some arts-oriented shops, but many store fronts remain empty. Current plans, spearheaded by the Charles Street Association, focus on redeveloping Charles Plaza.

West side plan

A plan to revitalize 18 blocks of the city's west side, to go before the City Council next month, relies on demolishing or converting properties for new apartments, offices, stores and entertainment.

The Harry and Jeanette Weinberg Foundation wants to develop part of its vast holdings by converting the former Stewart's department store on Howard Street into a telemarketing center and building an adjoining apartment complex and parking garage with first-floor clothing shops, convenience stores, diners and services.

"Retailers today are taking another look at urban settings," said Joel Winegarden, the foundation's real estate director.

More housing would increase demand for drugstores, service-oriented shops, small bookstores and restaurants, said M. J. "Jay" Brodie, president of the Baltimore Development Corp.

The bigger unknown is the area's ability to attract the newer breed of specialty stores "that have been suburban to this point but have started to express interest in the center cities," such as Bed Bath & Beyond, Linens & Things and Old Navy, he said. "There's been nothing like that downtown since department stores. But if you fill up office space and inject significant new housing, there's potential."

The plan has sparked intense opposition from preservationists and business owners who would be forced out. "Not every commercial area can be Fifth Avenue or the Inner Harbor," said Tom S. Saquella, president of the the Maryland Retailers Association, who is urging city officials to accommodate rather than displace longtime independent shopkeepers.

One would be Lou Boulmetis, a third-generation shopkeeper who owns the nearly 70-year-old Hippodrome Hatters in the first block of Eutaw St.

"We've got a good spot. We've paid for our seat at the table," he said, contending that the cost of opening elsewhere would put him out of business. "They're going to do it and give it to somebody else to develop, because in the eyes of the developers it's not pretty or [it's] the wrong business, maybe."

Others, though, say strong businesses will survive. From Hosiery World on West Saratoga Street near Lexington Market, owner Milt Rosenbaum has watched the decline.

"There is a whole city full of people who need affordable shopping and have no access [to it] in the inner city," said Rosenbaum, who also is president of the 400-member Downtown Market Center Merchants Association. "They can't afford to go to White Marsh or Towson. They are in desperate need of shopping."

The city should make retail a redevelopment priority and assemble enough property for a critical mass of shopping, he said, attracting retailers like Burlington Coat Factory, the Sports Authority, Toys 'R' Us and TJ Maxx.

But not even city support can guarantee a suburban retailer's success in an urban environment. Suburban retailers who have succeeded with a standard format would have to adjust to less space, alter merchandising and possibly have merchandise delivered in smaller quantities.

And they need to appeal to a more diverse mix of customers. Urban retailers also face more employee theft, shoplifting and break-ins and more difficulty finding and keeping good managers.

Levin of Downtown Locker Room believes that such problems can be overcome. Measures he has taken to control theft have cut his losses to less than 1 percent of gross sales -- below the sector's average 3 percent. Beyond security measures, inner-city retailers must understand and adapt to their customers -- their tastes, sizes, fashions and cultural icons, such as recording artists.

Levin has brought local disc jockeys and national recording artists to his stores. He has donated basketball league uniforms. And he's about to launch a three-year "Street Team" promotion with Pepsi-Cola Co. in which "cheer leaders" will visit schools, sporting events, concerts and nightclubs and give away T-shirts.

"The Downtown Locker Room has to run for mayor," Levin said. At his stores, he said, "We know the customers. We're a hangout."

Pub Date: 2/28/99

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