Ethnic malls are buzzing

They skipped the slump. Do these niche stores offer lessons for mainstream retailers?

QUINCY, MASS. – On a typical afternoon at Kam Man Mall, soft melodies trill over the sound system as shoppers walk through stores offering herbal medicines, rice cookers, and the latest summer dresses from Hong Kong. In the mall’s supermarket, Cantonese-speaking employees serve shoppers whole roast pig and chicken feet stew, and apothecary jars at the front counter display $150-a-pound shark fin and, prized by Vietnamese women as a beauty enhancer, $2,000 packages of birds’ nests collected from seaside cliffs in China.

What’s remarkable about Kam Man Mall isn’t that it’s in Quincy, Mass. Ethnic malls have been sprouting up in cities across the US for more than a decade. What’s remarkable is that shoppers are still buying the $2,000 packages of birds’ nests.

“We are not affected at all” by the recession, says Wan Wu, manager of the 80,000-square-foot Kam Man Mall. “Our business has been growing since we opened 6-1/2 years ago.” With sales up 10 percent in each of the past two years, he’s looking to open a second Asian supermarket in the Boston area.

As traditional malls across the United States struggle with the most severe recession since the 1930s – regional mall vacancies hit 8.4 percent last quarter, a nine-year high – many ethnic malls across the country are enjoying steady business. In the land that popularized the mall, these newcomers are outdoing their mainstream counterparts.

“Ethnic malls have developed a niche-targeted clientele,” says Wei Li, a professor of Asian-Pacific American studies at Arizona State University, Tempe. “Even in a recession, so long as the population base is there, the clientele are still there.”

It also doesn’t hurt that the clientele, in many cases, is growing.

In 2005, José de Jesus Legaspi and local Texas real estate investors took over the Fort Worth Town Center, an aging 1960s mall that was only 10 percent occupied at the time.

“We began leasing it under an ethnic theme, and repositioned it by bringing in various Hispanic-oriented retailers,” says Mr. Legaspi, who also runs a marketing and retail-services firm. “We also redressed the exterior in Spanish Colonial architecture.”

Today the aging Town Center is a bustling 1.1-million-square-foot Latino mall with more than 150 retailers, weekly entertainment, and a 6,000-square-foot family lounge that draws people from 100 miles away. “By focusing on a narrow, underserved demographic, ethnic malls create a funnel to bring people in from faraway,” says Legaspi.

The recession hasn’t hurt his business, and, in some cases, has actually helped.

“Since the recession, our occupancy, merchant base, and number of consumers have increased,” says Legaspi. What’s more, some people who lost jobs in the recession rented small booths in the mall’s mercado and opened their own shops. “It’s given them the opportunity to build their own business, a chance to execute the American dream,” he adds.

In Seattle, the Great Wall Mall has actually seen an uptick in volume in some stores. “The big financial meltdown has affected us somewhat,” says developer Omar Lee. “But sales volume is up at the 99-Cent Market, the noodle shops, and other low-cost retailers. We’re still very packed on weekends and holidays.”

Part of ethnic malls’ secret is that their niche markets are more reliable and well protected in a recession than mainstream ones.

“Customers are willing to go in and shop there even if it’s not the best price,” says David Kaplan, professor of geography at Kent State University in Ohio. “Loyalty is very important.”

Even if individual incomes are down among the minorities who make up these niche markets, their overall numbers are growing, offsetting any downturn in spending. One in 3 US residents belongs to a minority group today. The Pew Research Center predicts that number will be 1 in 2 by 2050. Hispanics, who alone account for 14 percent of the US population today, are expected to swell to 30 percent by 2050.

Minorities also wield formidable economic clout, says Jeffrey Humphreys, director of an economic and demographic forecasting group at the University of Georgia in Athens. The combined buying power of African-Americans, Asians, and native Americans was $1.5 trillion in 2008, almost 14 percent of the nation’s total buying power, according to the group.

Hispanics controlled $951 billion in buying power last year, up 349 percent from 1990. That figure for Hispanics is supposed to hit $1.4 trillion by 2013, sending manufacturers, marketers, and retailers scrambling to profit from the exploding ethnic market.

Another advantage: Immigrants tend to save more, making them better prepared to survive a recession, says Ms. Li at Arizona State. “There’s a general pattern of saving among many first-generation immigrants.... Because they tend to save more, their capacity for weathering the financial crisis may be better.”

They also tend to rely heavily on cash, one of the few protected assets in the wake of Wall Street turmoil. Since the recession began, only Asian and Indian commercial real estate projects have remained steady in his business, says Tim Cisneros, president of his own Houston commercial architecture firm, which designs restaurants, condos, and retail locations across the country. “They’re still able to work on a cash basis. They still have enough liquidity to build.”

Apart from a financially resilient customer base, ethnic malls themselves are better poised to weather a recession.

While mainstream malls are anchored by high-end department stores and ritzy restaurants – the retailers most vulnerable in a recession – ethnic malls are usually anchored by supermarkets and low-cost eateries. “Ethnic malls aren’t selling diamond necklaces, they’re selling necessities,” says Mr. Kaplan of Kent State.

What’s more, they sell services. Ethnic banks help customers with overseas accounts, money transfers, and currency exchange. Legal offices decode the bewildering process of immigration and applying for visas. Educational institutions offer language and vocational training. These services help immigrants get a foothold in their new country, but they also attract regular traffic to the mall and position it as a social support, reinforcing customers’ relationship with it.

Perhaps even more important are the sense of community and familiarity ethnic malls provide. “It provides a welcome mat for ethnic consumers,” says Legaspi. “It creates an environment where people feel welcome, a home away from home.”

Today, as battered industries and retailers begin to recover from the recession, ethnic malls are drawing attention for their resilience and growth potential.

“Ethnic malls ... are becoming increasingly important as ethnic groups suburbanize, make more money,” says Kaplan.

But the real test is whether they can segue into the mainstream market. “Will ethnic businesses be able to expand?” he asks. “Can they bust out of their protected market?”

That depends in part on whether immigrants remake American consumerism – or American consumerism remakes them.