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CRACKING THE CODE ON THE 21ST CENTURY URBAN MARKET

CRACKING THE CODE ON THE 21ST CENTURY URBAN MARKET

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Published by: erin_patton8456 on Jan 19, 2011
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05/26/2013

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C
RACKING
T
HE
C
ODE
O
N
T
HE
21
ST
C
ENTURY
U
RBAN
M
ARKET
A White Paper February 28 2010Erin PattonThe Mastermind Group (TMG)
 
CRACKING THE CODE ON THE 21ST CENTURY URBAN MARKET
It is a catch 22. Developers and retailers have an increasing need and desire to expandoperations into previously underserved markets, yet lack of experience and insufficientinformation in these complex markets serve to underscore the uncertainty of a goodinvestment strategy.This white paper details “information gaps” that limit the potential of the urbanmarketplace. “Cracking the Code on the 21
st
Century Urban Market” addresses thisconundrum by outlining how urban consumer behavior information and an innovative, proprietary segmentation tool can help retailers, developers and communities crack thecode on the 21
st
century urban market.
A MARKET OF LEMONS
In a world of perfect information, business decisions are made logically, based on thefacts presented. Projections, which incorporate full information about the quality and performance of the market, provide guidance to the location decisions that would be most profitable. Market conditions are monitored closely to provide signals as to changes inthe potential profitability of a location.This stylized view of investment decision making palely reflects how real decisions aremade. In the real world in which we operate, information is not perfect. Informationimperfections can structurally change decision making, as detailed in the seminal work on asymmetrical information by Nobel Prize Laureate George A. Akerlof 
,
"The Marketfor Lemons: Quality Uncertainty and the Market Mechanism." Using the used car marketas an example of imperfect information, Akerlof demonstrates how the car dealer selling"lemons" or defective cars to unsuspecting consumers taints the entire used car market.Good cars will be withheld from the market and eventually the market will fail. Thesesame principles can be applied to underserved urban markets.Cities, or urban markets, became viewed as the "lemons" for significant private marketinvestment in the period following World War II due to a convergence of market andcultural changes. The movement of whites to suburban communities radically changedthe composition of urban markets. New market opportunities emerged following the rapidhousing development in suburban markets. Then, in 1956, the first modern regional mallopened in Edina, Minnesota, outside of Minneapolis.This new retail format which optimized the suburban development environment quickly became preferred by consumers. Further, the view of urban markets as "lemons" wasundergirded by the racially motivated tension and the newfound socioeconomic disparityin urban markets which became articulated as "ghetto culture" and punctuated with riots.These geographic, demographic and industry changes created seemingly indelible beliefsof the unreliable nature of urban markets in terms of the quality of consumer potentialand the performance of investments that had served retailers so well in the past.2
 
Lack of information continued to undergird this belief as analytic methods further developed to accelerate retail growth in the path of suburban development. While a goodfit for those markets, these increasingly complex information decision structures heldinherent biases which fueled the "lemon" urban market beliefs. The result was urbanneighborhoods and cities with a paucity of retail provision, or underserved markets.As we fully embark upon the 21
st
Century and the digital age, these prevailing, antiquated perceptions and clandestine methods stand in stark contrast to the potential realities of themodern, urban market. These perceptions are exacerbated by a widening information gapand lack of actionable market intelligence and research tools.As such, a transition period marked by intellectual gravity, creative instincts, real-timeinsights and innovative tools and methods is necessary to effectively translate the urbanmarket opportunity and create real, perceptual change challenging old beliefs,information imperfections and the very basis upon which investment decisions are madeto realize its full potential.
CHANGING URBAN MARKETS: URBAN MINDSETS
Today "urban" as a place and geography is undergoing a transition. Prevailing, negative perceptions of urban areas are yielding to positive, new realities such as the emergence of “Uptown” urban lifestyle locales whose retail and residential centers are attracting progressive populations of empty nesters, urban intelligentsia, young urban professionalsand contemporary urban couples seeking to reclaim the authentic urban experience of their youth with a modern twist that validates the fulfillment of their upward mobility andlifestyle aspirations.In addition, the revitalization of historic urban neighborhoods is generating an influx of new residents and investors who are bucking the suburban flight and boom of their  parent’s generation to re-connect with their urban roots. These individuals are well-educated, possess significant disposable income and are willing to invest in urbancommunities but find the return on their investment has gone largely unmatched as theyare having to travel considerable distances for basic goods and services and remain inwait for further commercial and residential development to boost property values andreshape these communities.Finally, southern migration patterns by African-American Gen X families from the Northin search of a better quality of life has created a new, progressive population of transplants residing in the suburban areas of major southern cities who maintain an urbanmindset and are willing to travel to urban centers from the suburbs to satisfy needs for culturally-relevant goods, services and experiences.These dynamics have combined with immigration patterns, particularly among the Latino population, and the stable presence of the inner-city working class to produce a unique,transcultural fusion and emergence of new, less understood groups to form an urban population which can no longer be succinctly described. While connected through ashared mindset and lifestyle interests, each of 3

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