Finding Growth in Challenging Times Seven indicators evaluate population growth

Finding Growth in Challenging Times Seven indicators evaluate population growth

Terry Muñoz, VP & Industry Practice Leader, Retail, Restaurant and Real Estate Group, Nielsen Claritas, and Mike Mancini, VP Data Product Management, Nielsen Claritas

SUMMARY: During the past several years, the U.S. retail industry has been reeling from a slow-growing population and a protracted economic downturn. Despite these challenging conditions, there are areas of the country that are experiencing population growth and can offer opportunities for retail businesses. To find these communities, analysts at Nielsen Claritas developed a statistical approach to score the growth potential of all U.S. markets and suggest strategies for expansion. By determining the key indicators of growth in markets of all sizes, this approach offers a significant advance for retailers even in tough economic times.

Despite the declining economy and slow population growth, there are markets and population segments within the U.S. that are experiencing healthy population growth, offering expansion opportunities for retail businesses even in a weak national economy. But finding these locations requires a different approach to identifying growth opportunities that goes beyond calculating new housing starts—a typical metric employed by site planners.

Using a statistical technique that evaluates population growth along with historic trends, Nielsen Claritas analysts have isolated seven demographic and economic indicators that strongly correlate to growing markets in both metropolitan and micropolitan communities, or what is known as Core Based Statistical Areas (CBSA). Metropolitan areas have a population of at least 50,000; micropolitan areas have a population between 10,000 and 50,000.

Known collectively as Population Growth Indicators, seven factors strongly correlate with fast-growing markets:

  • Large land areas
  • Booming suburban rings
  • Widespread affluence
  • An increasing Hispanic population
  • Diversified employment
  • Long commutes
  • The presence of lifestyle shopping centers

When the Population Growth Indicators are combined with demographic projections, retailers have a robust tool to identify locations with significant potential for market expansion—markets that may even lead the way to an economic recovery in the coming years. Now more than ever, retail success depends on the ability to identify growing markets, whether the task is retail expansion, current market optimization or street-level site planning.

1. Space to Grow: Larger Land Areas

Bigger is better when it comes to population growth. According to the Nielsen Claritas analysis, markets with larger land areas tended to grow the most over the last eight years. The 25 largest markets rose by an average 10.8%, which is 23% higher than the national average. Retailers should not underestimate the importance of large markets. Businesses that serve the nation’s ten largest markets reach more than 80 million Americans—28% of the nation’s total population.

2. Booming Suburban Rings: Affluentials and Middleburbs Households

Development in large areas goes hand-in hand with the lifestyles that emerge within these fast-growing communities. When analysts looked at Nielsen Claritas-defined lifestyle segments in expanding areas, the ones that dominated fell into two suburban social groups: The Affluentials (characterized by upscale, outer-ring suburbs filled with white-collar couples and families) and Middleburbs (midscale couples of diverse ages and educations in inner-ring suburban neighborhoods).

The real action is still occurring in America’s suburban frontier…

Nationwide, the markets with the most Affluentials and Middleburbs residents tend to be large metros—cities like Portland, OR; Minneapolis, MN, and Seattle, WA. Generally speaking, the growth in many of these areas resembles a doughnut, with the fast-growing suburban areas forming a ring around the metropolitan core. While social commentators like to celebrate the return of the nation’s downtowns, the real action is still occurring in America’s suburban frontier, propelled by several population torrents: active seniors looking for attractive retirement communities; young singles seeking affordable townhouses; and immigrants who are leapfrogging over urban apartments to settle in suburban neighborhoods near good schools and steady employment. Indeed, many fast-growing “cities” of the early 21st century— Los Angeles, CA; Atlanta, GA; Houston and Dallas, TX—are primarily collections of suburbs with only marginal links to an urban core.

3. Widespread Affluence: Following the Money

For most of the last century, wealthy Americans have settled in the upscale suburbs of large metros. In examining the data further, analysts found several factors related to high net worth that correlate with high-growth communities: college educations, upper middle-class incomes and healthy home values.

The full list of affluent, growing markets shows a decidedly western skew, partly reflecting the migration of knowledge workers from manufacturing centers of the Northeast to the high-tech job centers in the western states. As people become more specialized in a given field, their incomes increase, but the number of jobs that fit their expertise narrows.

No group has provided more of a boost than Hispanics…

4. Increasing Ethnicity: Growing Hispanic Population

Immigration drives the nation’s population growth, and no group has provided more of a boost than Hispanics. In 1990, the Hispanic population in the U.S. was 7.9%; today, it is nearly 16% and rising. According to a recent Goldman Sachs study, this market is growing three times faster than the U.S. population in general. Demographers at the Pew Research Center predict that by 2050 the U.S. will be a “minority majority” nation, with Hispanics making up 29% of the total population.

The shift has already occurred in traditional gateway cities like Los Angeles, CA; San Antonio and El Paso, TX—border towns and booming coastal metros with exploding population growth. While New York, NY, and Chicago, IL, served as magnets for newcomers at the turn of the 20th century, today immigrants from Latin America and Asia typically head to Los Angeles and San Francisco, CA and Miami, FL. They settle in these places for the same reasons earlier waves of Europeans came to the U.S.—friends and family members had already settled there and formed self-sustaining ethnic communities. This is particularly true of less skilled immigrants who rely on kinship and informal networks to land jobs. They’re also attracted to areas with climates conducive to varied recreational activities and low costs of living. Not surprisingly, those markets with the highest proportion of Hispanics tend to be along or near the Mexican border—places like Rio Grande City, Laredo and Raymondville, TX.

5. Diversified Employment: Construction, Retail and Business Services

One of the tried and true economic axioms is that “people follow jobs and retailers follow people.” However, Nielsen Claritas research shows that people don’t follow all jobs equally. In fact, over the last eight years, the places most likely to experience population growth had an abundance of jobs in two industries—construction and retail—as well as diversified employment opportunities in businesses ranging from finance and credit to engineering and recreation. Many resort and retirement cities attracted construction and retail workers as aging Boomers and young families alike streamed into these areas looking for affordable housing and a relaxed lifestyle. Retailers followed the increased population, providing products and services for the expanding consumer market.

The fastest-growing markets also have something else in common…

The fastest-growing markets also have something else in common : solidly diversified economies. Analysts found a strong correlation between growing communities and a white collar workforce involved in business services, finance, engineering and management services, as well as amusements and recreation. Viable opportunities in business services, management and engineering create vibrant economies nourished by an educated, well paid workforce. Successful economies also seem to promote a leisure-intensive lifestyle, as many fast-growing communities feature a significant number of jobs involved in gambling, recreation, hotels, theme parks and cultural venues. Among the hotspots experiencing strong construction starts, a growing retail environment and a diversified employment base are resort communities such as Jackson, WY; Key West, FL, and Hilton Head Island, SC.

But an over-reliance on construction and finance jobs can have a downside risk. Both industries have been hurt by the housing crisis and credit crunch. As construction jobs grow scarce during a protracted downturn in the housing industry, workers leave town. In markets that relied too heavily on construction—such as Las Vegas, NV; Phoenix, AZ, and Naples, FL—analysts expect to see a marked slowdown in population growth and a rise in housing foreclosures.

6. Long Commutes: A Price of Growth

Infrastructure is also important in growing communities. Fast growth correlates with significant numbers of air transport jobs, workers with home offices and, unfortunately, long commutes. Obviously, thriving communities need good airport connections to accommodate business and vacation travelers, as well as high-speed Internet access so workers can connect to employers from home offices. Fast -growing communities also tend to saddle workers with long commute times, typically much longer than the national average of 25 minutes. The long commute likely reflects many workers living in the more affordable suburban fringes of metro areas.

It’s not just the miles, though, that lengthen these commutes. More frustrating are the minutes spent in traffic jams caused by the undesirable side effects of fast growth: feeder roadways not built to accommodate rush hour traffic, the absence of public transit in the hinterlands and uncontrolled sprawl that did not account for car-dependent lifestyles. These are the ills of life in the fast-growth lane, though they can be mitigated by planners who recognize the presence of Population Growth Indicators in their communities and address the issues accordingly.

7. High-End Shopping Centers: Lifestyle Centers

One unexpected result of the boom in affluent commuter suburbs is the emergence of high-end shopping centers known as “lifestyle centers.” A kind of outdoor mall, they feature natural sunshine, tree-lined streets, stress-relieving fountains and plenty of shops and restaurants. Unlike the massive, windowless suburban malls anchored by a department store, these centers resemble quaint villages filled with high-end retailers like Talbots, Coach, Chico’s, Banana Republic and Starbucks. And they’re designed for upscale suburban professionals who want the convenience of driving up to the shops, parking their cars and downing a Frappuccino® while lounging on an overstuffed chair. Ironically, these suburban creations are designed to resemble the downtown commercial districts that shoppers fled long ago.

Lifestyle centers are growing at a rate of several dozen annually…

At a time when mall expansion is declining, lifestyle centers are growing at a rate of several dozen annually. Today, there are more than 400 of these tabernacles of consumerism, with their narrow pedestrian streets and little plazas. And they’re sprouting up in growing mid-sized metros and college towns like Yakima, WA; Ann Arbor, MI; and Bend, OR. Because lifestyle centers require a relatively large population base to thrive, developers have yet to build any in Micro Towns (“C” Markets). However, their presence in larger markets reflects the need to create new shopping experiences for consumers bored with traditional malls. Growing markets provide residents with new retail experiences at places like lifestyle shopping centers.

Predicting the Future

Populations do not necessarily grow in a linear fashion, and current growth patterns won’t necessarily continue. Every year, Nielsen Claritas analysts generate five-year projections for all CBSAs by combining public U.S. Census Bureau estimates and demographic data at small levels of geography. Between 2008 and 2013, they estimate that CBSAs will grow an average of 5.2% nationwide, though in some smaller markets in the South and West the pace may rise above 25% as Boomers head to Sun Belt retirement communities and smaller towns to wind down their working years. According to their analysis, Palm Coast , FL, should experience the greatest percentage of growth among all the nation’s cities, thanks to its location as a bedroom community halfway between Daytona and St. Augustine, FL. Others, like Greeley, CO and Heber, UT, are resort communities that cater to active retirees and families who appreciate hiking, skiing and a contemporary western lifestyle. These markets are pegged to lead the nation’s economic recovery over the next five years.

Nielsen Claritas analysts combined the five-year population projections with the Population Growth Indicators into a map that suggests different growth strategies and opportunities for retailers. Four recommendations emerged for businesses seeking to expand their operations.

  • Dominate: With both strong projected growth and strong potential for growth based on the Population Growth Indicators, these markets should represent safer bets for retail expansion over the next five years. These markets include college towns and booming resort locations like Las Vegas, NV; Austin, TX and Bend, OR.
  • Invest: With moderate projected growth, but strong potential based on their Population Growth Indicators, these markets may grow faster than expected, indicating possible opportunities for retailers. Among these markets are such knowledge worker havens as Los Alamos, NM; San Jose, CA; Boulder, CO, and Minneapolis, MN.
  • Maintain: Markets in this category may be riskier for retailers because, though their projected growth is above average, their potential according to the Population Growth Indicators is below average. In markets like New Orleans, LA; Coeur d’Alene, ID, and Brownsville, TX, retailers may want to more thoroughly research any expansions plans.
  • Innovate: With weak scores for both projected and potential growth, the many small markets in this group would need extra money and attention—perhaps a new retail concept or a different product mix—to become a promising retail opportunity. Among the communities in this category are college towns like Columbia, MO; Corvallis, OR, and Greensboro, NC.

Retailers can use this analysis to quickly assess a market’s potential and determine where it fits into their overall development strategy. Even in a sluggish economy with slow population growth, this innovative modeling approach can suggest expansion opportunities in overlooked markets. With this new approach to analysis based on the Population Growth Indicators, retailers now have a tool to help them identify these rising stars and stake out the best locations to attract their target customers. For those retailers willing to embrace this paradigm shift in understanding growth, many may be in a position to reap the rewards for their expansion efforts—or at least avoid costly mistakes.

Download a copy of the full Nielsen Claritas report Finding Growth in Challenging Times