Big-Box Stores Disrupt Local Businesses in East Harlem

By Krishn Kaushik on Oct 19th, 2010

The Big-Box stores are changing the consumer behavior in East Harlem (Photo by Krishn Kaushik)

In the last 14 months, Target, CostCo and Best Buy have opened stores in upper Manhattan. “It’s like an alien spaceship which has come and landed in the middle of nowhere,” says Rafael Merino. “But we have to deal with it.”

He is describing the invasion of these big-box stores into East Harlem’s business dynamics as an expert for the neighborhood. Merino is the director of marketing and media development for the nonprofit East Harlem Business Capital Corp.

Target’s August opening, following Best Buy’s, Marshall’s, Bob’s Furniture and CostCo’s moves into the East River Plaza, has unnerved the owners of small bodegas and mom-and-pop shops. The big-box stores have drawn customers from across New York to East Harlem. But this increased foot traffic has not resulted in increased sales for the smaller businesses. While the effect has differed for various stores, sales have largely gone down, owners say. Local shopkeepers are still confused in their reaction. Many feel the customer shift could be temporary, others worry that it will take a greater effort to bring back the customers they’ve lost.

“About a year back this place was dead,” says Mohammad Ali, cashier at Carolina Grocery on 117th Street opposite the mall’s entrance. “It was a dead end.”

Since Target and other stores opened, Carolina Grocery’s sales have increased. Previously he would see the same faces in his store everyday, Ali adds. Now with so many shoppers of various cultures coming to the plaza, he compares the scene to the United Nations. His store has benefitted from increased sales, often of small items like a can of soda or packets of cigarettes to plaza employees.

But the crowds haven’t brought more business for other retailers. Michael Acosta, general manager of the Compare Foods supermarket on 115th Street between First and Second Avenues, hasn’t found these big stores helpful. “They are with big corporations, they have the money,” he says. “We are small and independent businesses with limited resources.” The difference in profit margins between his supermarket and the likes of Target and CostCo is about 20 percent, Acosta says. His business in August has declined by approximately 11 percent compared to the same month last year. Things didn’t seem upbeat the following month either, “noting has gone better, it’s not the same as last year.”  He adds, “It hurts me to see people I know walk with a Target bag.”

Other neighborhood retailers agree. Mohammad Ashraf, who owns Romana 99 Cents store on First Avenue, bemoans the nearly 20 percent drop in sales that he says his store has seen. He is not attracting new customers and is losing old ones to chain retailers. The general manager of Casa Furniture on Third Avenue, Joe Sasson says, his business has plummeted almost 50 percent, though he doesn’t blame solely the newcomers in East River Plaza. “It’s the competition and the economic slump together,” he says, but adds that the effect of the plaza alone still remains huge.

Yet Charles Walker, marketing director for Upper Manhattan Empowerment Zone doesn’t see a problem. “Competition is always good,” says Walker. “Competition helps bring the prices down, and at the same time improves the quality of goods.”

Merino is skeptical about some of the small business complaints. His organization will conduct a study on the plaza’s effect on smaller stores, he says. He believes that the new complex generally benefits the neighborhood, now getting much more exposure and visitors.

The corporation wants to engage the plaza retailers with the local community, Merino says. The plaza intends to make free retail space available to a community non-profit organization, for instance. “We can’t ignore that there has been a negative impact,” he says, “but we have to be creative in dealing with it.”

Apart from affected sales, the big-box stores’ opening has also changed the dynamics of real estate and property taxes. Acosta of Compare Foods says that taxes on his building have risen by almost 40 percent. Merino agrees that taxes will inevitably increase.

Most consumers don't explore the neighborhood, complain local business owners (Photo by Krishn Kaushik)

The business capital corporation is devising a strategy to offer outdoor and print advertising space to small business owners at minimal prices. Merino wants to attract visitors, using the plaza as an anchor but not the sole destination.

Some community business people also complain, in some cases mistakenly, that the plaza retailers benefit from programs meant to help the smaller enterprises. “The city gives them benefits under empowerment zones,” says Acosta, angrily wondering why big corporations would be accepted in a program that provides loans at subsidized rates along with tax exemptions. But Walker says none of the big retailers got any money from the empowerment zone program, though they do get tax cuts. Sasson, asked why he never applied to the program, he says he’s unaware of it. “They never notified us,” he says.

Ultimately, many smaller business owners have lost customers, may face higher taxes and will have to spend more money on advertising. “I cannot give jobs to more people from the community now,” says Acosta. Under the strategy to promote local businesses to visitors, Merino acknowledges supermarkets still remain a “tricky” proposition.

“When a new store or a cluster of stores opens it creates, what in marketing terms, we call the grand opening search,” says Mark Cohen, marketing professor in Columbia Business School, describing the initial attraction of customers to the big-box stores . Cohen, a retail expert adds, “The presence of the big-box stores is beneficial and distractive for the community.” They bring, “enormous competitive presence,” often destructive to the local competition, he says, but they also bring services the community lacked before. “The best solution for the small businesses is to live up to their reputation of giving personalized services, which the big-box stores cannot,” he advises.

In the meantime, many people expect local business to pick up a bit, after the initial attraction to the Plaza ebbs. “Sometimes you make back the business you lose, sometimes you don’t,” says Anthony P. Ciarletta, proprietor of Lato-Ascione Pharmacy on First Avenue. “We are starting to feel the pinch,” he says about the sales for September. He disagrees that the big-box stores have more competitive prices than his store, “even if people go to these stores to buy a pin, they buy much more since they are already there.”

“Some consumers do normally revert back to their prior habits,” agrees Cohen. But it will take six to 12 months to understand the actual dynamics in this situation.

Sasson was expecting things to become better in October through December, when people traditionally come out to buy furniture from his store, but sales have yet to rebound. “It takes time, in the meantime you are losing revenue,” he says still hoping to regain his lost customers. “You just have to be around and wait for them to come back.”

1 Response for “Big-Box Stores Disrupt Local Businesses in East Harlem”

  1. Holly says:

    I would love to know how businesses have been effected in Upper Manhattan in this last year. Any feedback?

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