Does anyone here own, or know someone who owns a business in a lower income area? How is business? How did you get started? What made you choose the neighborhood? By lower income I mean neighborhoods with large percentages of families who are close to the federal poverty level (about 24,000 for a family of four).
I see t-shirt shops, jewelry stores, thrift stores, little “hole in the wall” restaurants in some of these neighborhoods and I think, “Starting your own small business is risky, but what made these particular business owners take a leap and invest here?”
I don’t own a business, but I know for certain types of restaurants, it makes sense to open in lower income neighborhoods. You get the locals coming for the food. Then you also get the richer (let’s be honest, white people) that will make the drive for “authentic” fried chicken, soul food, etc…
And then they start to cater to this clientele instead of the locals, so the recipe changes, and suddenly your “tacos fish” are made with salmon, or they no longer offer desayunos because their demographic has no idea what chilaquiles are, and the horchata is made with that powdered stuff in a can.
Edit: actually, though, I drive through a depressed area every day for work, and I admire those business owners that do business there, so I’m genuinely interested in this question, too. Why open a muffler shop on Warren in Detroit instead of, say, Farmington Hills?
I’d have to assume that cheaper rent would be a major factor. The owner of the new business may be able to afford 5K a month for a commercial lease in a depressed area. The same shop area may cost 10K a month in a better neighborhood and this may well price it out of consideration.
I think many people ‘invest here’, because they finally found a location and the rent is cheap. If you’re just starting out, do you go on the high income side of town with a small spot that’s $5,000 a month, or the store on the other side of town that’s $1000 a month?
Perfect example, there was a restaurant by me that went out of business a bit over 20 years ago, it closed up soon after a young child died of food poisoning that they picked up there. Someone I know in the food industry commented that they either need to rip the building down and start over or turn it into something non-food related. When I asked why, she said that no restaurant will ever stay in business there…and she was right.
Since then, I’ve seen 4 or 5 restaurant go in and then close up a few years later. The rest of the time it sits abandoned. Every time a new business goes in, the local newspapers dredge up the old stores about the kid who died after eating there (and recently the mother died, totally unrelated).
But, the rent is cheap, and they think their business is immune. I’m surprised banks keep giving people loans set up shop in that location.
Flipside, my business has been down for the last few years, but it’s mostly because a ton of big box type competitors have shown up. Nothing to do with income, they just offer a different type of service and people are trying it out.
My guess is that cheaper rent is the #1 reason- most new small business owners don’t have the startup capital to go find a space in the higher income part of town as well as do the requisite initial advertising and marketing to succeed there. This is especially true if it’s an established market like restaurants, drycleaners, etc… The restaurant business in wealthier areas is absolutely cutthroat and unforgiving.
So opening somewhere that rent is cheaper usually translates into less startup costs, and more capital to use in getting your business going and solvent. Of course, the downside is that you can’t charge as much as you could in a higher-income area for the same exact product. The questions at that point are sales volume and profit margin- can you sell enough at that particular price point to cover your costs and make enough for it to be worth your while?
You also have the security concerns- theft, sketchier clientele, etc… to be concerned with.