The Inner City 100: Creative Instincts

Why inner-city growth companies don't fear the influx of new rivals

Contractor Krish Naraine knew exactly where to turn a few years ago when Home Depot shot down his request for a boost to his $750 credit line. He went to Star Hardware (#88), eight miles north on route 91, in north Hartford. Store owner Max Kothari didn't so much as glance at Naraine's driver's license before ultimately floating him $30,000 in credit for supplies. "I give credit based on character and reputation," says Kothari, 35. "I've been in the neighborhood long enough to know who will pay it back and who won't."

It's by making use of that kind of intimate customer knowledge that Kothari expects to fend off the large rivals that recently have surrounded his 12,000-square-foot store. In 1996 Home Depot (whose 1998 sales totaled $30.2 billion) opened a West Hartford store within five miles of Star Hardware. Lowe's Companies Inc. also opened a store nearby and is building another one just outside the city. That's a big change from just a few years ago, when there were no city superstores for Kothari to worry about.

Kothari's not the only inner-city entrepreneur to witness a precipitous change in the competitive climate. Until recently, massive chains had been only too happy to yield distressed urban areas to local retailers. But as the suburbs became tightly packed with superstores, big players began to sniff out new customers. They've been lured to the inner city, where dropping crime rates and beefed-up tax incentives have helped spark a commercial renaissance.

Be that as it may, Star Hardware's growth--revenues have risen 30% annually for the past three years--is just one sign that inner-city pioneers aren't likely to crumble upon feeling the first vibrations of their giant foes' footsteps. Inner-city retailers, after all, have never had it easy. "In the city--especially in the tougher areas--you have fewer dollars to chase, and then you combine that with the fact that the perception of crime often makes it harder to get people from other areas to come to our neighborhood," observes Kothari. "You've got to have street smarts to get by."

Now, as large rivals invade their turf, inner-city retailers are finding that the coping strategies they've developed along the way may be their most effective competitive weapons.

1. Embrace customers tightly.
For an entrepreneur under siege, Kothari remains remarkably optimistic. "Sure, I can never be as big as Home Depot," he says, "but they can never do what we do for our customers, because they don't have the same information we have." So far, at least, his numbers prove the point. What was a run-down, $600,000 operation in 1989 is now a $3-million store with 24 employees.

Kothari attributes the growth spurt to his sensitivity to customers' needs. At his customers' request, he usually carries rare items, such as faucet stems and odd window sizes that fit the old houses in his north Hartford neighborhood. And to stay plugged into the local building community, Kothari plays an active role in business groups such as the South Arsenal Neighborhood Development Corp. He's also received a steady flow of business from the Housing Authority of the City of Hartford, which looks favorably upon his efforts to hire employees from the surrounding area.

Kothari also serves as president of the Hartford Enterprise Zone Business Association, a neighborhood group. In that role, he is often among the first to welcome new businesses to the city. That has helped introduce the newcomers to Star Crafters, the contracting service he began in 1998 in response to customers' requests for kitchen and carpet installations and window repairs. Today, Kothari's contracting arm--which operates as a separate business--contributes $500,000 a year to his coffers.

And now, with the New England Patriots soon to build a 68,000-seat football stadium only blocks away from his store, Kothari expects an accompanying building boom. In preparation he's built up inventory in just the areas where customers have assured him that Home Depot and Lowe's are weakest. He has added 6,000 square feet to make room for a larger selection of carpets, as well as for an on-site, custom-made-countertop service. And he will soon rent large tools. "If we can stay at the cutting edge," says Kothari, "then we'll keep an advantage."

2. Grow in unexpected directions.
In 1988 Rod Anderson bought the B&C Corp., owner of the Hereford House restaurant (#70), out of foreclosure for $565,000. At the time, few could see the value of buying a dying steak house smack in the middle of a declining neighborhood in Kansas City, Mo.