Black History: Special Delivery!!
Using data from online consumer business ratings, researchers have now been able to quantify the dollar value impact on revenue growth for businesses located in black neighborhoods. The research suggests that businesses in black neighborhoods face a negative stigma because of their location within black communities. The stigma centers around businesses being considered as less capable, having less quality, etc.
“Five-star Reviews, One-Star Profits: The Devaluation of Businesses In Black Communities” is a new report released by the Brookings Institution on February 18, 2020, looks at businesses in black neighborhoods that are highly rated in online reviews. The research looked at Yelp ratings of businesses. Yelp is an online platform that allows consumers to rate businesses and share feedback.
According to the Brookings Institution data, businesses in black neighborhoods that are highly rated by customers using the Yelp platform experience a significantly lower rate of revenue growth than businesses not located in black neighborhoods. The report indicates that the unrealized revenue equates to approximately $3.9 billion in lost revenue annually for businesses with high ratings located in black neighborhoods. According to Brookings Institution lead researcher Andre Perry, “These businesses in black neighborhoods that have high ratings should experience higher revenue growth, but they are not.” He goes on to also say, “Our model shows that it’s the concentration of blackness in the neighborhood that correlates with the lack of revenue growth.”
Perry also found that for neighborhoods with at least 50% black residents, homes are valued at nearly half the price of homes in neighborhoods with no black residents. Let that sink in for a minute! Simply placing the same homes in neighborhoods with no black residents (if we were able to actually do so); these same homes would be worth $156 billion dollars more according to Perry. The newly released report examines 86 metro areas with the highest number of black residents that also had enough businesses with Yelp ratings within majority-black zip codes. Researchers used financial data from the National Establishment Time Series (NETS) database and compared it with zip codes from the public data interface of Yelp. The sample included 53,030 businesses, with each business having a minimum of two Yelp reviews. On average businesses studied had 115 Yelp reviews per business. Perry noted that Yelp reviews were certainly not the perfect measure for business quality. However, he stated he reviews represent the best possible data that is currently available. Perry states, “There’s this overall narrative that the state of a neighborhood is a direct result of the choices people living it makes”. For businesses that translated into the misperception that businesses in black neighborhoods don’t experience the same level of revenue growth because of their lack of expertise or management skill of the owner.”
Looking at Census data, it might seem that people of color possess less business acumen; with average annual revenue for white businesses far exceeding that of black businesses. For example in Detroit, white-owned businesses average 1.3 million in annual review compared with just $58,000 for black-owned businesses. The new Brookings Institution research findings reveal this assumption to be untrue; that revenue by itself is a conclusive way to measure business acumen across various ethnic and racial groups. What the new research does suggest is that businesses owned by people of color actually had more highly rated Yelp reviews than businesses that are white-owned; whether located in predominately black neighborhoods or non-black neighborhoods. With many sources identifying that black businesses need more technical support than other businesses, Perry says, “they don’t”. What it does suggest is that business owners of all racial backgrounds need technical support.
What is important to understand from the report is that the location of businesses located within black neighborhoods negatively impacted their ratings. The higher the concentration of black residents within the neighborhood where the business is located equated to fewer Yelp reviews, regardless of whether the business owner was white or black-owned. According to Perry what is essentially happening is that “The perception of the neighborhood is deflating the value of the asset”. The research also showed that overall the higher the Yelp ratings the higher the revenue growth. However, those gains were not present for businesses located in neighborhoods with higher numbers of black residents. Recommendations shared in the report identified that local governments must collaborate with other sectors to provide incentives to fund renovation and to minimize bureaucracy and promote investment in black neighborhoods.
Perry asserts that quality products and services would normally drive investment into businesses. However, he also states, “…our sense of location is tainted by our associations with race, we’re missing out on investing in neighborhoods that already have good food, good services, good retail.” This research only serves to confirm the ways in which redlining, systemic racism, explicit and implicit bias are further undermining opportunities within black communities.
“Historic discrimination distorts how we value Black people and the assets in Black communities, robbing them of the ability to lift themselves up the social ladder and build stronger neighborhoods. Negative perceptions that are shaped by racism put drags on markets that hurt Black people and the communities they live in.” –Andre Perry