Small Business Owners: Why Korean Americans Dominate the Inner City Retail Market

By Richard Shin

 

Introduction

The greatest benefit of EDGE is the unique opportunity for students to share the knowledge that they’ve attained through their research.   

In reviewing the dynamics between minority business owners and the respective communities in which they operate, there arose a need to clarify the situation of the most infamous small business owner: the Korean American inner city small business owner.  Within the last few years, Korean American business owners have drawn considerable media attention highlighted by the extensive news coverage during the “Rodney King” riots in LA.  These riots targeted Korean American businesses and were fueled by misconceived anger and frustration. 

Even at Stanford University, a vast majority of the students and faculty are not completely aware of the background from which many Korean American students come.  Although there is some literature that pertains to this general topic area, many of these documents focus on the either the aftermath of the LA riots or initial hardships faced by the immigrants. 

The actual intricacies of the how the small businesses work and their interactions with the communities they serve are often overlooked.  This information is important for several reasons.  First, to understand and predict the direction in which these businesses are heading.  How will they continue to interact and serve these inner city communities that they monopolize?  Secondly, to understand what is the cause of such a disproportionate amount of Korean American business owners.  Thirdly, to shed light onto an integral part of the Korean American culture.  Lastly, and perhaps the most key, to entertain the possibilities other minority business owners entering these inner city markets.  What are the keys that have made these Korean American businesses successful and are they transferable to other communities of color?  This essay has been composed with these hopes and to dispel any further myths of Korean American businesses.

 

Small Business Owners:

Why Korean Americans Dominate the Inner City Retail Market

 

Several years ago, Margaret Cho starred in a short lived TV sitcom called “All-American Girl.”  The show drew up comic situations fueled by the stereotypes of Asian Americans.  One of the most prevalent stereotypes involved Margaret’s parents and their small bookstore.  Numerous comical situations arose in the way Margaret’s parents managed the store and interacted with their customers.  Although some Korean Americans may have been offended by the blatant exaggerations in the skits, many of these stereotypes are justified and accurate in depicting Korean American business owners.      

In recent years Korean American business owners have received backlash by the community in which they operate for numerous reasons.  The businesses are primarily located within urban neighborhoods and serve a customer base consisting of mostly Blacks.  These business owners have received complaints about poor service and many of these communities have accused the businesses of exploitation.

Although the intricacies of the Korean American business owners have been somewhat documented, many issues still remain unclear and misunderstood. Furthermore, many of these accounts have been given with a West Coast perspective with much of the literature coming out of the Los Angeles or Bay area.   A majority of these articles and issues have been brought to light due to the extensive media coverage of the explosion of anger and frustration within the Black and Hispanic communities during the riots that followed the Rodney King decision in LA.

Regardless of the accompanying baggage that surrounds the Korean American business owner, the hard facts still remain: they dominate the inner city market with their grocery, discount, dry cleaning, deli and clothes stores.  They continue to thrive in these markets.  With such a monopoly held by Korean American business owners there have been increased interest in diversifying the owners of the inner city markets.  In order to entertain the possible influx of new Black and Hispanic storeowners, it is necessary to examine the salient points that have allowed the Korean American business owner to come into such prominence. 

In consideration of those unfamiliar with the general situation of Korean American immigrants, a brief summary of their emigration habits is needed.  Koreans have been immigrating to the United States in great numbers since the early 1970s.  The number of Koreans coming to the Unites States have only been limited by the rate at which visas have been issued.  The majority of these Koreans flocked to large urban areas such as LA, New York, Chicago, San Francisco and Philadelphia.  Although they originally settled in the inner cities, many of these Korean Americans have been able to move out to the suburbs.  For many of these Korean Americans, their “American Dream” has been made possible through opening and running small businesses within the inner cities.   

Interactions and Beginnings of Community Discontent

In the late 80’s, it was widely believed throughout the inner city Black communities that Korean American business owners had received loans from various banks to fund the capital for their stores.  Many Black entrepreneurs who also sought to open businesses in Philadelphia had been declined loans due to their high-risk ventures, weak credit history and lack of collateral.  Banks were leery of funding stores that would literally be located in the ghetto.  These businessmen lacked the necessary credit history due to the simple fact that most purchases in the inner city are made through cash transactions.  Thus the notion that members of a different minority group were being approved for the loans that these Black business men coveted, frustrated and angered many Blacks in the community.  This false pretense caused much resentment towards Korean American business owners by the inner city Black community who comprised the majority of the customers.

Furthermore, these Korean American storeowners lacked proper business etiquette.  These added complications added further tension between the storeowners and Black shoppers.  Ever since the opening of Shin’s Lady in 1980, Mrs. Shin has been the primary cashier of the small clothing store.  For many years, Mrs. Shin used to place the change and receipt on the counter after a sale.  In Korea and Japan where physical contact between strangers is highly discouraged by the culture, this is the proper manner in which cashiers give back change.  Often customers would interpret Mrs. Shin’s actions as a lack of respect and would leave the store discontent.  Mrs. Shin did not understand her actions to be poor business etiquette until customers started asking and even demanding for the change to be handed to them.  Once this had been brought to her attention, Mrs. Shin had no problems adjusting.  Mrs. Kim who works at Kim’s Fish Market also recants a similar experience.

These small businesses also lack the financial ability to hire security guards.  As a result, these stores are a popular target for shoplifters.  Thieves often enter a store in large groups and employ different shoplifting techniques.  Sometimes they bunch into one area to create a cover for the individual who is actually shoplifting.  Other times they spread out through the store to create an atmosphere of havoc.  With only a few workers manning the store and with so many people to watch, a shoplifter can easily steal a pair of earrings, a candy bar or a toothbrush.  Whether it’s a clothing store, a grocery or a discount store, the situation is always the same: one or two workers for the entire store.  With these conditions to overcome, Korean American business owners never let a shopper out of their site.  No shopper likes to shop while under the premise of being a possible shoplifter.

Nonetheless, shoplifting and petty theft is prevalent enough to call for such drastic measures.  One Korean American storeowner recalls an incident in which he caught the thief in action.  The thief had decided to rush into the store, grab a jacket and run.  The storeowner saw this and pursued the thief on foot.  The Korean American storeowner caught up to the thief several blocks down the street.  At this time, the thief pulled out a knife.  The storeowner proceeded to disarm the thief, take back the jacket and return to the store. 

The crime rate is so bad certain areas of the inner city that some storeowners have set up physical barriers between them and the customers.  In many delis and sandwich shops, bulletproof glass separates the workers and the shoppers.  The order for the food is taken through the glass barrier.  Once the customer passes the money through a small opening to the cashier, the change and food is passed back out.  This setup resembles that of banks in which there is bulletproof glass protecting the tellers.

To further the dissatisfaction of the shoppers, many of these Korean American businessmen offer poor to no customer service.  Many times they refuse returns or exchanges on items sold in their stores.  Their general interactions with the customers are interpreted as harsh and abrasive often due to their poor English speaking skills.

Despite adverse conditions, why do Korean American small business owners remain successful?  Rarely do you see a small store go out of business.  In fact, many of these stores have been in business for nearly 20 years.  The majority of the reasons stem to the basic economic rule of supply and demand.  There are no other businesses within the inner city that offer competition.

The Korean Advantage: Procuring Capital

One of the greatest reasons why Korean Americans have been able to open up small businesses within the inner cities is due to the means in which they are able to procure capital.  They are able to circumvent the banks that would never fund business ventures within the inner cities and ghettos.

There are several manners in which Korean Americans are able to obtain capital.  The method of the “geah” (pronounced with the same vowel sound as the word “red”) has received notoriety.  This system involves an exchange of money between a group of friends.  Consider a “geah” of 12 families that have arbitrarily decided to have individual family contributions of $100 a month.  Each month, one family would be the recipient of the other 11 members’ contribution of $100.  The recipient of the cash would now have $1100 to invest interest free.  Now consider a “geah” of 20 families that have decided to have monthly contributions of $500.  The investment possibilities are certainly enticing.

Furthermore, there are numerous unsaid rules governing this informal organization.  The money is exchanged with the intent of investment.  The Korean culture is largely governed by the idea of “holding face” in public.  It would be a great shame if a family defunct on a payment.  Additionally, the Korean community in even the largest of cities is relatively small making peer accountability a great motivator.  Word travels quickly within the Korean community further stressing the need to hold face.

The “geah” is such a dynamic and informal setup that if a particular family is in dire need of immediate capital, the recipient can be changed.  Interestingly, the institution of the “geah” is not solely based on money exchange. The “geah” is usually contracted between friends.  Thus there is large social aspect to the organization.  The recipient of the money pool on any given month is usually responsible for hosting the gathering.  The gathering is usually held within the recipient’s home and gives the opportunity for friends to catch up at least once a month.  Additionally, the members of the “geah” will often golf and vacation together.  Within this unique social and financial model, money is freely loaned with the assurance that everyone will be the recipient of the money pool at some point. 

As Korean American families have become more established the need for the “geah” has turned into more of a social institution.  Within older and more established “geahs” the exchanged money is primarily used for down payments on houses or to purchase new vehicles.  Even though the actual money exchange is no longer needed for business purposes, the money is still transacted for the sake of tradition.

There are several other means by which Korean Americans procure the capital necessary for starting businesses.  There are hundreds of thousands of Korean Americas that are living in the United States.  The recent wave of immigrants have included some that have come to the United States in order live in closer proximity to their families.  The Korean immigrants are no longer the most impoverished.  Some come over with small fortunes and are able to easily fund themselves.  In fact, many people that were white-collar workers in Korea have given up their jobs to emigrate to the U.S.  With poor English speaking skills, these workers are left with few working options.  Many choose to open a small business.

Besides the innate capital and the system of the “geah” low interest loans are freely made between individuals.  For the same reasons as the “geahs” these loans are always paid back within the agreed time allotment.  These loans are made possible by the high amounts of hard cash that is available within a small business environment.  Interest free loans between family members are not uncommon.

Limitations of Korean American Businessmen

Despite the plethora of Korean American entrepreneurs, one never sees a businessman venture far out of the small business arena.  Some businesses have begun to move out into the surrounding suburbs of Philadelphia.  Even so, the inner city businesses still remain the most profitable.  Greater profit margins are turned with high turnover rates of lower priced goods and services.

The Korean American small business faces difficulty in catering to the higher quality of goods and services that suburban consumers have come to expect.  Nonetheless, the lower crime rates, closer proximity to their homes and new markets with less competition have drawn some Korean Americans businesses to the suburbs.  However, the Korean American business is best equipped to serve the inner city.

Further contributions to the profit margins that allow these inner city businesses to stay afloat include the option of not hiring any additional salespeople or store workers.  The husband and wife usually work in tandem to run a store.  If there is a greater need, the children, grandparents and various members of the family are recruited to help out at the store.  Working at the store can be equivocated to performing other household chores.  Some Korean American children receive their tasks dutifully, while others are less than willing to help out.  It is a truly unique characteristic of most Korean Americans that have parents with stores.  Regardless of their socioeconomic class, they have work experience in the ghetto.  Sometimes the extended family enters a business venture together.  Nonetheless, the expansion of the store and growth of the business is literally limited by the size of the family.

The Curse of the Inner City Small Business

In order for a Korean American businessman to remain successful, he must commit to a life of working in the ghettos and inner city.  Most businesses have six-day working weeks, and there are few vacations during the year.  For some, such as deli owners, the store must stay open 365 days of the year with closing times nearing midnight on weekends. 

Many of these businesses are in areas that have high crime rates.  In fact, the mortality rate for Korean American grocers is higher than for U.S. soldiers in Vietnam during the Vietnam War[1].  It is likely that every Korean American businessman will be the victim of at least one robbery at gunpoint before he retires. 

Despite these adverse conditions in which Korean Americans work, they are still accused of exploiting these primarily Black communities in which they work.  Some of this dissention stems from a lack of understanding of the Korean culture.  Much of the exploitation accusations arise from the fact that most Korean Americans live in the suburbs.  All of the money that is made in the inner cities is directly filtered out to the suburbs via these Korean American storeowners.  This undoubtedly weakens the economic infrastructure of the inner city communities.      The Future of Minority Business Owners in the Inner Cities

Nonetheless, there have been improving relations between the inner city Black community and the Korean American business sector.  These improving relationships have been facilitated by the increasing numbers of Korean American political organizations such as KAGRO (Korean American Grocers’ Association) and their desire to maintain good relationships with the communities that they serve. 

Furthermore, with more time spent in the United States, the English speaking skills of the Korean American business owners have vastly increased.  They have also adapted better business etiquette. Mrs. Shin now comfortably interacts with her customers.  Since she is familiar with the products she sells and the popular new fads, she is able to make suggestions and help the customers to a great degree.  Mrs. Shin is on a first name basis with some of her frequent shoppers and even allows her oldest patrons to shop using a store tab.  After 15 years in the business, Mrs. Shin is now able to provide the comforts and conveniences of shopping in a small store.

With the great stress of education placed by many Korean American parents on their children, the continued dominance of Korean American business owners in the inner cities is highly unlikely.  Although there continues to be an influx of Korean immigrants that fuels the small business market, the growth rate of new stores within the inner cities has drastically decreased.  The second-generation of Korean Americans are leaning towards a variety of professional fields.  Running stores within the inner cities is considered an occupation of their parent’s generation. 

Because of these trends and the proven viability of the inner city markets, the ability for other minority groups to enter the market seems open.  The greatest issue that other minority groups still face is the ability to procure the initial capital.  Given this problem, all minority entry would have to be from the outside in.  That is, it would be highly unlikely for inner city residents and businessmen to capture the capital needed.  The venture would have to come from businessmen already established in more upper class districts of the urban environment. 

The efficiency of the “geah” system is culture specific to Korean Americans.  It has been observed that a great deal of the culture of Korean Americans is intricately intertwined with the “geah” allowing for its great success. 

An additional consideration is the fact that many Korean immigrants bought their businesses from Black owners who incidentally bought them from Jewish owners in the mid-1960s.[2] Many of these Black owners forfeited their businesses due to the increasing crime rates.  The profit margins were not worth the high risk for them.  The question of whether a second wave of Black owners would sell their businesses in the midst adversity still remains.

 The financial potential for the inner city market is still great.  There is also a great need to diversity the ownership within this arena.  In order to revitalize these communities, the cash spent in these stores must remain within these communities.  Thus the owners of these inner city stores must be residents of the inner city.  Unfortunately, even with extensive micro-loans, large scale financing is nearly impossible.  The success of the Korean American businesses is rooted in the initial capital that the businessmen are able to procure.  Any businessman who is able to obtain the necessary capital and is willing to face the hardships of running an inner city store is nearly guaranteed a comfortable profit margin.  However, up to this point, only the Korean American immigrants have been able to accomplish this task.  Nonetheless, there is comfort in the potential for an open market.  



[1] Kim, Elaine.  “The State of Asian America: Activism and Resistance in the 1990s.”  South End: 1994.  P84.

[2] Kim, Elaine.  P81.