Devaluation of Black businesses is a real thing. And it’s costing businesses located in Black communities millions — as much as $3.9 billion.
“The drag of racism on an economy not only cuts into individual owners’ profits, it robs local consumers and municipalities of the amenities and services neighborhoods gain from increased revenues. Further, a biased market cuts into the heart of the American Dream by negating the hard work, agency, and self-determination of business owners,” according to a study by the Brookings Institute and Gallup.
What the study found was that flattering Yelp reviews tend to bring in revenue for most establishments, but not for businesses in Black communities. A one-star Yelp review tends to equal a revenue growth of 1 to 2 percentage points over a three-year period.
“Businesses with four to five stars on Yelp experienced an average growth rate of 8.8 percent from 2016 to 2019. This compares to growth of just 6.2 percent for businesses with fewer than four stars. The more stars, the higher the revenue jump. Yet, businesses in Black-majority neighborhoods receive lower Yelp ratings and fewer reviews than other businesses,” according to the study.
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“Regardless of the race of owner, Yelp ratings are sharply lower as the Black population share increases,” the report says.
“In non-Black-majority neighborhoods, businesses with high Yelp ratings grew, on average, between 8.5 percent and 9 percent between 2016 and 2019, and poorly rated businesses grew significantly less (between 5 percent and 7.5 percent). In Black-majority neighborhoods, 7 percent growth was the norm for both highly rated and poorly rated businesses. Location in Black-majority neighborhoods eliminates the benefit of being a highly rated establishment,” the study stated.
It’s already challenging for Black businesses to get started and stay afloat. “Black-owned businesses start with approximately a third less capital than their white peers and have difficulties raising private investments from mainstream investment systems. Only 1 percent of Black business owners obtain loans in their founding year, compared to 7 percent of white business owners,” Brookings reported.
“It’s clear that business quality is not what is holding back profit growth,” Andre Perry, a Brookings fellow and lead author of the report, said in a statement.
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