Saturation concerns have been heard around factory outlet centers since their arrival in the 80s and 90s. At that time, the centers only opened in extremely remote areas and focused on liquidating excess goods.
According to International Council of Shopping Centers, the U.S. now has 368 outlet centers. That includes 39 opened in the U.S. since 2006 versus only one traditional regional mall. Saturation is expected to get worse. The Los Angeles Times, referencing ICSC data, reports that 12 new outlet malls are set to open this year in the U.S. and Canada. Another 55 are planned to open through 2016. Eighteen existing properties have expansions on the drawing board.
Other challenges facing outlet centers include heightened promotions over the years at department stores that lessen outlet stores' "savings" appeal. The online migration — often heavily discount-driven — presents more competition.
Stories also periodically arrive questioning the value of outlet deals. Several congressmen earlier this year pushed for a federal investigation into claims that upwards of 85 percent of the merchandise sold in outlet stores are manufactured exclusively for these stores, often at inferior quality versus what the brand sells elsewhere.
But outside the accelerated expansion, these issues have been analyzed before. And by all indications, the channel recently wrapped up another banner year.
According to VRN's 2014 Outlet Tenant Report, outlet centers account for less than one percent of total shopping center GLA (gross leasable area), yet the sector generates nearly 11 percent of shopper visits. Outlets reported average sales per square foot of $532 and a 95 percent occupancy rate.
Also encouraging is that that more than 60 new tenants — including Jimmy Choo, Anne Fontaine, Roberto Cavalli — opened outlet stores last year to bring some newness and excitement to many centers. Refurbishments are sprucing up centers that have been in existence for decades.
Categories beyond apparel and other softgoods are also said be broadening many center's appeal. Movie theaters and other attractions are being added to some as a draw. Indeed, the LA Times indicated outlet malls could be well positioned to replace many dying regional malls.
What's the likelihood that saturation issues will force a number of outlet centers to close over the next decade?