Are outlet malls an outlier?

Desert Hills Premium Outlet Mall, Cabazon California - Getty Images
Apr 17, 2017
Tom Ryan

While obituaries are regularly being written about traditional malls, outlet malls by all indications are thriving.

According to a report last week in The Wall Street Journal, “Surprise: Outlet Malls Are Hot,” outlet malls are still seeing high levels of occupancy and income gains. Over the last five years, sales at outlet malls have doubled to about $50 billion, according to Green Street Advisors. Tanger Factory Outlet Centers said its 36 outlet centers were 98 percent full at of the close of 2016.

“The strong performance is partly due to the lack of department stores such as Macy’s, Sears or J.C. Penney in outlet centers, which cater to individual brands such as Coach Inc.,” the Journal reported. The centers are also avoiding the markdown pressures stemming from the rampant closing of department stores and other chains.

Outlet malls have always stood out with the promise a treasure-hunt experience. A Journal article that ran Sunday noted how even high-end retailers are having to offer more deals to reach their loyal wealthy customers. With nearby hotels promoting free-shuttles, tourists have become a major supporter of outlet malls.

Open-air environments and their ability to provide an all-afternoon adventure for family or friends are also key traffic drivers.

“The dwell time is longer,” David Hinkle with the Outlet Resource Group, told

The big knock, however, is whether outlet malls offer real deals as much of the product is specifically made for the locations. Critics also complain about over saturation as more centers open, including many close to urban sectors. Reebok, for one, is closing most of its outlet stores to reestablish demand for its wholesale business.

But with rents less expensive than temperature-controlled, enclosed malls, outlet malls can be profitable for vendors.

Steven Tanger, CEO of Tanger Factory Outlet Centers, recently told CNBC that with the 35 to 50 percent return rate on apparel and footwear bought online, outlet malls are more profitable for vendors than e-commerce. Said Mr. Tanger, “The dot-com or e-commerce part of their business is not cash flow positive. The outlet stores are cash flow and very positive.”

DISCUSSION QUESTIONS: Are outlet malls largely immune to the challenges currently facing traditional malls? What challenges may they face in the years ahead?

"Even at outlet malls, the future lies in building relationships with customers before, during and after the sale."
"Outlet malls are not immune, but the outlet store itself can be a distraction to the company."
"Outlet malls are only an outlier for now. To think that they are immune to the digital commerce sea change is folly."

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20 Comments on "Are outlet malls an outlier?"

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Anna Tolmach

Outlet malls exist because on the one hand retailers have trained customers to expect discounts and, on the other hand, they’ve been overproducing the wrong products and need somewhere to offload them. Outlet malls have only recently stopped being a place for overflow stock and started carrying stock of their own, but that’s because of the success they’ve had and the customer’s association with outlets as a discount. There may be no real way to course correct at this point, but this is a self-created institution and its good performance shows breaks in other parts of the value chain.

Mark Ryski

Outlets are not immune to the challenges of traditional malls, however, they do enjoy a slight advantage. The perception of having access to one-offs and reduced “factory outlet” pricing is a big part of the allure despite the fact that this is more perception than reality in many cases. Outlets will face similar challenges that mall-based retailers face. However, emphasizing the “treasure hunt” experience will help.

Dave Nixon

They are immune to the downfall of traditional malls because they offer the promise of seeking out a great deal AND they are usually outdoor shopping experiences, which are currently on the upswing. The challenge for outlet malls will be when the premise of deeply discounted items disappears and the stores evolve into selling normally-priced products. They will need a new hook to keep those shoppers from abandoning them for outdoor lifestyle centers which offer a richer and broader experience with restaurants, entertainment, etc.

Steve Montgomery

The longer-term question for the branded locations in outlet malls is, does the product they are selling truly represent the brand? Based on all the information I have seen, in many cases it does not. What is occurring is that the brand is knocking off its own product.

While that may be good for short-term sales and profits, the longer-term impact is a lessening of the brand’s value. Once this occurs then the appeal of the outlet mall is diminished and its fate may be the same as the regular malls.

Ken Lonyai

Outlet malls are only an outlier for now. To think that they are immune to the digital commerce sea change is folly.

Consider department stores as the low hanging fruit, first to be picked off by digital commerce and changing shopping habits, followed by traditional yet weak malls. That’s not the end though. In time every weak category and business that is uncompetitive and unable to totally meet changing consumer expectations will be hammered and broken. There’s no reason to believe outlet malls (as a category) are exempt. Those that get it and get with it will survive, maybe thrive, the rest shall perish too.

Lyle Bunn (Ph.D. Hon)

The outlet mall plaza approach competes against the experience of a mall. Each exceeds the sum of their brand parts with the mall providing consumer engagement that adds additional dimensions to discovery, social engagement, dining and fulfillment. The “we’ll do it ourselves” approach defined by the collection of box stores in the outlet mall has long had malls in their crosshairs, begging that malls and the stores within them take their game of traffic, experience and conversion to new levels.

Chris Petersen, PhD.

Outlet malls are popular for all the reasons Tom Ryan mentions in his post. While the outlets do not offer the latest styles, they typically offer good values. The “treasure hunt” aspect is an added bonus for some shoppers.

More of the same is not necessarily a recipe for future success.

The innovative NEX Crossing Mall in Nebraska is geared to Millennials. Wi-Fi throughout, interactive directional displays and most importantly an app that connects shoppers with the mall and all stores. Even at outlet malls, the future lies in building relationships with customers before, during and after the sale.

Dick Seesel

The growth of outlet malls over the past several years flies in the face of the conventional wisdom that brick-and-mortar retail is dead. Outlet malls provide the same kind of focus on “treasure hunt” and value that have kept companies like TJX and fast-fashion retailers performing well. They have the added cachet of multiple designer brands, at the same time that those brands are trying to clean up promotional activity in their department store accounts.

In fact, the proliferation of outlet malls (and their upgraded appearance and tenant mix) is one more issue making it harder for the traditional regional mall to tread water. But outlet mall developers need to be careful about overexpansion: There are up to a half-dozen outlet malls around the Chicago area where there used to be one. Part of the appeal of “destination shopping” will be lost of these malls become too commonplace.

Richard J. George, Ph.D.

As noted in the article, the physical environment (outdoors) and thrill of the hunt (prices and variety) have been a winning combination to date. I suspect these factors will continue to serve this segment well. I am less concerned about brand dilution since many of the large retailers who sell these brands are in trouble on their own.

One scenario is that the branded stores in traditional outlets will suffer the demise of the large, enclosed malls; leaving the outlet malls as their primary point of physical distribution, competing with other brands in the outlet malls as well as facing online competition. The key is to remember that outlet malls still carry their brand identity and the brand needs to be continually developed within this context.

Paula Rosenblum

Outlet malls are not immune, but the outlet store itself can be a distraction to the company. As was noted above, retailers do make their own product for outlet stores. It’s not just (or even mostly) for overstock. That becomes its own fixation and sometimes its own organization.

I also don’t think it’s correct that outlet malls “don’t have a Macy’s or other department stores” — they don’t have big anchor stores, but down here in Sawgrass everyone and their mother has representation in the mall.

They’re a mixed blessing for the retailer and not always such a great bargain for consumers.

Lee Kent

Many people do enjoy shopping and they do enjoy finding a great deal (or what they think is a great deal)! As long as the outlet malls provide that, they have a good chance at success. Also, outlet malls are destinations and make for an all-day adventure. The one question I might ask is, how popular are outlet malls to Millennials? I don’t know the stats but if Millennials are on board then these malls may be more immune than one might think. Challenges in the future? When stores figure out how to offer great experiences and treat their venues as exciting places to visit, the outlet malls may need to step up their game too.

That’s me being hopeful and my 2 cents.

Marko Kovac
2 months 7 days ago

The online shopping experience, with its personalized promotions and sharable discount codes, has conditioned Millennials to crave (almost require) deals when spending any significant amount of money. For now at least, outlet malls are able to replicate that experience in a brick-and-mortar setting — offering enough value to overshadow Gen Yers’ typical distaste for traditional shopping malls. That position could change, however, as online discount programs continue to improve the personalization and timelines of the deals they serve up.

Sky Rota
2 months 7 days ago

The outlet malls where I live are not cheaper. Plus we have either very cold or very hot weather so it is not enjoyable to have an all-day shopping experience, not that I would ever want to shop all day anyway and my mom doesn’t want to be too hot or too cold. To answer Ms. Kent, I can’t speak for Millenials but young Generation Zers do not like to go shopping. We only go to a store quickly to try something on for size and then we go home and have endless online purchase options to choose from; style, colors and free shipping and promo codes. We know how to find it all and then persuade our parents to buy it for us even when it isn’t our birthdays. Generation Zers are persuasive text message professionals.

Kai Clarke

Outlet malls are not immune to the challenges of retail, however, they offer the attraction of large numbers or “premium” retail brands in one central location. They will continue to face the challenge of e-commerce as their largest competitor in addition to the traditional retail woes of out of stocks, understaffed stores, long checkout lines, and demanding consumers who are stressed because of the drive and parking issues associated with outlet malls.

Peter Charness

Shoppers respond to (the perception of at least) a deal particularly for a more impulsive buy, or at a minimum the feeling that they are getting fair value (pricing) for a product they purchase. Look at J.C. Penney’s top-line resurgence when they’re introduced the deal. Amazon offers the (perception of) fair pricing. In both cases the lowest price may not be at either retailer. If you add into this equation the growth in off price stores (Saks, Nordstrom) vs their full price equivalents, the buying behavior related to a deal becomes clearer.

So the outlet mall is an end to end perception, (it’s not always the same product for a cheaper price at all) of a deal. As such I think they will continue to do well. After all, everyone likes a little every-day-seems-like-Black-Friday in their lives.

Ralph Jacobson

Everyone loves a bargain. I’m not certain the trend has any more of a complex explanation than that. One challenge is the retailers poaching full-price purchases from their traditional stores. The high-end outlet mall by me here in SoCal is always overflowing with locals and even international tourists every day. That’s not a scientific sampling, however, I can’t believe it’s an anomaly.

Jeff Miller

Outlet malls are certainly not immune to the challenges facing both traditional malls as well as the many brands and retailers that populate both. Their disruption will take place at a different pace but they will also see new challenges. In my limited outlet mall shopping experience, they are in even worse than other retailers in what I think are the keys to long term brick and mortar success — differentiated product, engaged and knowledgeable staff and something to experience aside from product and discounts. How many younger shoppers do you see at the outlet malls unless dragged by their discount shopping parents or even grandparents?

Lee Peterson

There’s definitely some good old fashioned consumer excitement involved with outlet malls — deal hunting, as it were, but it’s a limited proposition IMO. Ex: Columbus Ohio has a metro area population of 1.4 million. There’s now 2 outlet centers just outside of town, both north and south. Done. Any more would cannibalize the other. Matter of fact, it’s probably underway right now for the first one opened as people from the opposite side of town no longer need to drive that far.

Also, some day, and that day may not come for a while, the consumer is going to figure out that most goods at an “Outlet” center are made for the outlet center. I.e. cheap stuff, from cheap factories for cheap prices. Once they figure out that they’re probably better off going to a Walmart or AMZN, the house of cards will cave. But, you know, it’s taken 20 years for consumers to figure out that online shopping is WAY more convenient than store shopping, so it could be a while for outlets.

Craig Sundstrom

Immune? Of course not: they simply don’t have any (lengthy) history to even suggest such. For one thing, the segment is in the expansion phase, so it’s meaningless — or worse — to give sales growth figures. Second, since most properties are new, they’re drawing the same attention and business away from older facilities that any new project would.

The challenges ahead are several. Like saturation. Despite the mantra of “smart growth” and infill development, most of the projects are the epitome of anti-urban. Sprawling, auto-oriented and in remote locations, and could face a backlash if travel costs increase. And people may wise up to the price/quality relationship (sometimes) being offered: t-shirts becoming instant rags have soured me to at least one store.

Herb Sorensen
I notice the tendency to refer to bricks “retailing” as if it is one thing. I do that myself, sometimes. But the reality is that the two branches are quite distinct, though related. The dominant branch is the “self-service, Fast Moving Consumer Goods, FMCG” branch. It is dominant because it’s pinnacle is food — hence, GROCERIES! The other branch is everything else, often sold in a “service” mode, with a salesperson mediating a large share of the sales. These are radically different businesses, even if closely related. For example, it was the supermarkets 100 years ago that drove the retail revolution, with sky-rocketing efficiency, plunging prices, and massive gross sales. Walmart began, not as a grocer, but as a “supermarket” for non-groceries. But it wasn’t until a few decades later that they plunged seriously into groceries. And therein lies the tale of becoming the world’s largest retailer, by a factor of about 4, presently. The reason is simple: FOOD SALES DRIVE TRAFFIC! And that is largely SELF-service traffic. The reason for providing this detail is because outlet malls typically locate in somewhat rural areas with large passing traffic, and do not have the MASSIVE “Parked Capital” that both supermarkets and… Read more »
"Even at outlet malls, the future lies in building relationships with customers before, during and after the sale."
"Outlet malls are not immune, but the outlet store itself can be a distraction to the company."
"Outlet malls are only an outlier for now. To think that they are immune to the digital commerce sea change is folly."

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