Why haven’t outlet centers faced saturation issues yet?

Jul 18, 2014

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.

Will factory outlet mall centers expand to the point of market saturation over the next few years? How do centers need to continue to evolve to keep their appeal?

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12 Comments on "Why haven’t outlet centers faced saturation issues yet?"

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Debbie Hauss

People love the discounts they receive at outlet centers. Of course, with anything there can be saturation, so outlet operators must start to think about the customer experience. For example, typically outlet centers do not offer great food/restaurant choices. That would be a good place to start on the customer experience side.

Max Goldberg

The question is not one of saturation, it’s about value. If factory outlet malls can consistently provide value to consumers, they will continue to grow. If they can’t, they will start to die off. The biggest challenge to these malls is the Internet. Why travel to a less-than-convenient store that may or may not have the items a consumer desires, when the same items are available on the Internet, often at lower prices?

Ian Percy

All I can say is, “I must be doing it wrong.” I don’t recall ever finding a “can’t resist” item at an outlet mall. The appeal escapes me and I haven’t stopped at one for years.

Gene Hoffman
Gene Hoffman
3 years 3 months ago

Factory outlets, like many other retailing phenomena, will expand until saturation occurs. The future appeal of such centers will be at the mercy of new technological innovations and by brick-and-click outlets.

Preservation of retail outlet centers relates to their ability to change with new, ever-constant changes in the marketplace. In their fight for survival, the ability to continually reform themselves to “contemporality” is a must.

Dick Seesel

Outlet centers represent continued growth opportunity as long as their developers (such as Simon, which owns the Mills centers) rethink the tenant mix and shopping experience, and as long as the tenants themselves focus on new product development, not just clearance. It’s no different from the challenges facing any kind of shopping center; you can argue that regional malls are also “saturated” based on the growing numbers of so-called “zombie malls” in many cities.

Outlet malls have evolved far beyond their original appeal as clearance centers with “pipe rack” approaches to merchandising. Most centers today are a far cry from where they began. Gurnee Mills, between Chicago and Milwaukee, is a good example, having added a full-line Macy’s store last year. The outlet mall near Kenosha, just north of Gurnee Mills, is consistently busy with customers lined up to get into the Coach store and other high-end stores.

Mohamed Amer

Hard to imagine that factory outlet mall centers will reach saturation in the coming few years.

The main appeal of these outlet centers is the perception of good value. If shoppers are really getting Grade A products that are over-inventoried, or last season’s styles versus inferior ones, then the expected value is realized. Otherwise, the model will backfire on itself and even damage those brands touting “newness and excitement” to outlet malls. In short, they need to deliver on value expectations.

Camille P. Schuster, PhD.

The lure of the deal is irresistible to many consumers. For that reason expansion can continue for quite awhile, especially if the center owners are smart about how they expand.

Adding new tenants, like Jimmy Choo, is a good idea because that is a new draw, even if the idea of an outlet center is mature. Providing new experiences would also work. For example, maybe a particular vendor could set up a pop-up store for a short time to draw consumers, or specific events could be held at the locations to draw consumers.

As long as the outlet centers continue to evolve to provide new experiences and value to consumers, they can resist the negative aspects of market saturation.

Ralph Jacobson

Based upon the consistent flow of traffic at the high-end Camarillo Premium Outlet center in my neck of the woods outside Los Angeles, and the strong business at other centers around the country, consumers are making a statement that at least for now, they love outlets.

George-Marie Glover
George-Marie Glover
3 years 3 months ago

If Ian Percy is “doing it wrong” than so am I. The appeal of outlet stores evades me.

I think part of the reason these outlets fair well is because too many shoppers don’t know the difference between high and low quality materials and craftsmanship. If outlets are only selling over-stocks and last season’s fashions, then most of these items don’t deserve to be sold at full price.

What value do you get out of an item that quickly falls apart at the seams, fades or loses its shape in the washer, or its buttons pop off? Unfortunately, I’ve found this to be a too frequent problem.

That’s why I now look for lasting quality. I’ll pay much more for a classic, well-made outfit than for shoddily manufactured and trendy items. It’s easy to update classic looks with accessories.

I must be doing it wrong.

Aakash Pahwa
Aakash Pahwa
3 years 3 months ago

Value is key. Different market segments will view value differently. A shopper looking to buy an upgrade to Coach might start from the outlet malls before eventually starting to buy form a mall-based full-price store.

Outlet malls will continue to be another channel for stores. Placed in the right areas with the right tenant mix, there is room to sustain and grow. Another aspect of value—the offerings in terms of food options, wi-fi availability, kid care, and entertainment offerings onsite. The right combination of this “value” offering coupled with the right, location and population density is going to keep outlet malls a “destination” for the foreseeable future.

Craig Sundstrom

My initial thought is “yes, of course, that’s what competition means.” If one looks at the actual numbers though—1% of shopping center area—it would seem like that point is a long way off (unless, of course, “saturation” ends up being 1.3%, or such).
As for evolving, it sounds like they’ve already “evolved”…unfortunately into something that resembles a fraud—in spirit, if not in fact.

David Lubert
David Lubert
3 years 3 months ago

A recent headline:

Aurora outlet mall adding 50 stores! $110 million dollar expansion as reported in Chicago Tribune on July 16th!

I have never known a consumer/shopper who does not appreciate a deal/bargain, etc., no matter what walk of life or segment a marketer wants to classify! In Chicago, you can buy an item in Cook County and you will pay a 10 percent sales tax, or you can buy the same item in the collar counties without the 10 percent sale tax. One of many reasons why some outlet centers will continue to flourish.

Some outlet centers are destination locations for shoppers and will continue to be for many, many reasons!

I see no difference in whether outlet centers will survive any more than standard retail mall locations or street/town concept retail locations. If managed well, these outlet centers will flourish just as the Cabazon Outlets/Desert Hills Premium Outlet in Cabazon, Ca is today.


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