Photo: Instagram/@tangeroutlets
Are outlet centers immune to the ills of regional malls?
Tanger Factory Outlet Centers’ traffic equaled 90 percent of prior year levels during the fourth quarter, then further improved to more than 99 percent in January for domestic centers. Fourth-quarter results, however, also revealed that outlet malls still face some challenges similar to enclosed malls.
Tanger’s 37 open-air outlet centers were expected to benefit over the last year by being more conducive to social distancing.
Many of Tanger’s centers are also positioned near “American tourist locations,” which have seen more traffic during the pandemic as foreign travel was restricted. On an investor call, Stephen Yalof, Tanger’s newly-elected CEO, said these areas are typically second-home locations that families have been visiting more or relocating to during the pandemic.
Other factors long supporting the popularity of outlet centers — including their value proposition and positioning as destinations for all-day family excursions — have also helped the traffic revival. For tenants, the comparatively lean rent structure is a major benefit.
“Outlets are an important component of the omnichannel retail strategy, given the low cost structure and access to an incremental consumer that is both value-oriented and aspirational,” Mr. Yalof said in a statement.
Like regional malls, however, outlet malls have heavy exposure to apparel, an underperforming category during the pandemic. Over 2020, Tanger lost almost eight percent of the square footage in its portfolio due to bankruptcies and restructurings.
Tanger’s occupancy rate was 91.9 percent at 2020’s end, down from 97.0 percent a year ago.
Like regional malls, Tanger also continues to diversify its tenant mix and “augment [its] merchandising with best-in-market food, entertainment and experiential retailers,” according to Mr. Yalof. Simon Property Group has reportedly been more aggressive in adding restaurants, hotels and grocers to some outlet centers.
Some of the newer first-time tenants at Tanger include Tory Burch, Lululemon, Victoria’s Secret, Hugo Boss, Nantucket Meat & Fish Market and Dick’s Sporting Goods Warehouse.
Mr. Yalof said Tanger is empowering local field management teams and partnering with brokers in key markets to broaden its focus in finding tenants. He said, “Given the level of vacancy going into 2021, it’s going to take time to rebuild our occupancy.”
- Tanger Reports Fourth Quarter And Full Year Results – Tanger Factory Outlet Centers
- Tanger Factory Outlet Centers Inc (SKT) Q4 2020 Earnings Call Transcript – The Motley Fool
- Outlet malls including Tanger and Simon properties rebound ahead of holidays in an otherwise dismal year – Tampa Bay Business Journal
- How Risky Is Tanger Factory Outlet Centers Stock? – The Motley Fool
- Simon Property Group Reports Fourth Quarter and Full Year 2020 Results – Simon Property Group
Discussion Questions
DISCUSSION QUESTIONS: Should outlet malls, similar to regional malls, reduce their exposure to apparel and further diversify their mix to continue to prosper? Has the pandemic significantly affected their long-term growth prospects?
Poll
BrainTrust
Outlet malls do have some advantages, but ultimately a return to normal business conditions will be a function of consumer confidence and the amelioration of the pandemic. The impact on apparel is clear, and accordingly minimizing exposure to weaker retail brands – apparel or otherwise — makes sense. The pandemic has been both a boon and bust depending on the category, but for malls the key will come down to the free safe movement of people in larger groups – when this occurs, mall traffic and sales will return.
Just like traditional malls, outlet malls need to find creative ways to attract tenants and consumers. Diversifying the retail, restaurant and entertainment mix has been a strategy for traditional malls as occupancy rates have fallen in recent years. The open air environment has been the greatest benefit for outlet malls during the pandemic and leveraging the benefits of the outdoor environment may be a smart strategy going forward.
They’re not immune, but they are in a better position for several reasons. First, they cater to consumers focused on value – which is still a growth area of the market. Second, most are open air which addresses the concern that some consumers have about going back to enclosed malls. Third, a lot of outlet malls have popular brands like Coach which helps to drive sales. On top of all of this, stimulus has helped to drive some spending.
I think outlet malls will continue to outperform other malls going forward, but their exposure to apparel is something that needs to be addressed longer-term.
Carrying apparel for apparel’s sake is no longer a good idea. However carrying upscale apparel of well know brands at reduced prices satisfies those that already purchase those brands at full price and those aspiring customers who some day would like to. Long-term growth is an ominous phrase because it can imply a tendency to overstate the demand for outlet malls. We saw what happened in the last 20 years with that. Are there one hundred potentially profitable Tanger prospect locations? Doubtful.
We have a client who opened a western wear store in a popular outlet mall in the suburbs of Chicago this past October. It did well out of the box and continues to do strong business. We were there a lot during the holidays and most of the stores had lines of shoppers waiting to get in. Granted everything was deeply discounted, and the number of shoppers allowed in the store at one time was limited, but people were still willing to wait in the cold to shop.
The one thing outlet malls do really well is market like crazy, setting the mall up as a party place where shopping is fun. Outlets shower shoppers with coupon books, free gifts, extra discounts, entertainment and more – customers feel valued. Regional malls could learn from that.
Somebody give me some help here. Will the new tenants, Tory Burch, Lululemon, Victoria’s Secret, Hugo Boss, Nantucket Meat & Fish Market and Dick’s Sporting Goods Warehouse, be selling the same items as they do in their regular stores, or will they be selling a cheaper mix unique to outlet malls? My gut tells me the latter, since that is what outlet malls were built on.
See today’s discussion on authenticity, transparency and integrity.
The merchandise in outlet stores may contain past season goods or irregulars, but most of the assortment has been made specifically for the outlet stores.
Exactly. So, what are they really offering shopper?
Brand names at deeply discounted prices. If you don’t want to spend $400 at Macy’s on a Michael Kors handbag the $189 version at the outlet store might work for you. The logo will be different and the leather not quite the same, but it’s still a Michael Kors.
If Michael Kors products have a certain standard, is it really Michael Kors? And if you don’t want to spend for the $189 version, you can get the $30 version at the corner of Lexington and 59th, right outside of Bloomies.
Well, if Michael Kors makes it then I guess it’s a Michael Kors. Now, the ones outside of Bloomies? Good luck with that. LOL
Gene, your question is key to understanding the very specious nature of outlets, in that what they offer consumers is deeply dubious.
Years ago, I worked for an NYC designer who had extra – but very limited – inventory at the end of each season. However there was no easy way to move out these goods.
Thankfully, in came “sample sales” coordinators, whose sole task was selling designer goods in a manner considered almost secret. Which was part of their seismic success: that these really were the goods – and for sale at a fraction of what they really would have cost consumers in actual stores.
This original connectivity is something that outlets have either forgotten – or believe their customers have long decided isn’t relevant. But this is to their own peril. Unarguably, a brand MUST have great strength at and through regular-priced retail channels in order to sustain any bargain value at the outlet level. So for that to continue, regular retail needs to succeed before its discount cousins.
Otherwise, the river that runs through this will run dry.
Precisely!
I don’t believe outlet malls are in the same situation as regional malls. The town center concept is alive and well and they have taken a different approach with anchor stores. Some have included Whole Foods stores as that anchor, or other staple item concepts that drive traffic regardless of the situation. I believe to keep their visits up outlet malls need to change it up and adopt these town center tactics.
Every mall has a similar challenge to tackle as we reach the other side of the pandemic and consider what new shopping habits will stick with consumers. Fundamentally, it’s about generating foot traffic and sales conversions. A diversified mix of store types will serve any mall format to attract visitors. Malls need to consider what it means to be an anchor whether an outlet mall or a traditional mall. Anchors are supposed to ensure a steady flow of traffic to the mall. That used to be department stores, but no longer. Grocery stores, off-price apparel, and home goods stores can serve that need today. Add to that food service options and restaurants and the mix starts to look better. This is where mall operators need to innovate to make the location attractive for an all-day visit. The pandemic has also made it less appealing to have movie theaters in these locations, but hopefully, that will recover over time. Bottom line – apparel alone won’t keep consumers coming to the outlet mall!
Outlet malls, especially those that are built with an open-air concept, have a number of things going for them:
Consumers got used to “deals” during COVID-19 through intense online shopping. Outlet malls evoke a similar emotive response by providing the best price to shoppers, which shoppers have become accustomed to.
However I believe that outlet malls, although most are outdoors providing a somewhat safer atmosphere, must still provide a unique customer experience. Apparel will always be a large part of any mall’s mix, but it’s the presentation, merchandising and brand ambassadors that will still play the largest part in their success.
Expansion into entertainment and food will definitely drive more customers to any mall, whether indoor or out. I believe that once the world has control over the pandemic, we will see a huge pent-up demand for missed socialized shopping experiences, which will explode!
Just as we saw home improvement and home goods skyrocket during COVID-19, so shall we see apparel surge but with new smaller footprints and a much-needed revamped merchandise mix.
I forgot these outlet malls still existed after like 90 percent of them closed in the ’90s and ’00s.
Well of course they had stronger traffic. Many are outdoors. So they got to be open while indoor malls were ordered closed in certain states, like California where indoor malls (if you had an exterior entrance you could be open) still had to stay closed even after “non-essential” businesses could open again.
Plus there is the perception that outlet = value and customers are certainly looking for better deals (or perceived better deals) right now given the questionable economy.
I also wonder if consumers like the outlet malls since there are stores dedicated to specific brands there. Some of the larger retailers may have become rather private label heavy.
Consumers associate value with outlet centers. The diverse portfolio of brands and concentration in an open-air mall environment provides a safer treasure hunt experience. As highlighted by Georganne, make it a fun, party-like environment, and as the numbers proved, they will come.
I think outlet centers fared better during COVID than indoor malls because of the outdoors setting, large parking lots and ease of social distancing while browsing, and easier to manage number of people inside the stores given smaller footprint. However in the long run, the structural issues remain of what would drive people to travel to the malls to shop; perhaps it is entertainment and dining plus other experiences.
Open air outlet malls in warmer climates will continue to outperform enclosed malls with higher costs of maintenance, etc. but all malls will need to address their reliance on apparel tenants. The impact of the pandemic on apparel brands has forced many of them to embrace digitization faster than many other categories. They will be slow to return to brick-and-mortar if they have other effective distribution channels today.