Outlet Malls Adding Square Footage

Discussion
Aug 26, 2011
Tom Ryan

At least in terms of real estate, outlet malls are the stars of retail. The channel appears to be the only one witnessing noticeable square footage growth.

A series of articles recently detailed the appeal of factory outlet malls while pointing to expansion efforts in markets around the country. The first ever outlet opened in Oklahoma City in August. A new outlet shopping center is being built in San Clemente, CA.

The expansion comes as apparel sales at factory outlets rose 17.8 percent for the 12 months that ended in April, NPD Group told The Weekly Herald in Washington.

“Americans are so focused on price,” Lee Peterson, executive vice president of creative services at WD Partners, told the Chicago Tribune.

But a number of factors besides budget-shopping are driving outlet center’s growth:

  • Overcoming stigma: Outlet centers over the years have lessened the perception of a bargain-bin atmosphere. Steve Craig, chief executive of Craig Realty Group, which owns Citadel Outlets in Los Angeles, told the Los Angeles Times, “Ten years ago, if I said, ‘Come shop at an outlet,’ they’d say, ‘Oh, no, I shop at Neiman Marcus.’ I don’t get any nose cringes anymore.”
  • Luxury appeal: Nordstrom, Neiman Marcus, Barneys and Saks are also all opening up more outlet locations. Bloomingdale’s and Lord & Taylor are opening outlets for the first time.
  • Vendor expansion: Newer vendor brands such as Not Your Daughter’s Jeans, Vince Camuto shoes and Under Armour are aggressively expanding outlet locations.
  • Marketing ramps up: Bus tours and hotel shuttle packages are often now offered to attract tourists to the mall. Coupons and radio ads are being used to drive nearby traffic.
  • Hybrids: Hybrid malls combining full-price and outlet stores are opening. Macy’s recently announced plans to open its first traditional department store in an outlet center.
  • Location! Location!: With limits, many outlet centers appear to be opening closer and closer to towns and cities.
  • Economics: It’s not only lower rents, but common area assessments (no elevators/escalators, no collective heat/air conditioning) and staffing costs are lower than traditional malls. At the same time, Chicago Premium Outlets in Aurora generates $700 a square foot while Simon Property’s top-performing outlet mall, Orlando Premium Outlets in Florida, generates $1,300 a square foot, according to the Chicago Tribune.

While the heap of recent articles exploring outlet centers growth were overwhelmingly positive on the channel’s prospects, it was stated that location remains a drawback for consumers not fond of driving far distances. Although many appear to be opening closer to traditional mall towns and cities, brands are still said to worry about opening outlets too close to their full-price department store or mall customers.

Another issue is merchandise quality, although it appears to be a minor complaint. While outlets in the early days did sell a large quantity of the prior-season liquidation goods formerly found at full-price locations, an estimated 85 percent of apparel — even at luxury stores — is made specifically for outlets at inferior quality to offer the needed lower prices. Outlet shoppers either don’t know or don’t care. But Boston University professor Ellen Ruppel Shell, author of Cheap: The High Cost of Discount Culture, warned in The Oklahoman, “It’s really a case of buyer beware to know what you are getting. And the sales clerks don’t always know.”

Discussion Questions: What’s your assessment on how the factory outlet channel has evolved and its future prospects? What limits do you see for factory outlet center growth? What warnings, if any, would you offer brands?

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8 Comments on "Outlet Malls Adding Square Footage"


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Christopher P. Ramey
Guest
9 years 8 months ago

The quality issue referenced above is of most interest. It demonstrates that brand is more powerful than product.

Dick Seesel
Guest
9 years 8 months ago

There are at least three trends that will continue to drive the growth of outlet malls. First (as the article points out), there is plenty of space on the map to add outlet malls in underserved markets. Second, consumers continue to look for value, especially among the national brands front-and-center in a typical outlet mall. Finally, the outlet mall is redefining itself by adding more upscale tenants, big box retailers and even (in the case of Gurnee Mills north of Chicago) a department store tenant when Macy’s opens its doors next year.

Steve Montgomery
Guest
9 years 8 months ago

While I believe consumers will continue to seek value, if I had an upscale brand, I would be concerned that over exposure in the outlet world would erode the perception of my brand. One approach would to use a variation of the brand to prevent that from occurring.

I wonder if an upscale retailer like Nordstrom, and the others mentioned in the article, will maintain their famous service levels. If they do not, then the aspirational shopper who purchased from them at the mall will be difficult to convert to their higher priced locations. The opposite is also true. If I am used to receiving “Nordstrom” service, will I be happy with the service (and products) at an outlet mall?

Roy White
Guest
Roy White
9 years 8 months ago

Outlet malls have always been popular, and price has always been vitally important to the consumer. Now, the current economic outlook will likely foster any retail channel that provides real value and offers low price. Unemployment is very high, still, and neither political party has, quite frankly, shown any real interest in this issue, much less come forth with a plan to alleviate it. With the focus on balancing the federal budget and slashing public spending, it seems a forgone conclusion that any retail venue offering price benefits will prosper — and outlet malls certainly fall in this category.

Cathy Hotka
Guest
9 years 8 months ago

The stigma of a good price is gone, gone, gone. There are decals on the front of every Gap store today asserting that their fabric is identical to the fabric used in premium denim. The truly rich will always be unaffected by economic turndowns, but the “working affluent” are looking for great deals — and are finding them.

Ted Hurlbut
Guest
Ted Hurlbut
9 years 8 months ago

The growth of the outlet channel over the past few years may have significant long-term ramifications for traditional retail channels, beyond what we’ve seen to date.

Many of these brands maintain that they market highly-differentiated (branded) products, but their pricing practices (and those of retailers that sell their products) suggest otherwise. Price is a key driver, and suggests that consumers see these products as interchangeable commodities or near-commodities. That makes cost control essential.

Retailers are middlemen between the brands and consumers. The growth of the outlet channel is demonstrating that in certain circumstances these middlemen are not necessary, and that the brands can make more money selling directly to consumers.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
9 years 8 months ago

I’m still waiting for a Smith & Wesson outlet. And for Allen Brothers meats. And Patron.

Here’s a re-submission of a ‘graph I wrote for RW on 8/3 for the topic, Mall Operators Adjust to the Times: “One sort of mall I haven’t seen mentioned here is Outlet Malls. Why? Is it because they excel in a special way that ordinary, slapdash malls do not? Could it be that they are utilizing “discovery” or “surprise” shopping techniques like those employed by Costco and other big boxers? (Big boxers, an interesting term.) Around every turn, a special deal that won’t be here tomorrow?”

Doug Fleener
Guest
9 years 8 months ago

When I was director of retail for Bose Corporation I managed two retail channels. One was in factory stores and one in full-price malls. I found that it was the same customer, but they had different expectations and different purchase intent. I always felt it was easy to make the factory store sale than the mall one.

Since then I’ve helped a number of different brands start up their factory stores, and they have found it to be not only profitable, but a great way to learn and bring the info back to their channel partners.

I don’t see massive growth, but the factory outlet growth will outpace traditional malls going forward.

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