To Reach New Customers, Discount, Outlet And Off-Price Retailers May Soon Be Expanding Their Criteria To Make Deals

This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication

By Murray Shor

Just two months ago we highlighted the trend of more luxury retailers seeking cost-conscious shoppers by looking for stores in areas and locations they once avoided, the outlet shopping centers, and secondary and tertiary markets.

And we stressed that this relatively minor niche of less than 220 projects, by some estimates, is dwarfed by the number of over 100,000 mainstream malls and centers that encompass the shopping center/retail chain world of the US and Canada. To make an impact in this market, retailers must deal with the two main landlords responsible for the bulk of these centers: Simon Property Group with its Chelsea division and Tanger Factory Outlets.

Yet a new approach being taken by one of the poshiest of merchandisers, Neiman Marcus, has the potential to bring this type of retailer into almost every local market available. It could expand opportunities even to every deal-hungry broker in the field.

First, what Neiman Marcus is doing. It is starting a new spinoff of outlet stores to be called Last Call Studio with lower-priced merchandise that never was being sold in its Last Call outlet stores. This outlet merchandise may still be too expensive for many customers. So, the Studio stores will carry clearance goods from its mainstream stores, namebrand apparel, and lower-end merchandise ordered from vendors specifically for these units.

The first protoype store—about half the size of a more traditional unit-- opened recently in Dallas, with others in Rockville, MD, and Paramus, NJ.

Possible Locations

Targeted as possible locations for this division will be suburban areas and strip centers, storefronts, possibly even vacant downtown locations that could never attract luxury retailers because the numbers never added up. However, with high-end shoppers heading for the outlets and discounters—which may still carry too high a ticket for many moderate households—and the reduced clearance merchandise and inventory available from many liquidators and vendors who have cut back on manufacturing, there is pressure to find customers willing to spend limited income for quality merchandise with a high-end label.

As one highly-regarded consultant stressed: “From a modest out-of-sight, out-of-mind liquidation tool, it has now really morphed into a strategic and financial necessity for these companies.”

Another maven pointed to the recession and the insistence by shoppers for even more value-oriented merchandise.

Other luxury retailers, such as Nordstrom, Saks 5th Ave, Lord & Taylor, Bloomingdale’s, and the like, have been operating outlet stores for years, or have recently entered this market.

Great Potential

“Looking at the decision by Neiman Marcus to follow the consumer to where she lives—rather than wait for her to drive an hour or so and make a day of outlet shopping,” one leading broker pointed out, “opens up a great potential for dealmaking. Many brokers have specialized in finding tenants for Moms and Pops, for local operators within a limited market to fill vacancies in very local strip centers. They may never have made a call on a luxury retailer.

“Now, suddenly,” he continued, “it’s a whole new ballgame. If other leading retailers decide to give it a try, the potential number of tenants that can be approached increases exponentially.”

No question, the number of vacancies have been increasing across the board due to the closings of many stores by stressed retailers, and the cutback on expansion by many others as a reaction to the high unemployment and pessimism of consumers. Though it may not be a deluge by healthy apparel chains seeking locations, there is the potential.

“And isn’t this,” said one senior real estate officer, “what drives many dealmakers? The potential.”

Other Interesting Activity

Joe’s Jeans, based in Commerce, CA, says it wants to expand its outlets division, now with 14 stores, in addition to its full-price stores. Contact CEO Marc Crossman.
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General Growth Properties has appointed hedge fund manager William Ackman to become its chairman when it emerges from bankruptcy next month. It is being split into two units; GGP will retain about 185 malls, the Howard Hughes Corp will consist of the master-planned communities and other non-income-producing properties.
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Walmart says it plans to grow its total square footage by between 3 and 4% during the fiscal year, adding up to about 35 million sq. ft. of new stores. It expects its sales growth in 2012 to grow 4-6%.