Luxury Retailers Head For Outlets, Simon Cuts Out 3 Centers In Bid For Greater Dominance, And We Take A Close Look At This Important Niche Of Outlet Centers

This column of Strolling the Agora appears in the August 16, 2010 Issue of SHOPPING CENTER DIGEST

It has been some time since we last took a good luck at the outlet market, a small but extremely part of the mainstream shopping center/retail chain industry, especially since some of the leading high-end retailers— Neiman Marcus, Nordstrom, Lord & Taylor— now are moving into this niche which has been an important focus of many of their competitors for years.

And, also, since the mighty Simon Property Group, whose Chelsea Property Group is the largest outlet landlord, has been awaiting approval from the Federal Trade Commission to become even larger with a $700 million acquisition of Prime Outlets from The Lightstone Group. After an antitrust review, SPG recently agreed to cut three projects out of Prime’s portfolio, still leaving it with a total of 63 outlet centers after the acquisition; the next largest landlord, Tanger Factory Outlet Centers, has half the number of outlets.

And then when you get into the next tier of owner-developer, you get one just barely into double-digit projects and then many others in single digits.

At a quick glance, some may see why the FTC was concerned about a possible monopoly or overwhelming dominance in specific markets by a single landlord. With the revision of its pending acquisition, SPG is hoping for a quick conclusion.

Excluded from the deal, now, are Prime Outlets’s Livermore Valley project in Livermore, CA; within about 65 miles of this project, SPG’s Chelsea already has three competing centers in Vacaville and Gilroy. Then cut out of the deal also are Prime’s St. Augustine, FL, property, where Chelsea has one also; and then, in the Dallas-Ft. Worth market, there would be two other competing centers, Prime’s Grand Prairie, TX, and Chelsea’s in Allen, TX. Outlet centers draw from a much wider trade area than the 5-15 miles for a regional mall.

No Great Impact

When we start taking a close look at this segment of our industry—if we’re talking only of an actual number of projects without talking of GLA--it doesn’t make a great impact on the estimated 100,000 shopping centers that make up our industry. According to the International Council of Shopping Centers, as of June 2009, there were 216 outlet centers ranging from a small 16,000 sq. ft. up to 844,000 sq. ft.

According to another source, Outletbound.com, there are 275 outlet centers; it had published a directory but that was discontinued after its 13th edition.

As a side issue, we’re not even getting into any of the value-oriented or hybrid projects such as the Mills centers, many of which were in the range of 1.5 million sq. ft., and acquired by SPG after The Mills’s bankruptcy—we’re just sticking with this niche, the outlet industry.

But yet, it is growing in importance in today’s environment and continuing, stubborn recession, as many luxury retailers--unable to attract free-spending customers--must find other venues in which to sell their merchandise without diminishing the brand through heavy discounting. To such as Saks Inc, its Off 5th outlet enables it to reach shoppers who may rarely, if ever, venture into one of its pricier mainstream stores.

More On The Way

When Lord & Taylor opened its first outlet store in February in Elizabeth, NJ, sales were so strong that company executives quickly agreed to open two more units by year’s end.

Bloomingdale’s is opening its first outlet store Aug 20 in Woodbridge, VA, and has three more in the pipeline before the end of the year.

Michael Gould, CEO of Macy’s, parent of Bloomingdale’s, said: “The outlet is a different channel and, for the most part, a different customer.”

Lord & Taylor’s CEO Brendan Hoffman was quoted as saying these types of stores are “a way to further expand your relationship with your existing customer…and to reach out to a new customer, who isn’t as affluent and who may be younger.”

So when we’re describing the tenants who are flocking to this niche, the type of retailer we’re speaking of is specializing in apparel, mainly women’s wear, men’s wear, shoes, with a smaller segment going into accessories, housewares and kitchen products, gifts, jewelry.

Lower Prices

Historically—and still—outlet prices are 30%-70% lower than that of merchandise sold at its full-price stores; according to those in the industry, these prices are 30%-50% lower for merchandise made especially for outlet stores that are comparable in quality to that of full-price stores, but not available there.

When outlet centers first grabbed the attention of the industry some 30 years ago [we published an annual directory, Factory Outlet World, and then discontinued it after several editions], most of these stores where operated by the manufacturers at their factories, thereby, factory outlet stores. For many years, the commentary was that the newly built outlet centers had retailers who sold “seconds and irregulars” and “distressed out-of-season” merchandise, and that the stores were the dumping ground for marked-down leftovers that had been rejected by mainstream customers.

That is no longer the case, say many in the industry, especially within the last few years, with Polo, ALDO, Diane von Furstenberg, Perry Ellis, Armani, Yvs St. Laurent, and the like operating profitable multiple stores for many years.

Also, the first centers built were in secondary and tertiary markets, far away from urban centers; this was because tenants did not want to compete with their full-price stores, and the manufacturers were afraid of competing against their main customers, the department stores and mainstream specialty stores. Though this is no longer that important a requirement, new projects usually are still located outside of metro markets and in tourist destination centers.

Many of the most successful of these projects cater to day-shoppers who are bused in for a whirlwind spree at luxury stores, such as Chelsea’s Woodbury Commons in Central Valley, NY, which opened 25 years ago and where annual per sq. ft. sales are in the four digits.

More information on Shopping Center Digest, Expanding Retailers, the weekly SCD Eflash, and Directory of Major Malls may be obtained from our website, www.shoppingcenters.com
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