Factory outlet centers’ vital signs are robust, panel says

Publish Date: May 19, 2014

Topics: outlets, recon

Between 2006 and the end of 2014, more than 40 outlet malls will have been built in the U.S. and another dozen outside of the country, dwarfing the number of regional malls constructed in that span. But that pace will slow considerably in the coming years as the industry fine-tunes itself and draws a collective breath, in the process staving off oversaturation and potential cannibalization of sales by its brands' full-line stores that are sometimes uncomfortably close.  

So opined a panel of factory outlet center veterans at Monday's RECon session, “Outlet Retailing: Past, Present and Future.” "Instead of 10 to 20 new outlet malls a year, we will see that slow to two to four per year," said Laurence Oster, principal of FFO Real Estate Advisors, a third-party outlet leasing and development consultancy. "And at the same time, we'll see some of those existing outlets becoming obsolete."

The industry's vital signs remain robust, said moderator Linda Humphers, editor-in-chief of Value Retail News. Outlets report average sales per square foot of $532 and a healthy 95 percent occupancy, she reported. Total 2013 outlet malls sales reached a record $42 billion, compared to just $19.9 as recently as 2009, she said. It helps that retailers' average occupancy costs are 10 percent in outlet malls versus 15 percent in regional malls, she added.

Sharon Haggard, director of real estate for Chico's FAS Inc., said cannibalization of sales from its mainstream "frontline" stores has become a growing concern for the retailer as outlet malls get built closer to cities — or in them — instead of 20 miles away as they once were. Oster said the phenomenon is less of a concern for retailers in high-population areas, "but in smaller markets it can have a very significant impact." An exception is when outlet malls are built near an already dying mall, he said.

Landowners regularly approach Oster seeking to place outlet malls on their hard-to-market parcels. "But an outlet mall is not a panacea for your site," he said. The most important qualities a potential outlet mall site must have are demographics, good access and visibility and a defined niche in the competitive landscape, he added.

Cross-channel shoppers, who patronize retailers' outlet and full-line stores as well as their online stores, are even heavier brand consumers than first thought, Haggard said. "We are finding they spend three times as much as the average shopper," she said. To help maintain exclusivity, Chico's doesn't offer its outlet merchandise online but may eventually, she said. Online sales have become an increasingly sensitive issue for mall landlords who seek to protect their centers as points of sale, she added.

While the panel agreed the industry needs smaller independent developers to maintain product diversity, the entry of large developers onto the scene has provided high-quality products and much-needed competition, said Jeffrey Montang, vice president of AM Real Esatte Group, which includes Wilson Leather, Andrew Marc, Calvin Klein Performance, G.H. Bass and other brands. "They bring in new talent, new customers and a broader mix that is beneficial." Of the 400 or so outlet malls worldwide, Simon Property Group owns nearly a quarter of them and is angling for more through partnerships, Humphers said.


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