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Shopping Centers Today -> August 2002
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TOUGH ALL OVER
Bankruptcies and soft sales taking toll on outlet sector
By Tom Kirwan
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| Despite the industry’s woes, Woodbury Common Premium Outlets, outside New York City, and other top-tier factory outlet centers continue to thrive. |
Though it’s bankruptcies like that of discounter Kmart Corp. that capture the limelight, there has been plenty of distress in the approximately $14 billion U.S. outlet retail business too, with retailers going out of business and centers shutting down.
“It’s the worst I’ve ever seen it,” said one industry developer who declined to be identified. “It’s just not getting any better.”
Only three outlet projects opened in 2001, compared to the all-time high of 43 in 1989, according to Value Retail News, the factory outlet industry magazine published by ICSC. Industry consolidation, sluggish sales, cookie-cutter tenant mixes, stiff competition and a public perception that the discounts are not worth the drive have all contributed to the tempering of the outlet industry’s once-phenomenal growth. According to VRN, the number of outlet centers peaked at 329 projects in 1996, and have fallen to 261 in 2001.
The outlet retail niche, which accounts for roughly 1 percent of total retail sales, has been feeling the sting of bankruptcy-induced chain closings since the late 1990s. Soft apparel sales trends aggravated by the tepid economy, a drop in international tourism and worries about terrorism are taking their toll on the weaker outlet industry retailers, insiders say.
In the value industry, the liquidation of well-known outlet chains underscores the seriousness of the situation. Among the largest recent examples are Bugle Boy and Lechters’ Famous Brands Housewares, which together shuttered more than 250 outlet stores last year. Bugle Boy alone was leasing 936,000 square feet of gross leasable area at the time it closed its units.
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But Bugle Boy and Famous Brands are only two in a long line of outlet chains that have closed in recent years. Others include Britches, Hero Group, Leather Loft, Mondi and Prestige Fragrance.
Tanger Factory Outlet Centers, with its 29 outlet centers, is one of the industry’s top players, recently reported that 10 of its tenants had gone into bankruptcy in 2001, representing 230,000 square feet in the developer’s portfolio.
The only beneficiaries of this otherwise gloomy picture appear to be the stronger survivors. The average outlet center grew to 211,715 square feet in 2001, from 123,710 square feet in 1991, according to VRN. Many owners are finding themselves forced to reposition their centers or lose tenants and sales to newer, better-located outlet centers that have superior stores.
Outlet chain downsizings are also taking their toll. American Outpost, which emerged from bankruptcy protection more than a year ago with new management and new investors, saw its outlet store count reduced from a peak of about 120 units to 15. Welcome Home, which went into Chapter 11 in 1999, came out of bankruptcy in 2000 after slimming down to 120 stores from about 220. And London Fog emerged from bankruptcy in May of last year after shedding all but 35 of its 120 units. Today it operates with 38 outlet stores.
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Another recent example is Chicago-based jewelry chain Ultra Stores, which filed for Chapter 11 in March 2001 and emerged from bankruptcy this year. Ultra Stores ultimately closed 37 units and cut overhead costs by 30 percent during bankruptcy, the company said. After an additional five stores close this year, it will have 106 units. Though still operating outlet units, the retailer says it is increasingly shifting to more-conventional jewelry stores in downtown shopping districts.
Such store closings leave a smaller pool of stores from which outlet center developers can stock their projects. Some leasing reps are considering alternative tenants as the outlet universe diminishes. Strong candidates include manufacturers that are either not in the business or have only one or two outlets. Among other options are full-price retailers, lifestyle-driven chains and eateries. Regional retail players with a strong brand are also being tapped.
Though a Chapter 11 filing doesn’t always result in store closings, it usually does. Typically, outlet retailers chasing solvency spend more time closing troubled stores than opening new ones. A recent example is Warrendale, Pa.-based Pennsylvania Fashions, parent of Rue 21 and 9.99 Stockroom. Eight days after its Feb. 4 filing under Chapter 11, Pennsylvania Fashions hired a liquidation company that announced it was closing 74 of the retailer’s 247 stores. Of the stores being liquidated, 51 were in regional malls and 23 occupied outlet centers and other value-oriented projects.
Pennsylvania Fashions is in good company. The Warnaco Group, which filed for Chapter 11 in mid-2001, has closed roughly 50 outlet stores in about a year, though in late March the company was still operating 51 units. Warnaco trades under the names Calvin Klein Outlet Stores, Chaps by Ralph Lauren Outlet Stores, Olga Warner Outlet Stores and Warnaco Outlet Stores. Warnaco’s outlet division totaled more than 100 stores at the end of 2001.
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| Tanger Factory Outlets has 29 centers, including this one in Riverhead, N.Y. |
Another high-profile player, Secaucus, N.J.-based Kasper A.S.L., which filed for bankruptcy protection in February, says it closed 28 of its outlet stores during the year ended March 31. The company operates outlet stores under the Kasper and Anne Klein banners.
Meanwhile, mainstay outlet tenants, including Casual Male Outlet, Donna Karan, Jones New York, Old Navy and Polo Ralph Lauren, have within the past two years or so either reduced their store counts or capped the number of stores in their outlet chains. Of this group, only Casual Male was in bankruptcy, having sold its assets to Needham, Mass.-based retailer Designs in May.
One outlet store leasing consultant described something all too typical these days: a client chain that has gone into a “wait and see mode,” putting previously planned growth on the back burner. This retailer, the consultant said, “has been spooked by the events of Sept. 11.” For now, anyway, that chain won’t be growing.
The combined distress of so many retailers has left its mark on the industry. Chelsea Property Group is the only developer that is actively acquiring existing centers and developing new ones. (In June the Roseland, N.J.-based company announced a joint venture to build Las Vegas Premium Outlets. Chelsea and Baltimore-based Prime Retail remain the largest owners by far, with 12.1 million square feet and 11.9 million square feet of retail space, respectively. Tanger Factory Outlet Centers, which ranks third in size, has 5.1 million square feet.
But even for those companies whose centers are closing, there is some consolation: Many former outlet centers are leading new lives as conventional shopping centers. Things could be worse.
Tom Kirwan is a senior editor with Value Retail News.
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Refers only to Chelsea’s 25 Premium Outlet Centers in
the United States; specific sales numbers on other centers
not available. Source: VRN |
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