Outlet Centers Gaining Market Share
By
Tom Ryan
While
most other channels struggle with growing vacancies, outlet malls are holding
onto most tenants and may have seen an increase over the last six months.
According
to a study from CoStar Property Analytics, outlet center vacancy rates hit
a high of 5.6 percent at the end of first quarter. But vacancy rates declined
in both the second and third quarter and stand at 5.1 percent currently.
Among
other channels, only malls had a lower vacancy rate at around 4.9 percent
although that continues to increase from less than three percent in 2007.
Lifestyle centers were at 7.5 percent; power centers, 7.7 percent; and community
and neighborhood centers, around 9.8 percent. Power centers were the only
other channel seeing declining vacancy rates over the last quarter.
According
to CoStar Property Analytics, outlet center vacancy could return to its pre-recession
level of less than four percent by the second quarter of 2010.
Value
Retail News’ State of the Outlet Industry report
also found that, during 2008, the number of new outlet stores increased 12.6
percent to 12,924.
According
to an article on costar.com,
the healthier vacancy trends reflect the fact that the channel hasn’t seen
the amount of outright closures in other channels. Steven
Tanger, CEO of Tanger Outlet Centers, also pointed out that excess inventory
at retailers’ full price stores is “backing up” and outlet centers are being
used for liquidations. The model of comparatively low occupancy rates, as
well as healthy traffic, is helping retailers do so profitably, according
to Mr. Tanger. Tanger’s retail sales per square foot came in at $335 in the
second quarter of 2009.
Finally,
especially with gas prices coming down, consumers are trekking to outlets
to save money.
“People
are looking for value, so they’re shopping in the outlet centers and our
outlet stores,” said Eric Wiseman, chairman and CEO of VF Corp. VF’s outlet
stores have performed “consistently well” compared to the “struggle” seen
at premium-priced channels, he said.
Whether
consumers will continue to travel to outlet centers once the economy turns
around wasn’t fully explored although one outlet center exec was bullish.
“Fundamentally,
there has been a large consumer flight to value, with quality and brand names
remaining a key driver,” said Karen Fluharty, a senior vice president at
Prime Retail, the third-largest outlet center owner in the U.S. “As a consumer,
if you’ve been able to purchase the brands you know and love at a 40 percent
discount, it’s very hard mentally to go back to paying full price just because
your money’s back and the recession is over.”
Discussion Questions:
How should outlet centers continue to capitalize on their increased traffic?
What’s the likelihood that consumers will continue to travel to outlet centers
at the same rate once the recession ends?
Outlet malls (and TJ Maxx) are regular shopping locations in our family; we began that transformation (flight to value) when we had three teens who wanted current fashion at good prices. Department stores are visited only for perusing sales. Rarely do we make a full price apparel purchase.
The department store channel model is broken and if not re-imagined soon, could easily be a dinosaur within the next ten years.
Amp up their marketing. “It’s stupid to shop the mall, we’ve got the same for less.” If the designers are willing to carry first run items in their outlet stores as some are, the advantage to courting the discount consumer for outlet centers has never been better.
Of course, how that plays into anyone else wanting to carry their brands at keystone is another discussion.
Outlet malls have also become much more attractive places to shop as brands inject personality into their stores and as outlet mall operators turn outlet malls into lifestyle centers that feature higher (and higher) end lines and orchestrated events.
Outlets are a great proposition for brands eager to wrest back control of their product presentation, pricing, and even on-floor sales representation. They’ve learned to live with lower margins, so why not control the environment rather than ceding control to department stores’ promotional whims and degrading equity in off-putting clearance sections?
And, as brands relax their regular-price-to-outlet distance requirements (20+ miles in the past; now as few as 9), consumers are not having to travel quite as far to get to an outlet and that is no doubt plumping the numbers for outlet stores/malls. The final barrier has been broken and I don’t know that outlet retailers need to do much more than lather, rinse, and repeat!
The outlet malls have successfully created a 21st Century version of the “Bazaar.” Consumers like them and use them–for entertainment, convenience, and value. Human beings are tribal and as long as these malls continue to deliver merchandise of interest and value, this is a “Bazaar” that has legs.
Given that these recessionary conditions on the consumer side are the “new normal,” a good strategy for developers might be to start to take “normal” malls and convert them to discount centers vs. developing new ones. We think you’ll start to see that soon. Why not? Seems like a win-win.
This is a perfect time for outlet malls to prosper. The consumer has changed the way that they are shopping and spending money. More and more, they are looking for a great value when they do decide to part with their hard-earned cash. As long as outlet malls continue to be perceived as a destination where great value on quality merchandise can be experienced, they will continue to do well.
The outlet malls do need to be careful about allowing retailers to come in that sell sub-standard product. I have visited numerous malls lately where the equivalent of low-end close-out stores have proliferated, and while that might satisfy a one-time treasure hunt shopper, it is not a model that creates long-term loyalty.
Outlet malls are a case study in showing that “perception is reality.” However, they should be more a case of “buyer beware.”
Outlet malls are a great example of misled perception. My experience in visiting Tanger outlets, as well as others, is that for every ‘great deal’ you think you’ve found, there are more examples of no real savings or in fact equal or greater pricing than other options.
As mentioned, it may be the bazaar atmosphere. However, after a few trips to the bazaar and a bit of looking around, consumers may realize that the bazaar might not be delivering the savings they thought they were getting.
Nothing like a major recession and the simultaneous retrenching of investments in full-line stores to help the outlets. At the same time, the outlets have been much better marketers, with better assortments and perceived value, and even service levels approaching those at the big malls.
The more consumers get rewarded for shopping the outlets, the harder it will be for the Simons of the world to bring them back to the big malls.
I agree that this will be the “new normal.” When the recession ends, people will likely change their patterns, but for now, the recession shows little if any signs of ending. With a $1.7 trillion debt and the looming $12 trillion budget, inflation is just a matter of time. Since our government will not get their spending under control, “value shopping” is here for the foreseeable future.
Outlet centers represent an opportunity to get it right for the value conscious shopper. After developing strategies to cope with the economic downturn, these new skills of thoughtful shopping will continue to drive shopper behavior. Price comparisons are top of mind and many shoppers know what their thresholds are for many items. The shopping for best value quickly turns tedious in some stores.
The key to making outlets continue to be a destination is consistency. If stores are reasonably well stocked and cultivate their clients–they will succeed. However, if they become the warehouse for incomplete selections, out-of-date and tired stock and indifferent sales staff, word travels fast.
I think that to some extent, the differentiation that outlets have actually goes beyond price alone. I think it has more to do with the excitement people feel when buying what they think are great bargains. The fact that they think they’re getting a deal helps them to justify the spending. Now they get the rush of the buy without the guilt. As “Scanner” (above) said, perception is reality. The perception of savings, generates excitement and that generates traffic.
Shopping centers and power malls don’t have that same feeling of there being a deal around every corner–even when everything in the mall seems to be on sale. They lack the excitement that outlets seem to generate.
Follow the money! This is the effect of purchasing where costs are lower and values are higher. This can be seen at all discounters, dollar stores, Wal-Mart stores and of course, outlet centers. Why not? They offer great products at lower prices for higher value than their competition. It is the same thing that is happening at other shopping stores, but it is in a mall or outlet center.
Department store offerings and assortments these days are also trending towards being very heavy on private label. Offerings available by national and international designers are somewhat limited by number of “names” and also by amount of collection available at “the mall” stores.
Compare this with specific stores of designer labels at outlet malls where you can find a much greater depth of collection as well as potentially reduced merchandise of last year’s selection or “seconds.”
I think this is also a factor and will continue to be a factor in the success of outlet centers.