As the outlet mall segment of the retail sector has grown amid tough economic times, more outlet centers are focusing on upscale designer brands that appeal to high-end consumers.
There are currently about 185 outlet centers in the United States, with 10 opening in the past 18 months, and 16 phase I projects scheduled to open by the end of 2013. Sales attributed to outlets are projected to reach $25.4 billion for 2012, up 13 percent from 2011, according to data reported by Value Retail News. Neiman Marcus, Saks Fifth Avenue, Lord & Taylor, Nike and Polo Ralph Lauren are among the top 10 chains filling space in outlet centers, according to the report.
Retailers' views of their outlets have changed as they have witnessed the profits associated with shopping centers, said Steven Tanger, president and CEO of Tanger Factory Outlet Centers Inc. (NYSE: SKT), in an interview with REIT.com. In the past, products sold at outlet centers have carried the stigma that they were simply extra inventory or out-of-season items of the brands being liquidated, he said. Now, however, the outlet centers have become a key revenue driver and marketing vehicle for designer brands, as opposed to just a tool to manage excess inventory.
"Over the years, outlet centers have evolved from being a vehicle for residual or out-of-season merchandise to being an important distribution channel for in-season and original product that is on trend and markets brands to their core customer base," Tanger said. "This is driving customer loyalty to outlet centers and speaks to the importance of the channel. Because of the profitability of this channel, more and more high-end brands are opening stores in outlet centers."
As a result, Tanger explained, outlet centers have come to more closely resemble traditional shopping centers, with the same sophisticated store designs and branding that customers would see in a full-price setting. He added that traditional retailers, such as Gap, are closing retail stores while continuing to open additional outlets.
Robert Taubman, chairman, president and CEO of Taubman Centers Inc. (NYSE: TCO), said many luxury brands entered the outlet market during the recent recession as shoppers tightened their grips on their wallets.
"Many brands introduced outlet concepts during that period, including Bloomingdales, Lord & Taylor and True Religion, to name a few," he said in an interview with REIT.com.
Tanger pointed out that while there have always been long-time outlet shoppers, the economic conditions of recent years have motivated new shoppers to visit outlets for the first time.
"As the economy improves, aspirational shopping is coming back in all demographics. Budget-conscious customers who want to shop for designer product can start to reallocate their discretionary income again, although not always in a full-price channel, which is driving them to outlets," he said. "For high-end shoppers who started looking for value in times where it was not chic to pay full price, value is still a focus, as what they will pay for a brand has shifted."
With little construction in the supply of new traditional malls, retailers are growing their chains through chains.
REITs like Tanger, Taubman and Simon Property Group (NYSE: SPG) are all busy expanding and developing new outlet centers. These new centers aren't just being built on the far outskirts of town, either.
"Outlet malls are now being built closer to metropolitan areas where people live, versus the rural areas where they were once built. The outlet centers are allowing retailers desiring expansion to build new stores, as almost no new mall small space is being built," said Taubman, who added that developers and retailers are also designing the new outlet centers and stores with more design finishes and amenities than in the past.
Among the major projects underway, Tanger and Simon will celebrate the grand opening this month of Tanger Outlets in Texas City. The joint venture is a 350,000-square-foot upscale outlet center about 30 miles south of Houston.
Taubman Prestige Outlets in St. Louis broke ground in April 2012 and is scheduled to open in the summer of 2013. The 49-acre, open-air shopping center will feature 450,000 square feet of retail space. Amenities will include an open-air design, dog-friendly hospitality, access to a fitness trail and a food court. Not far away, Simon broke ground on St. Louis Premium Outlets in July 2012. It is expected to open next fall. Additionally, in June Simon opened Merrimack Premium Outlets, an upscale outlet shopping center serving the Boston and Nashua, N.H., markets. The company has begun construction on two other outlet centers.
While the REITs have started their projects, Taubman said competition from other developers looking to enter the outlet mall business has intensified. That includes outlet retailers opening online sites.
However, despite any challenges, the demand for outlet centers is projected to remain strong. According to the Value Retail News report, 147 chain retailers currently operating 10,012 stores indicated that they plan to expand their chains in 2013 to meet growing consumer demand.