Finding a New Outlet

In 2014, August Partners published a study that compared the national visit share of various retail formats with their percentage of gross leasable area. A fascinating dichotomy emerged. On the one end of the bar graph were malls, accounting for 18% of GLA, but only 14% of traffic. On the other were outlets with just 1% of GLA, but 9% of shoppers. It’s an invalid comparison to make because there are some 1,200 malls in the United States and just over 200 outlet centers. But if malls held the shopper attraction power that outlets did, they’d claim 162% of consumer traffic!

That, perhaps, explains why outlet retailing is in the midst of an expansion phase. Some 44 new outlet centers are in the planning stages for openings over the next three years in the U.S. and Canada, according to CBRE. Even if 10 of those projects don’t get built, that’s a pace of close to one new outlet center a month. Contrast that to the fact that few new malls have been topped off in the past seven years and it spells boom times for outlets.

“When you’ve got about 215 outlet centers spread around the U.S. and 12 new ones open, that’s significant growth,” said David Hinkle of The Outlet Resource Group, who spent most of his 17 years in retail opening National Book Warehouses in most of those centers. “It’s the only form of brick-and-mortar retail keeping pace with e-commerce.”

Outlet centers are becoming a go-to option for more consumers in more places than ever before, especially millennials. According to CBRE’s retail assets director Mark Hunter, millennials spend an average of $100 per outlet visit and they make an average of three visits a month. TORG research found that outlets claim 26% of annual apparel spend to 46% for all other brick-and-mortar retail.

New England Development only got into the outlet business in 2014 when it bought the Palm Beach Mall, tore it down, and put outlets and a power center in its place. Since then, the company has co-developed a new outlet center with Simon in Maryland, opened one in Little Rock and is busy building new centers in Des Moines and Detroit.

“There are a lot of smaller metros with affluent communities that punch above their weight and deserve outlet centers,” said Michael Barelli, a VP at the company. “There are nearly a million people in the Des Moines metro area, there are high disposable incomes there, and the nearest outlet center was 80 miles away. Now we’re making outlets an everyday option for shoppers there.”

City-dwelling millennials are pumping new blood and cash into outlet centers, and longtime players in the outlet business are beckoning to them. As the exclusive retail sponsor of last summer’s Demi Lovato-Nick Jonas “Future Now” tour, Simon Premium Outlets negotiated tour stops near its centers and staged meet-and-greets with the pop stars at places like Leesburg, Va., and Edinburgh, Ind.

Millennial oases such as Shake Shack and Le Pain Quotidien are making their debuts at Simon properties, and has adopted social media as a prime marketing channel.

“Our outlets are outside of the metro areas, so it can be a little hard to get them into the car,” said Stephen Yalof, CEO of Simon Premium Outlets. “We came up with ways to communicate with them that are cutting-edge.”

A study conducted earlier this year by Macerich found that more than half of the tourists visiting its Fashion Outlets of Chicago fell into the 18-to-36 age group. The trend has attracted a new breed of retailer.

“A great example is Vineyard Vines, a decidedly younger-skewing brand that just opened this fall at Fashion Outlets of Chicago,” said Macerich senior VP Jamie Bourbeau. “Luxury retailers know they can build brand loyalty and create lifelong affinity with millennials.”

Outlets are gateways to a new consumer base for luxury retailers, maintains Hinkle: “Some of these brands are on Fifth Avenue and Rodeo Drive, and younger shoppers will go into them for the first time at outlet centers because their mind-sets are different there.”

Outlets, which have long thrived in tourist towns or off interstates between two large cities, are creeping closer to those high-street locales. Howard Hughes Corp. brought the good times rolling back to the New Orleans’ Riverwalk by converting it to an outlet center. Wilmorite is doing a mall-to-outlet conversion in Rochester, N.Y., and Macerich is expanding its urban outlets business with two new Fashion Outlets under construction in Philadelphia and San Francisco.

Macerich’s citified centers will occupy sizeable footprints. Fashion Outlets of Philadelphia — a co-development with PREIT — will hunker down in Center City with a 730,000-sq.-ft. presence.

“This is steps away from the convention center and other top-drawing tourist attractions like Reading Terminal Market and Independence Hall,” Bourbeau said. “It’s also set right above a major transit hub with great traffic among suburban bus and train commuters.”

Wilmorite hopes to draw shoppers from a 60-mile radius to its Marketplace Outlets — formerly the Marketplace Mall — with a square footage in excess of 1 million. More retailers will be needed to fill spaces like that, too, and indeed, new brands are being attracted to value retail.

“You’re going to see more and more full-price retailers that don’t have outlet divisions decide to start them, and that’s going to be a trend for the foreseeable future,” Hunter said.

“Outlet shoppers are mission-focused on great finds and wonderful deals,” Bourbeau said. “We have names like Gucci, Prada and Karl Lagerfeld co-existing beautifully with segment leaders like Nordstrom Rack.”

Outlet retail emerged from the Great Recession stronger than any other shopping center format, Hinkle believes, because people emerged from it watching their money more closely, but still enamored of high-end brands.

“In many markets around the country,” he posited, “the outlet store is better suited for the marketplace than the full-price store.”

Department store closings, meanwhile, widen the void that outlets can fill.

“The department stores had so much control over the distribution channel and didn’t want that competition in their trade areas,” Hunter said. “But now, the whole dynamic of the distribution channel has changed.”

And so has the evolving retail landscape, where one new outlet center is rising every month.