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Ins and Outlets


Outlet malls are often associated with not only appealing deals on name-brand products, but also with driving long distances to get to the far-flung locations where outlets have traditionally been located.

But that is all changing — and changing fast.

Many consumers already have access to “close-in” outlet centers, and in the not-too-distant future, many more outlets may be coming closer to home. Projects like Tanger Outlets at National Harbor just outside of Washington, D.C., and New England Development’s Palm Beach Outlets in Florida, featuring more than 100 outlet favorites, such as Saks Fifth Avenue OFF 5TH, J.Crew | crewcuts Factory and Kenneth Cole, are giving area residents new and convenient outlet options.

Not only are outlet stores growing and the outlet and discount segment expanding into new locations, but outlet retail is beginning to make its way into shopping centers alongside traditional mall retailers. The result is a new retail paradigm in which a blend of outlet stores and traditional retail — along with other new drivers like restaurants and theaters — creates entirely new shopping options. In a few select cases, outlets are spurring some wholesale rethinking about traditional development formats, as outlet-only malls that are more akin to fully realized mixed-use centers have hit the ground running in cities like Boston.

A combination of evolving consumer preferences, retail industry changes, new financial pressures and shifting commercial development dynamics have blurred the lines between outlets and traditional retail, and have introduced new possibilities for outlet-driven retail and mixed-use destinations.

Retail realities

In the wake of a punishing recession, Class B and C malls began to fail, and new opportunities began to open up in the mall retail ecosystem. At the same time, the continued erosion of the traditional large-format department stores — a process that began 30 years ago — has caused longtime industry giants like Macy’s, Sears, Dillard’s and J.C. Penney to lose some traction.

As the department store industry continues to experience negative growth, a whole host of new discount retail concepts and outlets have rushed into this evolving and opportunity-rich landscape. As a result, discount apparel now represents the fastest-growing segment of both commodity and specialty brick-and-mortar retail.

The response, for some retailers and developers at least, has been to eschew tradition by not only positioning more outlets in areas that were previously considered off limits, but also by beginning to introduce outlet stores into full-price centers alongside more traditional retailers. The introduction of a J.Crew Factory store into Cincinnati’s Rookwood Commons Shopping Center (developed and owned by CASTO) is a prime example of the latter strategy in action.

J.Crew is just one of many familiar national names — along with brands like Banana Republic and Brooks Brothers — that have embraced a more aggressive approach to outlet store deployment. These changes have become easier to execute with the transfer of many class B and C malls into the hands of caretaker owners from more established premium mall owners. Combined with the loss of department store clout, this realignment of ownership has contributed to a situation where retailers and manufacturers that control coveted upscale brands are less likely to keep unprofitable stores open and are more likely to place competing outlet versions nearby.

New opportunities

The outlet boom is about more than just filling gaps in the market; it’s also about creating new markets — and responding to the limits of simple marketplace math. Retailers and brands generally have specific markets where they perform well and certain demographics to which they appeal most strongly. Expanding beyond those traditional geographic and demographic strongholds can be difficult, or even impossible. In other words, for many retailers, there are inherent limits to how far and in what way they can continue to grow and expand their market share. Consequently, blending full-price and off-price merchandise (most notably apparel) has not only become more accepted, but it has emerged as a strategic approach to expanding the reach of established brands in many cases.

Consumer preferences and new paradigms

Evolving consumer preferences and perceptions are also a big part of the outlet story. The outlet resurgence is being fueled at least in part by growing consumer acceptance of the outlet concept, and an increasingly enthusiastic appreciation for value-priced branded merchandise. Today’s consumers have determined that certain products and certain brands represent a more favorable value proposition — a stance that has been reaffirmed as the line between premium brands and their MFO (made-for-outlet) counterparts continues to blur.

The evolution of the outlet segment may be the result of several different concurrent trends — changing consumer preferences, lowered barriers to entry, more flexible formats, and new opportunities as department stores falter and malls close — but this perfect storm has the potential to reshape the retail landscape. The encroachment of outlet retail might not be dramatic and it might not happen overnight, but it seems as if a profound shift may be underway. Ten or 20 years from now, the brick-and-mortar landscape might look very different, and (if you appreciate a good bargain) much more interesting.

Nick A. Egelanian is president of Siteworks, a strategic retail real estate consulting firm ([email protected]).

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