Shopping for Growth? Outlet Malls Should Be Your Next Stop

Outlet malls have experienced a major resurgence over the last 10 years.

The concept has evolved from being a place for overstocked and damaged goods to a much more upscale shopping experience, where 86% of merchandise is specially produced for outlet stores.

While development on most full-priced malls has come to a halt, outlet centers are now the bright spot in the industry.

Up to 50 U.S. outlet centers are in the planning stages, and if all are completed, it would represent a 25% growth in the number of locations – which is currently sitting at about 322 centers throughout the country.

In fact, outlet center openings quadrupled to 8 in 2012, compared with an average open rate of 2 per year in 2009, 2010 and 2011. And by the end of 2013, 11 new outlet centers will open.

But why the seemingly sudden renaissance of outlet malls?

The answer lies in the fact that even through the recession, outlet malls experienced strong financial performance as consumers exhibited an increase in value seeking behavior.

- In 2012, U.S. outlet centers generated $25.4 billion in sales, growing by $3 billion since 2011.

- From March 2012 to March 2013, outlets grew 14% with posted sales of $12.3 billion.

- Outlet centers are a low-cost growth vehicle for retailers as rents at outlet locations are 30% to 40% lower than malls, require less staff and have lower construction and operating costs.  

- Simon Property Group, one of the largest mall developers, reported that sales per square foot at their 72 outlet malls are 90% higher than sales per square foot at their traditional malls.

With the renewed popularity of outlet malls, several key trends are emerging – some of which include:

1. Luxury Attitude Shift: outlet malls are becoming increasingly upscale. Luxury brands and department stores, who traditionally avoided outlet malls, are now actively seeking out opportunities to open stores in the right locations.

Neiman Marcus Last Call, Saks Off 5th and Bloomingdales are among the many luxury retailers who are dipping their toes into the outlet concept. Armani, Prada and Jimmy Choo are also expanding their outlet store footprints.

At the current rate, the number of outlets will exceed full-priced locations of high-end stores – as is already the case for Nordstrom and Saks.

Saks’ Off 5th outlets already account for more than 60% of their brick and mortar locations, and the retailer intends to open 7 more outlets in 2014.

Meanwhile, Nordstrom plans to double the number of “Rack” stores to more than 230 by 2016.

The outlet locations are proving to be more profitable than their traditional retail locations. Nordstrom Rack locations, for instance, have 40% higher sales per square foot than the retailer’s full-priced stores.

Keeping up with the trends, outlet malls are also becoming more aesthetically pleasing. For instance, Woodbury Common Premium Outlets, an hour north of New York City, is replacing its old food court with a boulevard called Madison Avenue.

The center’s six districts are being redesigned to reflect the architecture of new names – like the Hamptons and the Adirondacks. There will also be new landscaping and seating areas as well as redesigned outdoor plazas.

2. Outlet Anchor Tenet: outlet malls used to operate without an anchor tenet, but that’s beginning to change. Many are developing larger footprint stores.

Currently about 25% of outlet GLA is occupied by 17 chains that are managing more than 1,000 stores of at least 16,000 square feet.

Furthermore, 7 “robust” inline tenants are operating 780 stores which average 8,000 square feet and represent an added 8% of outlet GLA. Total, these 24 large-format chains make up 34% of outlet GLA. 

3. Suburban to Urban: outlet malls are no longer relegated to far-flung suburban areas. They are edging closer to urban centers, near full-priced malls.

Fashion Outlets of Chicago, for example, is being closely watched as a key retail industry experiment. It’s a high-end outlet mall with retailers like Barney’s Warehouse, Bloomingdale’s and Tory Burch.

Rather than the traditional model of factory stores, fluorescent lighting and concrete sidewalks, the mall boasts granite, marble and high-end finishes.

It’s also adjacent to Chicago’s O’Hare International Airport and caters to travelers by allowing them to print tickets and check bags directly to O’Hare from the mall.

Among other outlets inching toward metropolitan areas include Tanger Outlets, which are just outside of Houston, Taubman Prestige Outlets in St. Louis and The Outlet Collection at Riverwalk in downtown New Orleans.

The Bottom Line

Outlet malls have been incredibly successful because of their value proposition: brand names and even luxury items at a lower price. Following the trend of lifestyle centers, outlet malls are being redesigned to offer visually appealing, upscale experiences consumers want. As a result, they are moving closer to urban centers and attracting retailers who previously avoided “discount” focused centers.

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