This Strolling the Agora column appears in the February 8th, 2010 issue of SHOPPING CENTER DIGEST
Outlets have always been a niche within a niche. Despite our admittedly biased personal perspective, shopping centers and retailing are actually only a small part of the entire real estate industry. And even in its heyday of some 25 years ago–when every failed shopping center was going to be re-vitalized as an outlet center, and every tourist destination was going to support beaucoup outlets, and optimistically only 1 in 10 of these projects were ever built – outlets captured a significant part of our consciousness.
The largest estimate of existing projects today is from ICSC, 401 – and that's globally. In the US and Canada, experienced dealmakers put it at less than 300, and that's only by expanding the definition of “outlet centers” to include numerous hybrids combining traditional retailers, discounters, with those who avoid mainstream brick and mortar, and even some “lifestyle” centers. To Credit Suisse, there are about 150 upscale outlet centers. And to one veteran dealmaker who's been specializing in the outlet industry for some 22 years or so, “after eliminating some junk, there are only about 97 centers that can be called premium outlets.”
So, with no one acceptable definition, under this overall umbrella we include out-of-the-way complexes with 10-12 tired stores, those of over 1 million sq. ft. like the granddaddy Potomac Mills in Woodbridge, VA–and all the other “Mills”–to those like Woodbury Commons in Central Valley, NY, where sales volumes per sq. ft. rival that of the top selling machines in the entire industry. The better ones have become tourist destinations attracting busloads of bargain-hungry shoppers and tourists in a splurge of black-belt buying.
So, why this rambling discourse now?
Simple, the recent announcements that high-end retailers like Bloomingdale's, Lord & Taylor, and New York & Co are entering this market, joining such familiar name brands that are also veteran outlet merchandisers, like Nieman-Marcus, Nordstrom, Ralph Lauren, Liz Claiborne, Oscar De La Renta. Armani, Prada, etc., etc. And, on the landlord end, that the mighty Simon Property Group, whose Chelsea division is already one of the three main owners in this niche, is getting even more dominant with its purchase of Prime Outlets for $2.24 billion; the other top owner-developer is Tanger Factory Outlet Centers.
The origin of the concept was to provide another channel for retailers/manufacturers to dispose of excess inventory, last-season's goods, irregulars, and the like. Now, with so much consumer emphasis on quality, branded merchandise, deep discounts, and value shopping, even mainstream retailers are looking at the lower rents and reduced operating costs of outlet centers.
A number of branded retailers, who early came to this niche, still manufacture a lower-quality, substantial portion of their stock specifically for their “outlet stores.” And some discounters and off-pricers are getting better-quality merchandise from vendors unable to sell all their product to their traditional, high-end retailers.
“Any US expansion by retailers…should be viewed as a positive trend,” according to
John Cirillo, market planner at KeyBank. “Many of these concepts have reached the saturation point with respect to full price outlets… but we should keep in mind there is a limited universe of these projects, particularly strong ones that would attract the likes of NYCO, Bloomies, etc.”
Said Kevin So, director at MD Property and Investment Consultants Ltd, who is familiar
with the market in Asia: “Outlet seems to be on a better spot for the retail side, where everything else seems to be in some sort of trouble… It is no longer a new concept in the US… [in Asia] outlets is picking up heat and will be a big thing in the coming years. It is interesting that no major player has committed to this area.”
To Charles Devine of Devine Realty, “There has been a lot of these projects built that should never have been built, and we've shaken out most of the junk. For the ultra, high-end outlet retailers, except for a few extreme cases, they want to be at least three hours away from their main markets. Some projects being talked about in upstate New York, near the Canadian border, or even in the middle of the state, may be questionable.”
One national retailer with various brands, who has been involved in the outlet niche for many years, is troubled that one landlord is now so dominant. It controls 77 centers totaling 26.6 million sq. ft. “Of course I'm concerned that 80% of the top 50 outlet centers are owned by one landlord,” he said… “it gives us very little leverage in lease negotiations.”
Another agreed, pointing out that this is especially true in Florida, the highest producing market, “where just about every important outlet center is controlled by SPG.”
The niche, like the rest of the shopping center/retail industry has high points and low points, aside from that involving the heavy-hitters. Example: Craig Realty Group, which considers its Citadel Outlets the only outlet shopping center in Los Angeles, is expanding from 276,210 sq. ft. and will add 157,000 sq. ft. Or, Sembler Co, now planning a $400 million, upscale “luxury manufacturers” project in Hardeeville, SC.
On the other hand, in Gainesville, TX, a group of 11 lenders just bought the foreclosed 319,653 sq. ft. Gainesville Factory Shops and are considering converting it to a medical center and/or residential, mixed-use.
And always the question of a blurred terminology. Burlington Coat Factory, definitely an outlet retailer, opening a store of 64,428 sq. ft. in 454,000 sq. ft. Marshfield Plaza in South Chicago. Is that an outlet center now?
“Labels are just that,” said one cynical dealmaker. “If it makes it easier for me to lease a center, I'll call it anything necessary to gain attention.” He pointed to the most recent example, 'lifestyle centers,' which was tacked on to numerous projects that were not enclosed, were not large malls, and could not attract an important anchor. “And many of these that opened are in serious trouble now.”
But as an important niche, outlets can be extremely profitable for both tenants and landlords.
Further information on Shopping
Center Digest, our weekly Eflash, Expanding Retailers,
and the annual Directory of Major Malls may
be obtained from our website, www.shoppingcenters.com.
Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts. A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.