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Spring 2000 Inside Outlets

Take a look inside outlet centers. Defined as properties in which 50 percent or more of the tenants are manufacturer’s outlets, these centers are another viable option for setting up shop. Dayne Sieling of Retail Ventures, Inc. in Minneapolis says 12 to 15 percent of his expansive specialty retail programs, which focus on marketing demonstration-oriented products, are located in factory outlet centers. “And if there were more of them, we would do more,” he says. “They tend to provide a strong market segment for us because when someone goes to a factory outlet center, they are not browsing—it’s an event. They’re going there with their wallets full [and] their credit cards loose. [The centers] typically have music and videos going… they’re decorated in a festive way, and it’s a fun experience centered on that ‘stack ‘em high and let ‘em fly’ philosophy. And we like that type of shopper,” Seiling explains, “because they tend to be more impulse-oriented and impetuous.” As a result, “if we compare our factory outlet center sales to traditional malls, our average monthly sales at Christmas would certainly be higher.”

Yet according to Linda Humphers, editor of Value Retail News, the growth in outlet center development has recently waned. “It has slowed down quite a bit from the late ’80s and early ’90s. Now we have only about four or five outlet centers opening in a year, and only a million square feet being added, due to the retail demand and the fact that there are only so many places they can go, due to the sensitivity of competitors,” she says. “If they locate too close to metropolitan areas, their wholesale accounts get mad.”

But here’s the good news: Humphers says that although sales volumes in the outlet sector have been down in the last year, sales per square foot do exceed regional malls. According to data her organization collected:

  • Average outlet sales per square foot increased from $211 in 1995 to $232 in 1998.
  • Estimated total outlet sales jumped from $10.7 billion in 1995 to $13.3 billion in 1998.
  • In the last ten years, the number of newly-opened outlet chains grew from 308 in 1988 to a high of 543 in 1995, but have since dropped off annually to 492 in 1998.

Prime Retail, LP (Baltimore) started building its outlet segment in 1996 at their open-air, village-style and strip centers. Ted Kaminski, director of specialty leasing, says, “We placed some small-cart programs at some of the centers in the warmer climates like California, Texas and Florida that we maintain year-round.” As for trends, he says, “We’ve increased the number of clearance events held at outlet centers by coordinating with manufacturers like Tommy Hilfiger and Samsonite, and hold those [events] either in the parking lots or in unrented space.” Kaminski says they do that in Arizona, too, “but there, we also have carts and kiosks that give the local craftsmen and entrepreneurs a chance to do business.”

Mirroring the malls

The stereotype that outlet centers are best suited for outdated products or close-out merchandise is a myth, Kaminski says. “We’re mirroring what’s happening in the retail malls—the carts in the outlet centers are handling a lot of the same trendy merchandise like Beanie Babies™, yo-yos and Pokémon™ products. But the difference,” he says, “is that the cart programs in the outlet centers are required to hold sales or discount the merchandise.” For instance, Prime Retail has a deal with Calendar Club, a national seasonal tenant, that stipulates offering a discount. So from the day Calendar Club opens in November, their calendars are marked 10 percent off.

Heidi A. Maybruck, director of specialty leasing with Glimcher Realty Trust (which handles 23 mall properties that include three outlet centers), sees no difference between a “value center” and regional mall when it comes to specialty leasing. “I see the same types of leases and the same types of trends. I think the only difference is that they have to show value just like the centers where they are located. When customers enter a value center, they’re thinking discounts and best buys, so retailers have to enforce that in order to survive.” Kaminski agrees. “If customers travel 45 minutes to an outlet center, they expect to get some type of discount. That’s what sets us apart from the regional malls.”

Kaminski says Prime Retail’s specialty-retail leasing rates vary with each center because the sales volume and traffic vary from location to location. “The foot traffic is different from that of an enclosed mall,” he says. “We start doing our holiday volume in early November through mid-December, and then the outlet centers quiet down when the regional malls pick up. “If you’re a temporary tenant coming in for the holiday season and you’re looking to do a Christmas deal, the rate may be more affordable than the mall.” But he stresses that the temporary tenant in that case should “open as soon as possible in October, because you want to take advantage of the heavier foot traffic in early November through December.” As Christmas gets closer, shoppers are less likely to drive an hour. Most of their shopping will be done at their local community shopping centers or regional malls.

A different slant on value

Mills Corporation, which has value centers in enclosed malls, believes strongly in specialty retailing as well, but offers a different mix of tenants. “We have manufacturer and retail outlet centers, discounters, category killers, as well as theme restaurants and entertainment complexes,” explains Ned Katzman, VP, Main Street Retail (a subsidiary of Mills). “We have Nike, Ralph Lauren, Nautica and Ann Taylor outlets, as well as Dave & Buster’s, Rain Forest Café, Bed Bath & Beyond, Bass Pro… all mixed throughout the mall in a dynamic fashion. We like to think that we have it all.” And that includes a strong cart program.

“We recognized early that we could have a cart and kiosk program in our malls, and that segment is just phenomenal,” says Katzman. “They continue to grow and generate a good revenue stream for the company, and often incubate into in-line merchants. We generally incubate a dozen or so merchants each year.”

Katzman is optimistic about the future of specialty retailing in his sector. “The demand for kiosks and pushcarts is growing dramatically,” he says. “The common-area opportunities are able to deliver revenues that help make up shortfalls from other revenue centers. We found that, with our traffic patterns, cart programs can be sustained easily because of our high levels of tourism.”

As to rates, he says, “We would charge on the high end, comparable to what an upscale mall would charge… We are very competitive on rent for what we offer, which is a higher level of tourism and more traffic.”

Another assumption about outlet malls is that they are short on staff and short on time, due to their high-volume atmosphere. Not so, according to Denise Hammer, programs and services manager with Main Street Retail, which operates nine outlet centers throughout the country. The support her company offers is comparable to that of a traditional mall. “We actually hire a professional visual merchandiser who comes in and conducts the initial meeting with the tenant,” Hammer says. At that meeting they devise a shopping list of things that will attract attention, enhance marketability, and help the specialty retailer shine in the fast-paced, high-energy environment these centers create. The visual merchandiser also assists with setting up.

Programmed for growth

Main Street Retail reports traffic flows at their busiest centers to be two to three times greater than that of regional malls in the area. “With all the centers we have currently operating in the United States, we attract more than 150 million shoppers per year,” Hammer says. The lucrative business has also led to an increase in cart and kiosk operations over the past few years. “We currently have within each center forty to fifty carts and kiosks. We typically open with thirty carts,” she says. “But next year we are looking to open with forty, and each year we add five to ten carts at least.”

Tanger Factory Outlet Centers (Greensboro, NC), with 32 properties in 22 states, has identified the potential for specialty retailing in their centers as well—so much so, that they recently hired Wendy Johnson, CSM, CMD, as specialty leasing representative. Her role is to develop a specialty retailing program.

“Most of our centers are outdoor, so the opportunities at our northern locations would definitely be seasonal,” says Johnson. “But many more are located in tourist destinations close to major cities. For instance, we have a center in Casa Grande, Arizona, where they have the international O’Odam Tash, a Native American festival, which brings in hundreds of thousands of people on an annual basis.” Johnson says these are excellent opportunities for all types of specialty merchants. “I wouldn’t say no to anything until we looked at it.”

Johnson says highlights of Tanger’s program will include:

  • Cart rental, “unless someone owns their own.”
  • Captain’s chairs, “so everything looks consistent and organized.”
  • Merchandising assistance.

Like most developers, Johnson doesn’t discuss statistical averages on traffic flow and sales volumes. But she does say that “most of our centers usually attract more than 700,000 cars per year, with several [centers] that are over a million.”

Overall, opportunity for specialty retail in outlet centers is growing. According to those in the know, cart and kiosk entrepreneurs in outlet centers can be every bit as successful as those in traditional malls. And the strategy for success is virtually the same: research, negotiate and sell a killer product. The only difference? Stack ‘em high and let ‘em fly.

Tom R. Arterburn

Tom R. Arterburn is an independent journalist based in St. Louis, Mo. He can be contacted at .

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