Outlet malls were once the final destinations for clothing cast-offs, where deal seekers went to find designs a season behind for less. However, they have been growing in popularity since consumers formed penny-pinching habits during the recession. Big-box retailers have lost their footing and these discount mega-shopping centers have stepped up in their place.
Jeff Moore, retail market leader in Southern California for commercial real estate agency CBRE states, “It’s one of the hottest categories in retail today. Ten, 15 years ago, it was a small tertiary market. Now it’s moving into very successful, infill markets with closer spacing to retail brands.”
Not only are these outlet malls popular amongst bargain hunters in the U.S., foreign tourists will often plan trips centered around shopping, with outlets such as the Citadel as one of their key destinations. In an effort to cater to the booming tourist crowd, the Citadel has added mall signage in Chinese and built a VIP lounge for guests who have downtime before flying home or want to rest during their marathon shopping trips. The shopping center is planning to add a shipping center to allow international shoppers to mail purchased goods overseas. The Citadel has identified that international shoppers constitute a large percent of their sales, and have therefore adapted their strategy to cater to the foreign consumers.
This may all sound like great news for retailers who want to get a piece of the $12 billion dollar total outlet apparel sales industry. They also get to bypass certain steps in their distribution such as Macy’s or Nordstrom, but the growing popularity of the outlet malls could lead to their demise. As more brands flock to the off-price model, they have been driving up rents and increasing competition within outlet malls. Wells Fargo analyst Paul Lejeuz states, “As we reflect on the past year, we believe there is further evidence that the economics of factory outlets are under pressure. As new retail center construction hit an all-time low in 2014, demand for outlet locations increased. The increased demand has caused rents for factory stores to shoot up, at almost twice what they were a decade ago.
However, even with the higher rents, many retailers feel that outlets are a highly profitable channel; their only concern is that it could get less profitable. Even though it is a relatively young channel with growth ahead, the rise of e-commerce and flash sales pose a significant threat to factory outlets. However, Forrester analyst Sucharita Mulpuru, Forrester analyst states, that the outlet shoppers differ from those visiting flash-sale sites, as they are more interested in the experience of going to a physical store and browsing what’s on sale, versus flash-sale shoppers, who are more like spear fishers. Also, compared to traditional retailers such as Macy’s, who carry some of the same labels as factory stores, shoppers for the most part cannot get items there for the same prices as they would at an outlet.
Barclays analyst Joan Payson states, “Since 2008, there has been a noticeable shift in North America towards premium but accessibly priced luxury, as the spending habits of the domestic customer have transitioned away form the ultra-high-end purchasing. Making these products even more accessible has been the strategic roll out of off-price, both in the expansion of brand-operated outlets and high-end department stores expanding their own off-price formats.” Brands such as Kate Spade and Ralph Lauren have employed methods to fit into the sweet spot of affordability and availability, but have upheld their premium positioning and kept their brand equity intact.
While the distance and overcrowded nature often deters me from making a trip to an outlet mall, I do manage to visit a few times a year. However, outlet shopping has not replaced any trips I make to traditional retailers; it has only increased my spending! After all, how can I pass up a 75% off sale at the Kate Spade Factory store?