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Good News!: The New Allure of Outlet Centers

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Neiman Marcus has found a good fit for its Last...
The Arches, in Deer Park, N.Y., is an upscaled version...
Designer Outlets of Mid-America, the new development planned for Council...

With all the attention devoted to the failing economy, the editors of

As discretionary spending has plunged, the impact has been felt by retail across the board. But even as the storm clouds have blanketed retail’s economic horizon, one bright spot—the outlet sector—has not only managed to shine through, but appears to be gaining wattage.

“The outlet sector is hanging in quite nicely,” said Wall Street analyst Joseph Feldman, a managing director and senior research analyst for New York City-based Telsey Advisory Group (TAG). “We’re expecting that, much like discounters such as Wal-Mart and the dollar-store concepts, the outlet sector will perform well during the upcoming holiday shopping season and see decent traffic.”

Indeed, even as traditional mall construction has waned, and the retailers that inhabit them have all but stopped building new stores, outlet centers are expanding. But these are not your mother’s outlet centers by any means. Typical of the new breed of outlet center (and the format that is experiencing the most growth) is The Tanger Outlets at The Arches, a $300 million un-outlet-like retail setting in Deer Park, N.Y. Unveiled in October, it features 75 stores in an outdoor, Tuscan-inspired village design, along with a 16-screen multiplex theater, a health club and an outdoor skating rink in the winter.

What’s more, the retailers within the atypical outlet mall aren’t your standard clearance-store fare. Of the 75 stores currently open, and the more than 25 stores to come, a large percentage are luxury brands: Kate Spade, Calvin Klein, Betsey Johnson, Juicy Couture, Saks Fifth Avenue OFF 5TH and Neiman Marcus Last Call.

The Arches is predicted to draw some large crowds, even when spending overall is down. Roughly 40% of U.S. consumers shop at outlet centers, similar to the number of shoppers at regional malls, according to David Ober, president of industry trade group Developers of Outlet Centers & Retailers, and general partner of PA Outlet Management in Lancaster, N.J.

“Today’s outlets sell the hottest name brands and current fashions, minus a retailer’s markup,” he said. “And while items on sale at regional malls may be lower, outlet prices average about 40% less than retail.”

By emphasizing design and customer amenities, premium outlet centers have been able to attract the likes of Coach, Saks, BCBG Max Azria, Kate Spade and Neiman Marcus, that have seized the opportunity to expand in a channel without compromising their high-end image.

Industry analyst Feldman has been surprised at some of the movement—high-end or not—within the outlet industry.

“A lot of retailers are slowing store growth, but we’re also seeing—and this has surprised us—that some retailers have headed to the outlet channel sooner than we had anticipated,” he said.

Feldman cited Williams-Sonoma’s furnishings, textiles and accessories concept West Elm as an example, which he said is slated to launch an outlet next year as a discount adjunct to the full-price store.

“With about 35 stores, it would appear premature for West Elm to launch an outlet,” Feldman said, “and yet it’s expected to be, like Pottery Barn, a big engine for Williams-Sonoma.”

Lululemon, added Feldman, also is rumored to be planning an outlet-store launch.

“And Ann Taylor Loft is interesting in that it is already a lower-price concept but is now starting to roll out outlets.”

At the end of October, Gap Inc. opened its first Banana Republic Factory Store and Gap Factory Store in Canada, identifying its Outlet Division as a growth opportunity for the company.

Limited Brands, Inc., which had held off from taking the outlet-store leap, has opened Victoria’s Secret clearance stores in the last 12 months in New Jersey, Michigan, Texas and Florida. The company said in a statement that today’s more upscale outlet centers were more in keeping with the integrity of the Victoria’s Secret brand.

Anew look for outlets: A veteran of the outlet scene is luxury retailer Neiman Marcus, which operates 22 Neiman Marcus Last Call stores in about 12 states. But it’s the latest iteration of outlet centers—the high-end version such as The Arches—that has been the shoe that fits the Neiman brand.

Neiman Marcus made its Long Island debut at The Arches with its Last Call store—a 32,000-sq.-ft. store, as compared to a typical footprint of 28,000 sq. ft.—that opened Oct. 23.

“We don’t normally open an outlet in a market until we have a presence with a full-line store,” Wayne Hussey, senior VP, properties and store development for Dallas-based Neiman Marcus, told Chain Store Age. “Because Long Island presents a great opportunity for us, we have been working on a full-line store there for a number of years—but it has been delayed in the city- and county-approval process. We decided to introduce the market to Neiman Marcus with the Last Call venue at The Arches, instead.”

The upscale nature of The Arches, said Hussey, presents an image consistent with the Neiman brand.

“As a luxury retailer, we look for those environments that have a higher-end component,” he explained. “In fact, we welcome it because it serves to drive more of our customers to the environment.”

The Last Call concept is proving to be a viable growth vehicle for Neiman Marcus. According to Hussey, the company has six full-line stores opening over the next three to four years, and eight or nine Last Call outlets opening in the same time frame. “When you look at the industry, that’s a good program for us,” Hussey said.

Although the Last Call format is more than a step removed from its full-line sister in terms of interior environment, there are some shared attributes between the two concepts.

“Last Call emulates Neiman Marcus from a service standpoint, in that we offer a high level of service even though it is an outlet store,” Hussey said. “More important, though, we offer a great breadth of branded goods.”

All Last Call merchandise is from the Neiman Marcus vendor base, according to Hussey, with some of it from the full-line stores and some purchased directly from the vendors. Either way, he said, the quality of the merchandise lineup distinguishes Last Call from its outlet competition.

Higher-end outlet retailing is beginning to spread even to the nation’s heart-land, where factory-outlet centers tend to be rurally located and filled with shabby seconds. The upcoming Designer Outlets of Mid-America, in Council Bluffs, Iowa, will break ground in fall 2009, with completion slated for summer 2010. Developed by Columbus, Ohio-based Continental Retail Development, the 450,000-sq.-ft. center will feature a collection of 80-plus outlet stores, many luxury, and restaurants. The design of the open-air center will mimic the popular lifestyle center format.

“As more and more retailers put an increased design focus on their stores, it propels a better-looking center,” said Brett Robinson, VP of retail development for Continental. “The wrapping has to match the gift.”

But, cautioned Robinson, while the design and look are critical to the success of a center, it’s still the location that ranks first, followed by the co-tenancies.

“Tenants are doing outlet deals, even tenants who aren’t traditional outlet retailers,” Robinson said. “Nike and Polo are aggressively doing outlet deals, but then so are Ann Taylor, Chico’s and Talbots. Those that have reduced their full-price expansion plans are still pursuing outlet deals.”

That’s it in a nutshell, confirmed analyst Feldman.

“Our outlook for the outlet retail format is that it will experience continued growth,” he said. “Because new development has slowed, when growth does happen it may well be via outlets centers and outlet retailers over malls and full-price stores over the next couple of years.”

© 2014