By Ann Natunewicz, national manager, Retail Research, USA Retail Services Group, Colliers International
The outlet shopping experience has morphed from warehouse settings offering damaged and closeout merchandise to today’s centers that are designed to maximize customer flow and sell merchandise from the most exclusive international designers.
The U.S. outlet sector, estimated by Citi Research to be a $30 billion industry, has benefitted from a convergence of attitudes among consumers, retailers, and investors in response to a weak economy, with the recovery now moving through its fifth year.
There’s no question that weak macroeconomic conditions accentuate shoppers’ focus on “value,” which includes seeking discounted high-quality merchandise, especially designer labels. As shopper demand intensified, retailers not only expanded their outlet real estate programs, but they also recognized the viability of outlets as a distinct distribution channel — not just a dumping point for last season’s unsold inventory. They developed custom product lines to differentiate outlets from their full-line counterparts. Shoppers, once confused by outlets because they didn’t know what they were getting, now appear more accepting of this hybrid merchandise mix. The result: outlet centers, once seen primarily as “destination” shopping venues, have become more relevant for customers’ daily needs.
As retailers shifted their product mix, they’ve removed one of the major barriers to outlet development: radius restrictions where vendor conflicts prevented outlet stores from locating too close to an existing regional mall. Current real estate portfolios reflect a higher degree of comfort with proximity. Nordstrom is one high-profile example: Colliers estimates that nearly two-thirds of existing Nordstrom Rack stores are located within five miles of an existing full-line Nordstrom, with around 45% within one mile of a full-line store. (In fact, Nordstrom Rack recently relocated across the street from Nordstrom’s flagship store in downtown Seattle.) We expect this trend to continue.
Higher sales productivity and significantly lower store operating costs have made retailers more receptive to rent growth. As those