Baker Katz buys four properties in Houston metro area
Houston, Texas — Baker Katz has acquired four retail properties throughout the greater Houston area — in the neighboring cities of Port Arthur, Lake Jackson, Beaumont and Tomball.
The Port Arthur property is a 90,000-sq.-ft., single-tenant building purchased from the Sutherland Lumber Co. for an undisclosed amount. Baker Katz plans to renovate the building and convert it to a multi-tenant space. Hobby Lobby has signed a 58,000-sq.-ft. lease, and Party City has signed a lease for 13,000 sq. ft.
In Lake Jackson, Baker Katz acquired a 2.5-acre property with a 10,000-sq.-ft. restaurant currently occupied by Ryan’s Steakhouse.
The Beaumont property is 1.26 acres. A Chinese restaurant previously occupied the site. The company plans to tear the existing building down and rebuild a multi-tenant shopping center with a fast-food pad.
The fourth property is located in Tomball. The parcel, formerly home to a gas station, is just under three-quarters of an acre. Baker Kat purchased the tract from the gas station operator and plans to build a small retail center on the site. The new center will support a large retail center across the street, which Baker Katz purchased in 2010.
Baker Katz is a full-service commercial real estate brokerage and an X Team International partner. X Team is an international alliance of retail real estate specialists with offices located in major cities throughout the U.S., Canada and Europe.
SRS names senior associate in Dallas office
Dallas — SRS Real Estate Partners has named Carissa Brown senior associate in the Dallas-Fort Worth office. Brown will focus on tenant representation, landlord representation and SRS urban services.
Brown joins SRS from Venture Commercial, where she specialized in site selection and market expansion strategies for retailers. She was a member of Venture Commercial’s top producing team for 2013, helping to increase production by more than 75%.
Prior to her time at Venture Commercial, Brown founded a successful e-commerce designer apparel company. Her e-commerce background affords her insight and understanding into the challenges brick-and-mortar stores face to stay relevant in an increasingly digital commerce world.
Outlets Are In
The recession lit the fuse that has produced an explosion of outlet center development.
The shrinking recession-era economy forced consumers to shop down, to seek out values, to wait for sales and to relentlessly refuse to pay full price. Even as the economy has begun to improve, consumers retained their commitment to off-price shopping. Lack of demand choked off the new development of malls, open-air centers, power centers and other kinds of full-price shopping centers.
There is plenty of demand on the value side, however, and outlet center development has accelerated in response. According to the Washington, D.C.-based CoStar Group, two new outlet centers opened in 2009, 2010 and 2011. In 2012, eight outlet centers opened, with 11 opening last year.
According to Fort Worth, Texas-based Buxton, the retail analytics provider, there are 322 outlet centers operating in the United States today, with 50 on the drawing board.
Retailers are responding, too. According to MSN Money, Saks Fifth Avenue Off 5th stores now account for half of the entire roster of the Saks’ stores. Fashionista is reporting that Nordstrom will open close to 30 Nordstrom Rack stores this year — and just three department stores.
“The market is reacting to the consumer’s desire for value,” said Michael Lebovitz, executive VP development with Chattanooga, Tenn.-based CBL & Associates Properties. “Outlet centers have a powerful value proposition.”
Growth has altered, and continues to alter, outlet center strategies.
The merchandise is evolving from seconds or slightly flawed products and clearance collections into moderately priced bridge offerings. Since unique merchandise doesn’t cannibalize sales of full-price merchandise, outlet centers are relocating from isolated sites away from population centers to infill locations in the suburbs and cities — closer to locations occupied by full-price centers.
While some higher-end retailers have limited their presence in outlet centers, fearing damage to their brands, many have adopted the view that outlet centers are simply another channel in an omnichannel world with Internet, catalog, brick-and-mortar, and now outlet brick-and-mortar sales channels.
Developers are raising the quality of their centers with restaurants and other amenities. They are branding their outlet centers, making them consistent at all locations.
CBL’s portfolio tracks changing outlet center geography
CBL & Associates Properties has built a portfolio of five outlet centers over the years. A sixth, the Outlet Shoppes of Louisville in Simpsonville, Ky., is under construction and expected to open July 31.
CBL forms joint venture partnerships with Horizon Group Properties when developing outlet centers. “The first one we developed with Horizon was in Oklahoma City in 2010,” noted CBL’s Michael Lebovitz.
Many outlet center owners partner with outlet center specialists. “The outlet center business isn’t the same as the full-price business, and there are established developers that dominate the area. That’s why we partner with Horizon,” he said.
As CBL’s outlet center portfolio has grown, CBL has adapted to the changing nature of the outlet center industry. “We’re seeing success with higher-end retail brands today,” Lebovitz said. “Higher-end brands are doing very well at our Outlet Shoppes at Atlanta, which opened in July of last year.”
Another change noted by Lebovitz is that outlet center sites are moving closer in from outlying areas into infill suburban and urban areas. Of course, the recession put an end to sprawling exurb development altogether and turned development inward. But new merchandising strategies by outlet retailers have also driven the infill trend.
“Outlet retailers are differentiating the merchandise in outlet centers from full-price stores,” said Lebovitz. “Twenty years ago, outlet center merchandising lines were close-outs and seconds. That isn’t the case today. Many offer different merchandise in their full-price and outlet stores.”
Eliminating seconds and close-outs and developing merchandise distinct from full-price stores have made it possible for outlet centers to locate closer centers with full-price stores — because of the reduced fears about brand damage.
Can outlet stores damage brands?
While differentiated merchandise is widespread, it isn’t universal. “Fashion designers care very much about their quality image and will not risk it to produce a ‘value’ line solely for outlets,” said Faith Hope Consolo, chairman, The Retail Group, Douglas Elliman Real Estate in New York City. “What you do find is that these stores will include items from their more affordable ‘bridge’ lines — better than ‘better’ but not the high-fashion line.”
While some retailers see the new merchandising strategies as permission to populate entire regions with outlet stores, others do fear brand damage. Late last year, for example, Les Wexner, CEO of L Brands Inc., owner of Victoria’s Secret, told Columbus Business First that discounting through outlet channels is the beginning of the end for strong brands.
He also noted that Victoria’s Secret operates four outlet stores and uses them only to bury mistakes. He went on to say that he would like to take that number down to three.
Victoria’s Secret stores do appear in many outlet centers — but they are full-price stores.
While the idea that discounting harms brands does have proponents, the issue raises arguments from many points of view. Some retailers, for instance, look at outlet centers as a valuable additional channel in an increasingly multichannel retail world.
An added channel for Simon
“We view outlets as another channel,” said Les Morris, spokesperson for Indianapolis-based Simon Property Group. “Shoppers take different kinds of shopping trips. In Philadelphia, for instance, we have the King of Prussia mall, one of the top U.S. malls. In the same market, we also have Philadelphia Premium Outlets. Each is a different experience, and the same shopper patronizes both.”
Simon has branded its outlet centers as Premium Outlets and Mills, the hybrid brands that attract outlet stores as well as full-price retail and entertainment providers.
In some markets, Simon owns regional malls, a Premium Outlet Center and a Mills center.
“This dovetails with the fact that manufacturers are making products specifically for the outlet channel today,” Morris continued. “Now you are seeing more high-fashion tenants establishing value channels. Every iteration of a Premium Outlet Center has new brands — they realize this is an important customer.”
Simon has been building its outlet center channel since the early 2000s. “We started with joint ventures with Chelsea Property Group,” Morris said. “Then we acquired Chelsea in 2004.”
At the time, Roseland, N.J.-based Chelsea Property Group was the leading owner, developer and manager of outlet centers.
Simon also acquired Arlington, Va.-based Mills Corp.’s hybrid full-price and outlet store properties in 2007.
Then in 2009, the company bought Prime Outlets of Baltimore.
Today, with 66 outlet centers in the United States and a steadily increasing number of international developments, Simon is the largest owner and developer of outlet centers. “This is a big business for us, and it continues to grow,” Morris added.
Second place goes to Tanger Factory Outlet Centers in Greensboro, N.C. Tanger has an ownership interest in 44 outlet centers and ranks as the largest developer focused solely on outlet centers.
The Glimcher way
Columbus, Ohio-based Glimcher Realty Trust has two outlet centers branded as The Outlet Collection. “In the late 1990s, we developed The Outlet Collection | Jersey Gardens in Elizabeth, N.J., from the ground up, and we bought what has become The Outlet Collection | Seattle,” said Josh Lindimore, VP leasing.
Glimcher’s outlet center concept differs from most. Typical outlet centers are 300,000 sq. ft. to 400,000 sq. ft. Jersey Gardens is 1.2 million sq. ft. and Seattle is about 1 million sq. ft.
Glimcher, like other outlet center developers, has upgraded outlet center designs compared with early bare-bones centers. Developers want customers to stay and shop. So they have added food and play areas for the kids, as well as cinemas.
Today’s top outlet centers have brands and amenities — and Glimcher’s centers personify that strategy. “We created The Outlet Collection brand because we want outlet customers to associate each of these centers with consistent quality,” Lindimore said.
“At The Outlet Collection centers and our other centers,” continued Lindimore, “we focus on context and content. Provide the stores or content that people want and create the atmosphere or context that people like. Over time, these things change. What people want today is different from what they wanted 20 years ago. So the content and context has changed.”
Lindimore points to the 80 million strong Millennial Generation and its new way of dealing with the world. “You can see how different this generation is in their use of technology like tablets and smartphones.
“Retailers have responded to this new generation with new merchandise as well as technology that looks for nearby smart-phones and sends out ads. So content and contextual changes are adapting to a new group of consumers.”
Into the mainstream
The point: Content and contextual changes are rolling equally through full-price centers and outlet centers, which are no longer selling second-class merchandise from isolated locations. Today — and for some time now — outlet centers are part of the mainstream. For the time being, in fact, they are leading the mainstream.