The new look factory outlet centre

 

Openings of new shopping centres in the US are on the rise again after a hiatus of several years.

I’ve attended two of these openings myself in the past three weeks, one just north of Atlanta and the other adjacent to O’Hare Airport in Chicago.

Both are factory outlet centres and both are absolutely rocking. E-commerce and m-commerce might still be on the ascendant, but cyberspace is not the only place where consumers are finding value.

One of the problems shopping centre operators have had with the technology revolution is that for the first time in the industry’s history the pace of change in consumer behaviour has occurred faster than the ability of shopping centres to adapt to it.

The long cherished assumption that shopping centres are constantly evolving is still true – it’s just that the evolution is sticky in the sense of being slowed by long lease terms and the time required to make changes to physical infrastructure.

Changes in the way people want to shop are subject to no such constraints. Thus, we currently have a disconnect between shopper expectations and what physical real estate is currently delivering.

Outlets are one of the few exceptions to this disconnect because they cater to a distinct kind of shopping trip – the thrill of the hunt, discovery, instant gratification. It’s recreation without the pressure of time or the discipline of a purpose. Technology is important but secondary.

The outlet industry has grown up and paid attention to its shortcomings. The new centres are not being built by novices with the kind of wild west mentality that permeated the sector in the early days.

Neither are the centres any longer inhabited by manufacturers looking to get rid of past season’s mistakes. The best ones are not lean on amenities or taking short cuts on fitout. They’ve gotten serious, and it shows.

Instead of being dumping grounds for clearance items from full price stores, outlet stores in America are now usually merchandised separately, at different price points and to different specifications by retailer outlet divisions specifically set up for this kind of centre.

In other words, factory outlet retailing is no longer at the mercy of cast offs from conventional stores.

This gives the outlet stores the look, feel, and substance of regular full price stores. They are well stocked with full assortments. They are beautifully visually merchandised and well staffed.

In Chicago, the two-level, 49,000sqm Fashion Outlets of Chicago, which opened on August 1, was developed jointly by AWE Talisman, a Florida-based outlet specialist, and Macerich Company, a mainstream regional/super regional shopping centre based in Santa Monica, California.

The upscale tenant mix comprises 130 stores and is anchored by a Forever 21 and two off-price department stores, Neiman Marcus Last Call and Bloomingdale’s. Like many regional shopping centres, it has a full food court and white tablecloth dining.

To elevate its credentials as a centre for high fashion, Fashion Outlets at Chicago’s design features two and three dimensional interactive art, in the style of K11 in Hong Kong, which will be periodically rotated in and out of the centre to create freshness.

Meanwhile, down south in Woodstock, Georgia, Horizon Group’s 35,000sqm Outlet Shoppes at Atlanta has been open since mid-July.

The tenant mix is also very strong here, which it needs to be to go head to head with North Georgia Premium Outlets, a centre developed and operated by Simon Property Group less than an hour away.

The two new centres will soon be joined by a number of other outlet projects springing up around the country over the next few years.

This is not just an American phenomenon, but an international one. Factory outlets are on their way to becoming a key industry sector instead of a backwater.

Why now?

A cynic might argue that this is just the inevitable culmination of retailers stampeding to devalue their brands.

Unable to capture new customers at more conventional price points, they are now going down market.

Upscale brands are certainly going after new customers with these outlet stores. And the new customers are not paying as much for access to the same logos as the customers at conventional stores.

It is doubtful the outlet divisions are devaluing retail brands as they would be under the old model of using factory outlet stores as clearance centres. With the evolved factory outlet business model, the new centres are too well merchandised and too well fitted out.

This is one of the key takeaways for Australian outlet centre operators and the retailers that use them: as long as outlet centres in Australia continue to be clearance oriented rather than separately merchandised, they will always be widely viewed as a ‘non-mainstream’ retail channel.

This is a pity because they have a legitimate place in the shopping centre pantheon.

Perhaps that’s the way they want to be – a low key niche player with no pretensions to being retail heavyweights.

If so, they have an assured consumer market. But they are not destined to achieve their full potential.

* Michael Baker is principal of Baker Consulting and can be reached at [email protected] and www.mbaker-retail.com.

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