Joel Groover/Shopping Centers Today—Minutes after the July ribbon-cutting for The Outlet Shoppes at Atlanta, Barbara Moore stood before the store directory, grinning at the sight of a 99-brand lineup brimming with the likes of Kate Spade, Saks Fifth Avenue Off 5th and Talbots. “I live in western North Carolina and drove a little over a hundred miles to come down for this opening,” the shopper said. “This is so important to us, because we don’t have stores like this where we live. Even though I do a lot of online shopping, I like to come and see for myself and get the look and feel.”
Moore was certainly not alone: Some 7,000 people flocked to this grand opening of the 375,000-square-foot, open-air outlet in suburban Woodstock, about 40 miles north of Atlanta. To get a firsthand look at the mall — the latest venture between CBL & Associates Properties and outlet specialist Horizon Group Properties — the crowds packed the parking lot and snarled traffic for a mile on Interstate 575. Some shoppers even waited behind rope lines outside popular stores like Coach. “Never in my life have I seen lines to get into an individual store,” said Woodstock Mayor Donnie Henriques.
But while such events might seem extraordinary, particularly amid the still-
sluggish pace of mall construction overall, they tend to be business as usual in the fast-growing world of outlets. “If you take a look at the last five years of openings, a lot of interstates have had their ramps completely blocked,” said consultant David Ober, president of Global Outlet Management. “People want to come outlet shopping because it is an exciting experience for them, and they get a great value.”
Little wonder increasing numbers of traditional developers are diving into the outlet business. Typically, they do so by forming partnerships with consultants such as Ober or with old hands in outlet development, like EWB Development, Simon Property Group or Tanger Factory Outlet Centers. Ben Carter Enterprises, a developer of malls and power centers, has teamed up with Ober to develop, market and lease Outlet Mall of Georgia, a 560,000-square-foot project set to open in Savannah next spring. The Atlanta-based development firm is creating a brand for its outlet platform and will announce more projects over the next year. “I am fascinated with the business opportunity that outlets represent,” founder Ben Carter said. “The driving force is that the cost of occupancy in an outlet project is very reasonable for retailers, compared to an enclosed mall. Yet the sales they experience are equal to those of some of their best-performing mall stores.”
Pennsylvania-based PREIT is another newcomer to the outlet sector. In July the firm announced its first foray into outlet development, a plan for its PREIT-Rubin affiliate to enter into a joint venture with Simon Property’s outlet affiliate on Gloucester (N.J.) Premium Outlets. The 90-tenant, 450,000-square-foot center will reportedly break ground this fall, with a grand opening slated for November 2014.
Mall REIT Macerich, for its part, opened the 530,000-square-foot Fashion Outlets of Chicago in August to lines of eager shoppers. The project is a venture of Macerich and AWE Talisman, a leasing, development and management firm known for its Fashion Outlets brand.
For a variety of reasons, the 150-store mall is no ordinary outlet, said Arthur Weiner, chairman of AWE Talisman. “This is America’s anti-outlet,” he said. Some outlet malls are an hour or two away from the city, but Fashion Outlets of Chicago is just minutes from O’Hare International Airport and some 12,000 hotel rooms housing tourists from around the globe, particularly Asia. “This center sits where six flights a day arrive direct from China,” Weiner said. “It is ready to take its place on a global stage.” Design is another point of difference: The co-developers urged tenants at the two-level, enclosed mall to sink more money into their stores by rolling out what Weiner describes as Michigan Avenue–caliber store designs, as opposed to the no-frills approaches typical of outlets.
“All of the brands have stepped up and the results are extraordinary,” Weiner said. With granite, marble and stone finishes, the $250 million center boasts a seven-deck parking garage, art installations, white-tablecloth restaurants and such luxe tenants as Herve Leger and Longchamp. In many respects, Weiner says, the project is more like a regional mall than a typical outlet. Indeed, its anchors — Bloomingdale’s The Outlet Store, Forever 21, Last Call by Neiman Marcus and Saks Fifth Avenue Off 5th — are arrayed on the ends in mall-like fashion. But some wonder whether outlet aficionados will embrace this approach.
“This type of build-out, the enclosed nature and the requirement to pay for parking will run upstream for many outlet shoppers’ expectations,” said A. Rick Scardino, director of retail brokerage for Lee & Associates’ Chicago office. “And this will most likely result in a higher cost of goods to the consumer.” But Weiner predicts that the center will be a huge draw and well worth the price of admission for retailers. “The brand exposure is so much greater,” he said.
Macerich first entered the outlet race in July 2011 with its acquisition of the Fashion Outlets of Niagara (N.Y.). And in the Niagara market, competition is about to ramp up, thanks to an entry by yet another mall developer: Ivanhoé Cambridge’s The Outlet Collection at Niagara is slated to open next May in Niagara-on-the-Lake, Ontario, Canada. Technically, the 520,000-square-foot project is Ivanhoé Cambridge’s first true outlet mall. The company’s Mills concept projects — Vaughan (Ontario) Mills, and CrossIron Mills, in Calgary, Alberta — are enclosed, regional mall-like blends of outlet and traditional retail.
“The hybrid concept we created for Mills is truly that — a hybrid,” said Teresa Spataro, vice president of development and leasing. “About 55 percent of the specialty stores are outlet.” But in leasing the Mills projects over the past 15 years or so, Spataro and her team have forged ties with retailer outlet divisions from around the world. As a result, the company was able to launch its Outlet Collection brand without the help of a specialist sventure partner, she says. “We’re planning to open a handful of [Outlet Collection projects] across Canada where the markets are suitable,” Spataro said.
The project boasts nearly 100 outlet stores, including an 81,000-square-foot Bass Pro Shops. Ivanhoé Cambridge plans to announce two additional projects by the end of the year: a Mills and an Outlet Collection. “All along we have felt the Canadian market could support only four Mills centers,” said Paul Gleeson, Ivanhoé Cambridge’s executive vice president of development. “The question, then, was how to step back and leverage the expertise we have developed in outlets. You couldn’t have done it 10 years ago, but the outlet business has grown sufficiently enough in Canada that you can now go ahead and do pure outlet centers.”
The key is to focus on top-quality sites, Gleeson says. The area in and around the Niagara project draws millions of visitors yearly to Niagara Falls, the town of Niagara-on-the-Lake, local wineries and attractions such as the Great Wolf Lodge resort, he says. The project will be just the eighth outlet to be built in Canada, according to Value Retail News. But sites like these are rare because of the country’s relatively low population density, Gleeson says. “There is limited opportunity to do that many more outlet centers in Canada,” he said. “I don’t see this proliferating here to the same extent as in the U.S.”
In fact, some experts already wonder whether U.S. developers could eventually push this trend too far. The $24.3 billion U.S. industry already has 185 outlet centers, with total GLA somewhere about 70.9 million square feet, according to Value Retail News. At least eight new centers were set to open in the U.S. by the end of 2013 alone, the magazine reports.
But of course, outlet construction tends to rise and fall with the business cycle, and so this growth trajectory might not continue forever, says retail consultant Jeff Green, who heads Phoenix-based Jeff Green Partners. “In the 1980s and early 1990s, we saw this proliferation of outlet malls in mostly tourism-heavy locations,” he said. “But then the economy heated up again in the late 1990s and early 2000s, and the whole industry just plateaued.” Likewise today’s growth spurt dates to the economic crunch that began in 2008. “When we return to a more prosperous time, will outlets level off again, especially in light of the many outlets that are recently opened or under construction?” Green said.
A bigger concern is the possible oversaturation of specific markets, he says. Green points to St. Louis, where at press time Taubman Prestige Outlets Chesterfield and Simon Property’s St. Louis Premium Outlets were gearing up for openings in August. Intent on showing loyalty to both of these major landlords, a few chains braved the risk of cannibalization by opening stores in both centers, says Green. “This should not be happening,” he said. “These centers are just a few miles from one another. When you build outlets too close together, it’s not good for anybody.”
The overbuilding of lifestyle centers that occurred when that trend was hot should be a cautionary tale for developers looking to break into outlet retail, Scardino says. The co-tenancy clauses typically employed by lifestyle center retailers caused lifestyle centers to be particularly vulnerable to the vagaries of the business cycle, he says. “A lot of the lifestyle centers came online just as the U.S. economy was falling off the end of the table,” said Scardino. “They were all built like houses of cards — if any of the major anchors went out, the smaller tenants could too.”
To minimize such vulnerabilities, outlet developers must have solid relationships with retailers’ outlet divisions and lots of specialized market expertise, Scardino says. “You can’t just throw a bunch of stores together and call it an outlet center,” he said. “Today we’re seeing some outlets pop up in areas that staunch and storied outlet developers took a pass on. How many of those outlets will last a decade? Nobody knows, but I’m sure we’ll see some fallout.”
But as they team with experienced partners, newcomers to the outlet business are bullish about its growth potential. Carter, for one, is armed with ample statistics to demonstrate the viability of his Savannah project. With its local population of 700,000, the regional trade area draws 12 million visitors per year. Once the center is built, some 70,000 potential outlet shoppers will drive by daily on I-95, with no other outlet malls in sight. “You’ve got one down in St. Augustine [Florida],” Carter said, “but the next one on I-95 is up in Roanoke, Virginia.” As breathing room goes, that is a distance of nearly 500 miles.