Swayed by changing consumer patterns, more retailers eye outlets
Retailers’ view of outlet centers has also shifted in recent years, Credit Suisse analysts note. In the past, retailers used outlet stores primarily for getting rid of excess inventory. Today, they have “become more of a pure-play specialty channel that has many of the best brands, but with low development, rent and maintenance costs.”
Another selling point—there is much more room for potential expansion in the outlet center sector. While there are approximately 1,400 regional malls in the U.S., there are only about 150 upscale outlet centers, according to Credit Suisse’s estimates.
The Credit Suisse analysts see this channel as offering great growth potential for certain retailers, including apparel seller J. Crew, its children’s spin-off concept Crewcuts and athletic apparel chain lululemon. The most successful outlet tenants combine limited exposure at regional malls with strong brand awareness among consumers, the report notes.
That might become a potential obstacle for New York & Company, according to Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York City-based retail consulting and investment banking firm. While some mid-price private label brands, including the Gap and Ann Taylor, have succeeded in the outlet format, those brands tend to be household names. Whether the New York & Co. brand will have the same pull with consumers remains to be seen, Davidowitz notes.
“An outlet center is different from the mall. A lot of the people who go to outlets go there on buses because the attraction is to get these [big-name] brands at 30, 40 percent off,” he says. “But New York & Co. is a budget apparel chain. So maybe it will work, maybe sales will be a little better than what they do normally, but I give this a 50/50 shot.”
Another predictor of success is whether the retailer sells unique merchandise through its outlet stores, or the same products found at its mall stores, says Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based consulting firm. He brings up Gap Inc. as an example of outlets done right—“it’s almost like another brand, not just a Gap store.” New York & Company plans to eventually produce merchandise specific to its outlet format.
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