How suburban sprawl and changes in discount retail have changed the outlet mall
When Mark Silvestri began developing outlet malls almost 30 years ago, it was a completely different business than it is today. Developers would build “factory outlets” for manufacturers 20 or 30 miles from city centers or in tourism destinations to move excess inventory and not compete with department stores, their main sales channel.
Silvestri, president of development at Simon Property Group, has since watched outlet centers inch closer and closer to where people live. Simon’s latest opened about 14 miles from downtown Tulsa, Oklahoma, in August. That movement is the result of several simultaneous trends. Chief among them, he said, was that retailers realized outlet stores were an important channel that could be improved by being in better locations.
“I think the brands have recognized that the outlets are a great alternative to [e-commerce] that fits in well with their full-price strategy, whether they’re selling to a department store or they have their own doors, either in cities on a high street or in a mall,” Silvestri told Modern Retail. “This is just one other way to reach the consumer.”
Meanwhile, remote work has enabled some to live in so-called vacation spots like Daytona Beach, Florida or Hilton Head, South Carolina, which have Tanger outlet centers. “Work from home has given them the opportunity to live outside of the cities, or not-so-proximate to major cities, where the cost of living is considerably better,” Tanger president and CEO Stephen Yalof said in an interview. “That whole dynamic shift has changed the way our shopping centers shop.” Once far-flung communities far from cities have also seen rapid growth, encouraging developers to build restaurants and other experiences nearby.
Yalof has said it’s more economical to buy existing outlet malls than to build new ones. But Tanger and Simon have built a handful of new outlet centers over the last few years in addition to expanding their current properties.
Changing shopping patterns
A couple of decades ago, department stores wouldn’t allow outlet centers built so close, Yalof recalled. ”It was a big problem, and the outlet shopping center developers knew it and knew that they wouldn’t be able to fill their centers with tenants unless they built them a certain distance away.”
But retailers have changed their attitudes on outlets as off-price department stores have opened up closer to full-price venues, Yalof said. He cited the example of Nordstrom and Saks Fifth Avenue placing Nordstrom Rack and Saks Off 5th stores closer to their traditional department stores. Department stores have also lost a lot of power and Macy’s and Nordstrom have pointed to their off-price businesses as growth drivers. Last year, Nordstrom CEO Erik Nordstrom pointed to Nordstrom Rack as “the largest source of new customers” for the company.
Like other off-price retailers, Silvestri describes the modern outlet shopping experience as a “treasure hunt.” People will come in looking for a good deal, not one particular product, whereas they’re more likely to go to a traditional mall to find a specific item.
“The retailers have gotten more focused on what those stores are offering,” he said. “It’s a combination of goods: Some of it’s last season, some of it’s select offerings from this season. They all handle it a little bit differently, but the one common denominator is there’s value.”
Outlets get experiential
As communities around them have become home to larger populations, that has opened up more options for leasing and development in and around the outlet centers to attract nearby residents and not just a weekend crowd of people driving in from afar. That has opened up the option to add things like sit-down restaurants, sports bars and fast-casual restaurants.
Tanger’s new outlet center in Nashville includes TailGate Brewery, a sit-down dining option. “These are the kind of things that are starting to populate our centers,” said Yalof, the Tanger CEO. “They certainly draw to a different customer who may not be coming for the shopping, but ultimately will stay for the shopping after they’ve enjoyed a meal at one of those places.”
The ability to attract different types of development has also made long-vacant peripheral land next to shopping centers more valuable, Yalof said. Developers have built other restaurants and even housing on land around its outlet center near Nashville.
“Now that we’ve got bigger permanent populations around a lot of those centers that used to be so far away from everything, today these folks are looking for something to do,” Yalof said. “They’re looking for better places to eat, they’re looking for better entertainment. And, because of that, we’ve been able to facilitate that in our centers.”
Construction constraints have limited the amount of space on the market. Outlet malls are no exception, often almost completely leased up. Simon’s new outlet mall in Tulsa is already fully occupied two months after opening. Simon doesn’t report outlet occupancy separately from traditional malls in its filings, but its U.S. properties including outlets and traditional malls were just over 95% leased as of June. Occupancy for competitor Tanger’s outlets was just over 96% leased on average, per its reports.
“The outlets have just thrived,” Silvestri said. “And we’ve made sure that we’ve been relatively consistent and disciplined in those offerings to make sure that there’s a real value proposition for the customer.”