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What's the Point of Outlet Malls in 2020?

Destination discount shopping must evolve with the changing retail landscape in order to survive.
A woman leaves Woodbury Common's Ralph Lauren store | Source: Shutterstock
By
  • Alexandra Mondalek
BoF PROFESSIONAL

As the 2010s come to a close, BoF reflects on how the past decade transformed the fashion industry — and the culture at large. Explore our insights here.

NEW YORK, United States — On a frigid November morning in midtown Manhattan, a tourist-filled minibus departed from one shopping mecca to another about an hour outside the city. Its final stop: Woodbury Common, an outlet mall where brands from Steve Madden to Prada sell merchandise at steep discounts rarely seen elsewhere.

"We figured we'd head to Woodbury to see whether the deals there are better than in the city," said Anita, a 55-year-old Australian tourist who came to New York with two friends in part to score bargains on brands like Tommy Hilfiger, Calvin Klein and Sunglass Hut. Anita said she planned to visit all three companies' outlet stores.

Anita would find herself in the thick of holiday sales, including 70 percent off Michael Kors (plus an additional 20 percent discount on handbags and leather goods) and half-off Polo Ralph Lauren. But she was also happy to leave empty-handed if the prices turned out to be better in Manhattan or online.

Savvy shoppers like Anita represent the challenge outlet malls are facing worldwide: how to lure consumers who are increasingly bombarded with year-round deals, online and off.

Outlet malls have had a good run over the last couple of decades. In the late 1990s they generated billions of dollars in sales for brands like Calvin Klein and Ralph Lauren, which found customers outside major cities were eager to buy last season’s castoffs and lower-quality products designed specifically for the channel. Some, like Woodbury Common and Silver Sands Premium Outlets in Florida, even became tourist attractions, springing up outside cities like New York and Las Vegas and catering to visitors from overseas.

During the 2009 recession, shoppers turned to outlets to buy name brands with their shrinking paychecks. Brands shovelled mountains of unsold merchandise from full-price stores onto their outlet cousins.

In short, the outlets are hard-pressed to create a reason for being.

But those days are long gone. Brands are trying — with mixed results — to control inventory and rein in discounting. Struggling retailers like Macy's, Gap and J.Crew offer near-constant discounts, and off-price stores such as Nordstrom Rack and Saks Off Fifth bring the outlet experience to city centres. Online, secondhand websites from The RealReal to Poshmark are growing fast.

To find a deal, consumers have plenty of alternatives to travelling an hour or more to a glorified strip mall. In a monthly survey by Cowen, an investment bank, the share of people who visited outlet malls in the previous 30 days has been in decline for much of the last three years, including a 12 percent drop in September compared with a year earlier (though October saw an uptick).

“The outlet stores are finding themselves trying to reconcile who they are ... in the age of the internet, which creates convenience rather than destination shopping,” said Marshal Cohen, chief retail analyst at the market research firm NPD Group. “In short, the outlets are hard-pressed to create a reason for being.”

The tourist trade is also drying up. Chinese visitors — among the biggest contingent of customers at outlets like Citadel Outlets in California — are coming to America in fewer numbers.

The average US outlet centre is about 20 years old, according to the International Council of Shopping Centers, and more of them are facing empty storefronts as some major tenants, including Forever 21 and Gymboree, file for bankruptcy. Other brands are reducing their dependence on outlets, fearing the stores will hurt their image and their bottom line.

Tapestry Inc., owner of outlet mainstays Coach, Kate Spade and Stuart Weitzman,  noted that Kate Spade sales and profits are down in part because of lacklustre demand for outdated products in outlet stores. Emmanuel Chirico, CEO at PVH, parent company to Calvin Klein and Tommy Hilfiger, said the company's outlet channel performance was particularly weak in the first quarter of 2019.

Still, outlet operators haven’t given up on the format. Few have shut down, even as dozens of conventional shopping malls close their doors. Developers are renovating and even expanding outlet malls, particularly those that sell luxury brands that rarely offer discounts in their main stores.

Last month, the owners of Bicester Village, the premium outlet mecca that is the UK's second-most frequented destination for Chinese tourists after Buckingham Palace, told BoF it would bring its retail operation stateside in the next year. Simon Property Group's Woodbury Common — home to rare outlets for brands like Balenciaga and Celine — is planning an expansion. And outlet centres are flourishing in Asia, catering to the growing middle class in countries like China and Malaysia.

Others are looking to take the model digital. Simon Property Group, the largest US mall operator, in October paid $280 million for a 50 percent stake in the owner of online flash sale site Rue La La and discount e-commerce platform Gilt.

A New Plan of Action

The new outlet mall model looks a lot like the strategy being deployed by many full-price shopping centres: Offer unique products, replace empty storefronts with experience-driven attractions and restaurants, and cater to the local market.

First, outlets need compelling merchandise. Ralph Lauren said in November it saw improved sales at its outlets after increasing marketing, refreshing stores and improving selection in under-utilised categories such as outerwear.

“Apparel has faced lots of competition from online, Amazon and others. Consumers just don’t want to buy outlet merchandise anymore when you can get comparable merchandise from other stores, online and mass merchants, more easily,” Forrester analyst Sucharita Kodali tells BoF.

It's not so much sales per square foot as it is about measuring your customer journey.

Just as many full-priced retailers were late to e-commerce, outlet brand’s digital presence has lagged, as executives worried that bringing outlet online would deter shoppers from visiting the malls themselves.

Some brands are reversing their stance on the subject. Under Armour has an outlet section on its website, bucking the idea that outlet shopping needs to be physically and digitally separate from a brand's full-price line lest the outlet line cut into the full-priced line's sales. Gap has a website dedicated to its Gap Factory and Banana Republic Factory stores, as does Saks Off Fifth, Saks Fifth Avenue's outlet offshoot.

Customised Amenities 

At Woodbury Common, the centre’s newly renovated Market Hall food court — which attracted lines particularly at Pret a Manger and Kung Pao Wok — was packed with shoppers, and the nearby standalone Shake Shack restaurant proved busier than many of the clothing brand stores themselves.

The International Council of Shopping Centers, in its State of the Outlet Industry report published in May, noted that other amenities that will attract the modern shopper to outlet malls across North America would also include play areas for children, Wi-Fi availability, hotels, spas, and other attractions (Indeed, a bowling alley and arcade centre at Great Lakes Crossing in the metro-Detroit area, has popped up alongside an AMC movie theatre and aquarium to convince neighbouring suburban families it’s worth the trip.)

Placer.ai, which tracks retail foot traffic, found traffic at the outlet mall has remained steady, indicating the strategy of finding new types of tenants as former anchors close is working.

The analytics firm found Woodbury Common sees the most shoppers who earn more than $150,000, making it an ideal outlet centre for premium and luxury brands like Gucci and Dior. Silver Sands Premium Outlets in Florida, meanwhile, caters to an audience that earns about half of the Woodbury Common shopper, and mainly offers accessible brands.

North Carolina’s Asheville Outlets has a disproportionate number of home goods stores — including Le Creuset, Kirkland’s, Restoration Hardware Outlet and West Elm Outlet — to “reflect the region’s history as a producer of furniture and decorative arts,” according to developer New England Development. This also complements the area’s shopping behaviour, which spends $1 billion annually on home furnishings, the ICSC found.

Customising the outlet mall to the local market may not translate directly to higher sales. That may not be the point; outlet malls likely won’t drive growth as they once did, but most brands aren’t in a position to walk away from off-price. Finding a way to cater to that market without hurting a brand’s image is key.

“It’s not so much sales per square foot as it is about measuring your customer journey,” says retail consultant and trend analyst Charcy Evers. “The customer journey — telling your brand’s story and experiencing the brand —is at every touchpoint, no matter where you are.”

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