Gone are the days of shelves stacked with two year old stock; factory outlets are becoming a channel in their own right

When the factory outlet concept was exported from the US in the early nineties, it was viewed by many as an ideal mechanism for selling surplus stock that would have otherwise festered in a congested stockroom and wheeled out during sales periods. However, this looks set to change. The factory outlet is increasingly being seen as a sales channel in its own right, and provisions are being made to ensure that outlet stores have a constant flow of quality stock.

Outlet stores have never been so popular. While footfall and sales have suffered in some shopping malls and on the high street, factory outlet schemes are going from strength to strength. Henrik Madsen, managing director for the UK and Northern Europe at McArthurGlen, says it is a no-brainer for consumers to choose to visit outlets in the current climate. “At the height of the downturn, every customer is looking to try and save a bit of money. However, customers don’t want to trade down or downgrade and want to keep buying the brands they used to buy.”

Franco Muccini, centre manager of the new Gloucester Quays outlet and mixed-use scheme, says the current climate is really putting the outlet concept under the microscope. “When the Americans bought the true concept over, they claimed it was recession-proof. But no one has been able to prove it because we never had a recession to actually test the market.”

Certainly, the market seems to be holding up well compared to the high street or full price shopping centres. In the UK, takings across the Realm portfolio have increased up to 8 per cent and in Spain, where the credit crunch has bitten even harder, Resolution property has reported a 20 per cent increase in sales at its outlet schemes.

Evolution

Opening retail premises of any description in this market is a bold move, but Gloucester Quays opened its doors last month with a baying crowd eager to pick up a bargain and catch a glimpse of Gok Wan as he officially welcomed customers to the centre. In the first five days, over 100,000 people visited the scheme, which is currently 76 per cent let. “In an ideal world, I don’t think anyone would have opened a shopping centre, either full price or an outlet, in the current climate,” Muccini admits. “But it just turns out that’s the way it happened for us and I don’t think it could have gone any better, even in a different climate.”

Since the early incarnations of outlet centres in the UK, the very concept has changed and developed. “It’s very important to look at is how the designer outlet proposition has evolved over the past five to six years,” agrees Madsen. “When McArthurGlen started, this concept was really new to the UK and Europe. Now it’s a little more mature and we are getting a lot smarter,” he explains. “When we build a centre we look at the catchment and we look at the brand mix to make sure the brands we put in the centre match the local catchment who want to shop there, or that we have got sufficient tourists who will visit the centre.”

It is not just consumers who have embraced the outlet concept – retailers are becoming more creative with the way in which benefits of the channel are leveraged. “Our brand partners are now considering the outlet business as another channel – they’ve got retail, they’ve got wholesale, they’ve got licensing, they’ve got airports and now there are outlets as well,” explains Madsen. However, due to the very premise of an outlet – initially conceived to clear overstocks – tenants at factory outlet schemes may find themselves with more stock on their hands than ever before. “We are in market conditions where full price operations are not being able to evacuate all of the stock that they do have in their full price stores. They probably have more stock in their arms than they do have in times of boom,” confirms Michel Nangia, senior manager at Resolution Property.

Madsen says he thinks “there will be a natural adjustment” as “all the retailers and manufacturers try to adjust their manufacturing level to the current market demand”. This said, Gloucester Quays’ Muccini, a veteran of the outlet sector himself, says that retailers need to ensure that their outlet stores are suitably catered for. “If retailers see that there is nothing coming through for the outlets, bearing in mind they pay rent for the outlets, they will up the amount they are buying to ensure the outlets are also accommodated.”

Outmoded opinions

Historically, there have been common misconceptions about the quality and timeliness of the products sold at factory outlet. However, the very idea that the goods sold at these schemes are dated or unfashionable is outmoded, says Muccini. “There may have been [a stigma] ten years ago because often it would have been four or three year old product, but in most cases now it is six week old.” Colin Brooks, UK managing director of Realm, is also cynical of “this ‘last season’s’ stock issue” – matching the right consumer to the right product is more important, he says. “In some outlet centres across the UK we’re trading in locations where I think what is last season, the season before and this season is probably irrelevant – people are shopping for value, they’re shopping for clothing for the kids and for the family as I think 90 per cent of the shopping population in this country probably do.”

This is also where a strong marketing strategy comes into play, says Brooks. Whereas it isn’t uncommon for full price shopping centres to cut their marketing budget during recessions, factory outlets are likely to up theirs, in order to take advantage of a new breed of bargain-hunting consumer. Andrew Duncan, head of marketing and communications at Realm, agrees that a strong strategy is vital to succeeding in the downturn. “The fact is, if you continue committing to advertising and to marketing you come out of a recession quicker.”

Another crucial point of difference between full price shopping centres and factory outlet schemes is the management style, largely due to terms at the heart of the lease. The proportion of the rent which is turnover based incentivises centre management to do their upmost to help get the tills ringing. This means all facets of centre management are on the top of the to-do list from marketing to landscaping and tending to the surrounding shopping environment. “It has to be much more than an outlet today; this is about the shopping experience,” explains Madsen. “Of course we want everybody to shop but we do make a lot of effort to make sure that the customer is entertained when they come to the premises.”

The approach has to reflect the assets, says Nangia. “To look at it from an investor point of view, an investor buying into a shopping centre is actually buying an asset. When an investor purchases or acquires a factory outlet he’s actually buying into a business.” Conversely, Brooks believes the style of management is equally applicable to regular malls. “The nature of the lease allows us to be much more hands on in dealing with tenant change. It allows us much more flexibility in dealing with tenants in administration and subsequently, it allows us to be much more aggressive in re leasing empty shops,” begins Brooks. “It’s all about rental returns and capital value, whether you run an outlet centre or a shopping centre, it’s just that the way you get there is slightly different with an outlet centre. Shopping centres should be managed as businesses as well and I think the good shopping centres in this country recognise that.”

Location, location, location

One of the primary considerations in the development of an outlet centre is location and the proposed scheme’s proximity to competing shopping centres, whether full price or discounted. It is widely accepted that the catchment area of a factory outlet scheme depends on the size and quality of the scheme. Whereas most Realm schemes rely heavily on local communities within a 15-20 minute drive, a larger mixed-use scheme such as the 180,000-sq ft Gloucester Quays will have substantially more pulling power. “I think all outlets will always try to target a 90 minute catchment but obviously there’s going to be a dominance from your doorstep,” says centre manager Muccini.

Contrary to popular opinion, the opening of the new Gloucester complex, which upon completion will house two hotels, 12 restaurants and bars and 200,000 sq ft of retail space, has not had a detrimental impact on trade in the city centre. “In the beginning outlets tend to impact the city centre. In the mid-term that goes away and they see a positive affect from the travelling customer. But the city centre has straight away reported uptrading from us,” reports Muccini.

Nangia says retailers are right to be cautious of positioning cut price factory outlet schemes too close to full price centres in order to prevent cannibalisation – a retailer in Resolution’s Park Avenue is also in a full price scheme opposite, which is being vastly outperformed by its cut-price counterpart. Yet, Madsen remains sceptical. “I don’t think this issue of competition between full price and an outlet is as big an issue as everybody makes it,” he dismisses. “Obviously I’m the one selling at a discount so it’s easier for me.”

Source: www.shopping-centre.co.uk, 29 June, 2009