By  on December 18, 2009

Lord & Taylor is entering the outlet business, a move that reflects mounting interest in the sector among consumers, retailers and developers.

Lord & Taylor executives said Thursday the department store chain will open its first outlet, a 15,000-square-foot unit, in mid-February at the Jersey Gardens outlet center in Elizabeth, N.J., located about 18 miles west of Manhattan. The unit, which will be in New Jersey’s largest outlet mall, is considered a test that could lead to additional locations, officials said.

The outlet sector, along with the Internet, is one of the few bright spots in the depressed retail landscape. It is attracting more and more consumers in what many retailers call a “secular” shift to trading down amid economic upheaval. Lower occupancy costs also make outlets desirable expansion strategies for retailers and brands.

Macy’s might be the next department store player to enter the outlet arena. Officials have acknowledged that the company is exploring the possibility, but have yet to announce a site.

J.C. Penney Co. Inc., however, has long operated outlets, which now number 19. They are primarily geared to clear catalogue and Internet inventories.

Last week, Simon Property Group Inc. put the spotlight on the sector by announcing it would buy Prime Outlets for $2.33 billion. Simon is likely to remerchandise some of the Prime portfolio, which consists of22 outlet centers in major markets such as Washington, Baltimore, and San Antonio, as well as tourist destinations, including Orlando, Fla., and Williamsburg, Va. There are also some incomplete projects that Simon could finish, posing more opportunities for outlets to expand.

On the higher end, Neiman Marcus Inc. and Saks Inc. are getting aggressive with outlets. Saks in April 2008 introduced a 26,400-square-foot prototype with a cleaner, upscale look in Orlando’s Prime Outlets International Center.

This month, Burt Tansky, Neiman Marcus’ chairman and chief executive officer, acknowledged that the company’s Last Call outlets were outperforming the regular stores, and that the fleet of 28 units is likely to grow.

“Our plan is to roll out more stores over the next four, five, six years, and have them located closer to the consumer that has an interest in that category of business….Let me assure you, we will do nothing to diminish the value of our brand and reputation in any way,” Tansky said.

Retailers have to be careful where they open outlets. If they are too close to full-price stores, they could cannibalize the business. Retailers also must be concerned that their outlets don’t cheapen the perceptions of the store brand.

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