Bloomingdale’s is pushing forward to launch outlets, according to sources, becoming a Johnny-come-lately into a potentially very lucrative channel of distribution for the department store chain.

This story first appeared in the January 13, 2010 issue of WWD. Subscribe Today.

One real estate executive said Bloomingdale’s could be close to a deal with Simon Property Group Inc. to open several outlets around the country, taking a dramatic dive into the Simon-owned Mills properties, which typically comprise over 1 million square feet of gross leasable area and include traditional mall, outlet center and big box retailers and entertainment uses.

In these sprawling centers, Simon has reclaimed some space from departing tenants, paving the way for Bloomingdale’s outlets, likely to be in the 30,000- to 40,000-square-foot range. Among the 16 Mills centers are Sawgrass Mills in Sunrise, Fla., Arizona Mills in Tempe, Ariz., and Potomac Mills in Woodbridge, Va.

Bloomingdale’s declined to comment Tuesday on the strategy.

Bloomingdale’s could also put up outlets in Prime Outlets, also owned by Simon, since the December acquisition. Simon is likely to remerchandise some of the Prime portfolio, which consists of 22 outlet centers in major markets such as Washington, Baltimore and San Antonio, as well as tourist destinations, including Orlando, Fla., and Williamsburg, Va.

Bloomingdale’s currently does not operate any outlets for apparel, although it does have a furniture and carpet clearance center in Westchester, N.Y. And it’s not unprecedented for the store to pounce on real estate opportunities when they arise. In November 1996, Bloomingdale’s opened four stores in California in eight days. In March 1997, two additional units opened in the state.

Bloomingdale’s move underscores the lure of outlets as consumers trade down to cope with the weak economy. Next to the Internet, the outlet channel is the best performing sector in retail, attracting new players and encouraging others to bolster their outlet presence, in terms of square footage and elevating the image. Lower occupancy costs also make outlets desirable expansion strategies for retailers and brands.

“The outlet business has grown and developed profitably over the last 10 to 15 years for retailers ranging from luxury to mainstream,” said Arnold Aronson, managing director of retail strategies, Kurt Salmon Associates. “It’s a permanent part of the retail universe, but after some leveling off in the middle of the last decade, the recession has reignited this channel.”

With Bloomingdale’s in the game, the race for space will heat up considering there’s been very little development of new outlet centers.

Sales in U.S. outlet malls were $301 a square foot in 2008, little changed from $305 in 2007, and occupancy was at 95 percent, according to the St. Petersburg Times. Through the first half of 2009, sales were down only about 1 percent, and average rents stood at $23 a square foot, though a premium outlet such as Chelsea Premium Outlets, including Woodbury Common in Central Valley, N.Y., can be as high as $110 to $130. There are 331 outlet centers as of the end of 2009, occupying about 79,134,000 square feet, according to the International Council of Shopping Centers.

Lord & Taylor is also entering the outlet arena with a 15,000-square-foot unit opening in mid-February at the Jersey Gardens outlet center in Elizabeth, N.J., located about 18 miles west of Manhattan. If the unit meets its objectives, L&T will open more, according to Jeffrey Sherman, chief executive officer of Hudson’s Bay Trading Co., parent of L&T. “We are looking at locations,” added Brendan Hoffman, president and ceo of Lord & Taylor.

Brooks Brothers operates 92 outlets in the U.S. and another 15 around the world. “Outlets was a better business last year compared to our regular price stores. They didn’t drop as much” in sales, said Claudio Del Vecchio, chairman and ceo.

Del Vecchio noted there are few new opportunities to open outlets due to the lack of projects under development.

Retailers have to be careful that the outlets don’t cannibalize sales from their regular-priced stores or tarnish the image of the brand. “The outlets do not cannibalize as much as we were afraid of a few years ago,” Del Vecchio said. “There is a 15 percent overlap of customers.” He described the design of the outlets as simple compared with the regular price stores, but still very much in the character of the brand. “It’s clearly still a Brooks Brothers store.”

On the higher end, Neiman Marcus Inc. and Saks Inc. are getting aggressive with outlets. Saks Off 5th in April 2008 introduced a 26,400-square-foot prototype with a cleaner, upscale look in Orlando’s Prime Outlets International Center.

Last year, Neiman’s acknowledged 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,” said chairman and ceo Burt Tansky.

Nordstrom Rack is soon opening its first Manhattan unit, on Union Square.

In terms of brands, outlet players run the gamut, from J. Crew, Coach, Victoria’s Secret, Nike, American Apparel, American Eagle, Gap and Banana Republic to Ralph Lauren, Barneys, Gucci, Frette, Bottega Veneta and Giorgio Armani.


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