Illustration: Outlet malls

Cheap trumps chic.

That’s the trend in the tough retail climate, as no-frill outlet and off-price stores mushroom cross-country. The Great Recession, excess product, price transparency made possible through the Internet, inconsistent presentations at regular-price stores, lower real estate costs and the thrill of finding a bargain have driven the outlet sector’s newest boom.

This story first appeared in the December 16, 2015 issue of WWD. Subscribe Today.

“In good times, people love a bargain. In tough times, they need a bargain,” said Steven B. Tanger, president and chief executive officer of Tanger Factory Outlet Centers Inc. “We had a record year this year and we’re anticipating another record year next. Sales of our tenants continue to grow. We expect occupancy at the end of 2015 to be between 97 and 98 percent, about the same as the year before.”

“Outlets are the darlings of retail now,” said Faith Hope Consolo, chairman of The Retail Group of Douglas Elliman Real Estate.
“Woodbury Common has the most sophisticated retail mix, from aspirational right up to luxury,” Consolo said, referring to the mega outlet center in Central Valley, N.Y., owned by Simon Property Group. “It’s a big tourist attraction. They come together in buses. The traffic is ridiculous. If you go to Manchester, Vermont, the Giorgio Armani outlet looks like the Fifth Avenue store. They’re serving you coffee or Champagne. The clothes are beautifully displayed.”

“Remember, we’ve been through the most serious recession or depression since the Great Depression of 1929. It’s created tremendous pressure on the middle class,” said Arnold Aronson, marketing director of retail strategies for Kurt Salmon. Consumers gravitated to the T.J. Maxx’s of the world, and continue to shop there, even as the economy improves. “Shoppers can attain apparel of comparable functionality, and in many cases, comparable quality, at lower prices.”

Tanger said there’s 75 million square feet of outlet space in the U.S., compared to one billion square feet of mall space — meaning plenty of room for the outlet sector to grow. “We opened four centers this year, in Grand Rapids, [Mich.]; Savannah, [Ga.], Foxwoods in Connecticut and Memphis,” Tanger said. “None of those trading areas had an outlet center before. In 2016, we are opening outlet centers in Daytona Beach, Fla., and Columbus, Ohio. They will be the first outlet centers in those trading areas.”

According to the International Council of Shopping Centers, 45 outlet centers in the U.S. are planned over the next three years. While many of those won’t be built in that time frame or never at all, the sector’s growth is well ahead of mall, lifestyle, strip and powercenter development.

Retailers and developers are getting daring in choosing less-remote locations. For example, waterfront properties are being eyed on either side of the Hudson River in the New York City area, and Saks Off 5th is opening on 57th Street, eight blocks from the Saks flagship, and in lower Manhattan close to its upcoming store in Brookfield Place.

“We are shifting into a hospitality culture,” to drive further tourist traffic, said Scott Malkin, founder and chairman of the U.K.-based Value Retail, which operates nine luxury outlet centers in Europe and one in China and is seeing sales up double-digits to $2 billion this year. He projects 35 million visitors this year, compared to 32 million last year. “We know from credit card receipts that shopping is a primary focus for long-haul travelers.”

High-profile off-pricers Daffy’s, Loehmann’s and Syms are all gone now. Yet aggressive growth by T.J. Maxx, Saks Off 5th, Nordstrom Rack, Ross Stores, Burlington Coat Factory, Bloomingdale’s and The Outlet Store have more than filled the void. In addition, Loehmann’s and Filene’s Basement are each making a comeback with an online presence and Saks Off 5th is rolling out in Canada. Hudson’s Bay Co., which has 91 Off 5th units in the U.S., last month opened its first Find @ Lord & Taylor off-price store in Paramus, N.J., and sees up to 10 operating in 2016. Nordstrom sees Rack growing to at least 300 units by 2020, and Macy’s sees up to 50 Macy’s Backstage off-price stores over the next two years.

Some experts say off-pricers cannibalize sales and hurt the image of regular retail operations. But Jonathan Greller, president of HBC’s outlets, told WWD, “I can look at the data every day and there is almost no cannibalization.”

Bloomingdale’s ceo Tony Spring had a somewhat different take. “There probably is a point much further in the future where if outlets became a primary focus of the business, I might be concerned,” he said. “But in the case of Bloomingdale’s, the outlet business is still accretive, still in its infancy, and still in a healthy stage that complements the overall business.”

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