Charlotte Premium Outlets, the citys first new mall in almost a decade, is set to open this week a sign of a changing retail landscape that favors bargain-hunting and companies striving to boost their sales by building outlets closer than ever to major cities.
Outlet malls used to be relegated to beaches and tourist traps, selling damaged or unsold goods from last season. Now, most goods sold in outlet stores are manufactured specifically for those stores, allowing retailers to make a greater profit. And companies once fearful of diluting their upscale brands and cannibalizing sales from full-price stores now view outlets as a useful way to expand their reach in a slow-growth economy.
Theres not a lot of new construction being built in traditional malls, but retailers, especially if theyre public, have pressure to expand, said Bill Stinneford, senior vice president at consumer analytics company Buxton. Retailers are trying to find multiple ways to get more dollars out of existing customers and get new ones.
When the Steele Creek mall opens Thursday, it will also represent a 50-50 partnership between the two most dominant companies in the outlet industry: Greensboro-based Tanger Factory Outlet Centers and Simon Property Group, owner of SouthPark and Concord Mills. The companies control the majority of outlet malls in the United States, and Tanger executives have said they expect to see up to 10 outlet malls open a year for the foreseeable future.
While only one traditional regional mall has opened in the United States since 2006, outlets have been opening at a breakneck pace: 11 opened in 2013 and 11 more are set to open this year, according to Value Retail News.
Demand remains white-hot for outlet center space, wrote Garrick Brown, director of research at commercial real estate firm Cassidy Turley, in the firms 2014 retail forecast.
To understand why outlet malls are having a moment, it helps to look at the recent past. The 2008 recession left many consumers battered by job losses or wage cuts, analysts say, but unwilling to totally give up the brands and style they were used to wearing. Outlets offered a solution Keep wearing J. Crew, just pay less! and stepped into the breach.
I think in this last downturn, a lot of people really got the fear of the end of the world put in them, and thought they were going to have to stop spending money, said Linda Humphers, editor-in-chief of Value Retail News. People who are used to buying nice brands dont want to suddenly stop.
That fits with a slogan that Steven Tanger, CEO of the eponymous outlet mall company, and his executives often trot out for investors and analysts: In good times, people like a bargain, and in tough times, people need a bargain.
Outlet malls are also cheaper for retailers to enter. Theyre often smaller than traditional malls Charlotte Premium Outlets is 400,000 square feet, versus 1.6 million at SouthPark and cheaper to build because of smaller size and simpler design. That means lower rents.
And retailers have found that outlets dont seem to take sales from their full-line stores. Instead, they often appeal to customers who might otherwise not shop at the brand at all, such as young professionals who dont have the disposable income for a full-blown Saks 5th Avenue shopping spree.
Popular price point
Off-price ... is growing much faster than the rest of the retail industry, Saks owner, Hudson Bay Co., wrote in its annual report to investors. The company also noted theres very little overlap between customers who shop its full-price and outlet stores.
Because theres so little overlap, Hudson Bay told investors its confident it can open more Saks Fifth Avenue Off 5th stores without cannibalizing our full-line business or harming the Saks Fifth Avenue brand.
Charlotte Premium Outlets is anchored by a Saks 5th Avenue Off 5th store. The company operates 75 Off 5th stores in the United States almost twice as many as its 39 full-price Saks 5th Avenue stores. And sales jumped 15 percent at Off 5th last quarter, compared with less than 3 percent at Saks 5th Avenue.
With retailers realizing that outlet stores dont take sales from their full-line stores, theyre willing to sign on for outlet developments closer to major cities and existing malls than they were before.
And while outlets once used to be a bastion of last seasons clothes or damaged goods, most companies now make different clothes specifically for their outlet stores. Humphers said about three quarters of retailers do this, and the percentage of made-for-outlet clothes varies by retailer from 0 to 100 percent. By manufacturing less expensive clothes for their outlet stores, retailers can sell them at a lower price and keep their profit margin.
Sharon Campbell, general manager for Charlotte Premium Outlets, said the new mall shows that the economy is improving, but the recessions influence remains strong.
What its showing is that were recovering and were ready to spend money again, she said. But people still want to be conscientious of how they spend their dollars.
Portillo: 704-358-5041; Twitter: @ESPortillo
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