At Norfolk Premium Outlets, a Simon Property Group outlet mall that opened last month in Norfolk, Virginia, shoppers arrive bright and early to navigate the 332,000-square-foot complex that houses 85 stores. The property includes a man-made lake, several gazebos, a walking trail and an indoor courtyard with oversized chess games.
While traditional malls have started shuttering around the U.S., leaving carcasses of empty storefronts in their wake, outlet malls are holding their ground even as they fall prey to the same challenges wrought by e-commerce. The Norfolk mall is one of several that Simon has opened in the last year, including an international push with recent launches in Malaysia and Canada.
“The premium outlets aim to provide three things: value, fashion and experience. If we can find markets where we can check those boxes, then we’re very interested,” said Les Morris, director of public relations at Simon Property Group.
Outlet malls are certainly not impervious to the wrath of the retail apocalypse, but there’s hope in the persistent demand for discounted luxury items. As Tanger Factory Outlet Centers CEO Steve Tanger has famously said in the past: “In good times, people love a bargain, in bad times folks need a bargain.” The question will be if consumers ultimately decide to ditch outlet mall excursions in favor of finding these bargains online.
The ‘treasure hunt’ experience
Outlet malls first rose to prominence in the 1980s, when major malls like the Orlando Premium Outlets in Florida and Tanger Outlet Centers Rehoboth in Delaware opened their doors. According to the International Council of Shopping Centers, a majority of outlet growth took place between 1986 and 1995, when an average of 29 centers opened each year, led by Simon and Tanger, who collectively own a vast majority of U.S. outlets.
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In the ICSC’s last report on outlet malls, published in 2015, the organization found that average sales at the top performing malls were $998.90 per shopper, and total sales across all outlets in that year surpassed $45 billion.
However, outlets are also starting to feel the strain of shoppers moving online. Tanger has slowed down its growth rate — it’s been reported that the company has no plans for store openings in 2018, for the first time in several years — and its stock prices have been declining for several quarters, signaling struggle.
Despite the halt on expansion, Ken Morris, principal at Boston Retail Partners, said this is neither cause for concern nor indication that Tanger is in dire straights. “[Discount shopping is a] phenomenon that hasn’t gone away as the economy has improved — people are still shopping that way. As evidenced by the success of stores like T.J. Maxx, it’s grown tremendously. It’s the treasure hunt idea. It’s the idea of finding a bargain. It doesn’t matter your economic status, and outlet malls play directly into that.”
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Part of this experience is buoyed by the many amenities and perks outlet malls provide in an attempt to lure customers. In many ways, outlets are taking a cue from regular malls that are experimenting with new anchors that go beyond the usual department stores. For example, some malls have found success by opening premium grocery stores like Whole Foods or movie theaters.
“Having the right anchors is huge, ” Morris said. “People will always come out for things like entertainment. You get people to come out if you have the right sort of mix. When you think of malls that are vibrant, it’s because of that mix of entertainment, night clubs and restaurants.”
The tricky relationship between brands and outlets
Though fashion retailers, particularly in the luxury realm, are often averse to extensive discounting for fear of brand dilution, Harvard professor Donald Ngwe said having an outlet presence remains advantageous for retailers.
In a recent study, Ngwe set out to uncover why brands succeed in selling through products to the mass market at outlets without experiencing dips in revenue from their traditional stores. The answer, he said, is largely influenced by the often inconvenient location of outlet malls outside of city centers. His research found affluent shoppers will more often than not choose convenience over bargain shopping, and as a result would rather pay full price than travel an hour to the nearest outlet mall.
“Outlet store releases brands from having to cater to value hunters in their flagship stores and main stores,” he said.
Another way outlet malls help brands is by providing them with a method to dispose of less desirable product while still profiting, in order to make room for new full-price items and increase product replenishment, he said.
“The twist is a lot of people say having an outlet tarnishes the image of the brand, but I found that because malls use outlets partly to expose products that failed, having an outlet allows brands to actually show more products in their regular stores and more new arrivals,” he said. “They have the benefit of the outlet store as disposal and still recoup loss of failed products.”
Brands have also come under fire in recent years for lack of disclosure and transparency when it comes to tagging. In addition to surplus inventory, some brands produce separate collections exclusively for outlets, as part of an ongoing effort to to avoid brand degradation. The problem is that in certain cases, retailers have passed the products off as original. In response, the Federal Trade Commission began including outlet malls as a topic in the consumer education section of its website, featuring blog posts on its website warning shoppers of these tricks and providing tactics to ensure authenticity.
However, Ngwe said outlet malls are significantly less threatened by FTC-related issues than they are by the looming power of e-commerce. Ultimately he foresees that e-commerce sites that bargain on luxury goods will reign supreme, and the days of driving an hour upstate to spend a day at the outlet mall may be foregone.
“One of the biggest boons of online shopping is exposure to variety,” Ngwe said. “Outlets have a lot of variety, but you’re restricted in many ways. Shoppers are restricted to the brands in the mall, and within the stores, they have a relatively small amount of options. There’s no expectation that they have all the sizes and colors, and product variety.”
Ngwe said he anticipates outlets will meet a similar fate to their traditional mall counterparts unless they find a way to set themselves apart. “It’s really difficult to see the outlet industry surviving in its current state.”
