Shopping Centers Today

APR 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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and hardware merchandise as well as outlet goods the retailer bills as "new, one-of-a-kind, out-of-carton, discontin- ued, reconditioned, overstocked, and scratched-and-dented products." At Mills malls American Eagle Outfit- ters and Express have already converted all their full-price stores into outlets — 14 stores for American Eagle, and 15 for Ex- press. "Sales in most cases have gone up dramatically," said Gregg M. Goodman, president of The Mills: A Simon Com- pany. "The customer has responded to the thought that there is a value proposi- tion there for them." Gap has been quietly converting some of its full-price stores into outlets at both regional malls and strip cen- ters, according to retail consultant Jeff Green, who heads an eponymous firm in Phoenix. Last year, in fact, Gap relo- cated an outlet store from the Traverse City (Mich.) Outlet Center to Grand Traverse Mall, a four-anchor regional mall built in 1992. Some developers are courting this phenomenon, Green says. Other developers say they do not want to encourage the trend. New York & Company, the wear-to-work retailer for women, is among the chains experi- menting with outlet conversions of its full-price stores, according to consultant Josh Podell, who heads Podell Real Es- tate Advisors. David Ober, president of Global Out- let Management, a consultant firm, is skeptical of the trend's prospects for im- proving the lot of underperforming malls. "Retailers are trying to make the best of a difficult situation, which is that 'B' and 'C' malls are struggling to survive," he said. "To date, this whole idea of opening up a few outlet stores in a failing regional mall has not been well received by the American female consumer." Of course, many outlet chains, including Bass Shoe, Chico's, Dress Barn, Nine West and Pa- tagonia, have been opening new outlet stores in non-outlet locations for years. If a few retail chains start converting full- price stores into outlets managed by their off-price divisions, Ober asks, how will that improve the long-term prognosis for malls? "Just because this is occurring, it does not mean that, all of a sudden, that center is an outlet center or has the pos- sibility of becoming one," he said. On the other hand, if the only other option is to take a huge write-off by clos- ing that underperforming store, then turning it into an outlet is certainly pref- erable for both the chain and its land- lord, says James McCandless, managing director of Streetsense, a Washington, D.C.–based multidisciplinary design and strategy firm. "Vacancy is the enemy of vibrancy," he said. "It feeds more va- cancy. Foot traffic is good for everyone." Moreover, today's highly efficient, omni- channel-focused retail chains have other compelling reasons to consider convert- ing some of their stores to outlets, says McCandless. "They're looking at the situation and seeing that they expanded and now probably have too many full-line stores," he said. "Are they going to shut- ter them, or is there a way to create a new opportunity? This is a natural next step." In January ICSC's Value Retail News published the results of a national con- sumer study in which research firm August Partners surveyed nearly 1,800 respondents about their shopping habits. Among the findings was that 91 percent of the respondents said they were always "looking for a deal" when shopping. In- deed, 27 percent said emphatically they "almost never shop full price," and 23 percent said they "seldom" do so. Nearly 40 percent of respondents, however, said they shopped less fre- quently at outlet malls, because they were too far away, and 55 percent said they would do more outlet shopping if the outlets were closer. As McCandless sees it, lagging malls are often in prime locations near densely populated areas. Thus if the market has shifted around a property, ramping up the number of outlet stores can expand its trade area as bargain hunt- ers start heading to the mall rather than to far-flung rural locales. "There is an op- portunity here to locate your factory store closer to that population," McCandless said. "The mall will have fewer full-line stores, but people who want full-price shopping can make destination trips to the 'A' malls or urban downtown streets." And yet in the same survey, slightly more than 50 percent of the respondents cited the "number and variety of stores" at outlet malls as the top reason they patron- ized these centers. Can 'B' and 'C' malls with just a few factory outlet stores truly compete with sprawling, outlet-only prop- erties? Again, Ober is skeptical. "Con- sumers know what an outlet center is," he said, "and they know what a regional mall is." Goodman, whose Mills proper- ties blend full-price, outlet and other retail formats, takes a neutral position. "Cus- tomers are smart," he said. "Yes, they are value-driven, but they are also constantly re-evaluating where they are shopping, and they are potentially becoming more and more fickle. I don't know that whole- sale conversion [of full-price stores to out- lets] is an all-encompassing panacea for all product types in the industry." Some chains are already so value-focused, Good- man says, that they would gain little by slapping "factory outlet" onto their stores. Still, a clear evolution in retail is the desire among many chains to be able 64 S C T / A p r i l 2 0 1 5 If the only other option is to take a huge write-off by closing that underperforming store, then turning it into an outlet is certainly preferable.

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