OCTOBER 2008: FEATURE, COMMERCIAL REAL ESTATE
OUTLETS UPSWING
Despite their far-flung locations, outlet malls are thriving in
a down retail market.
BY JASON SHUFFLER
Shoppers stroll through the open-air walkways at the
Woodburn Company Stores, one of the best-performing
outlets in the state.
PHOTO BY DENISE FARWELL
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It’s nearly 10 a.m. on a late-summer workday and the vast
parking lots of the outlet mall in Woodburn are filling up
quickly. The line of shoppers and employees at the mall’s
coffee shop continues to grow until, finally, the array of
stores open their doors and people file in.
By midday the hum of shopping activity is getting louder, the
traffic of people thicker. Kids play on a fort made just
for them, while in the food area seniors eat burritos and women
push strollers loaded with bags from OshKosh B’Gosh.
The Woodburn Company Stores outlet mall is more than just a
place to buy stuff; it’s an upscale destination that
mixes recreation, socializing and shopping. And there and at
outlet malls across Oregon and the country cash registers are
ringing while conventional shopping centers and stores struggle
during a tough year. In 2007, Oregon outlet centers exceeded
$350 million in total sales and employed more than 2,500
workers, according to industry estimates. They accounted for
about 1.7% of total retail sales in Oregon.
People are wary of the economy and are spending more on food
and fuel, leaving less money for retail goods. Competition
for their leftover dollars is brutal, and the losers are
closing shop at a rate analysts haven’t seen since 2004.
But if you’re a business wanting to lease a spot in an
outlet mall, take a number. The Woodburn outlet is just one of
six in Oregon, with the others located in Lincoln City,
Seaside, Bend, Medford and Troutdale. Some are at full capacity
and others are just near it. “The outlet industry is on
the radar screen,” says Linda Humphers, editor-in-chief
of Value Retail News (VRN), a magazine that covers the outlet
mall industry.
For the outlet malls, their eyes are set on international
shoppers, local tourists, moms shopping for back-to-school
clothes,and good old-fashioned bargain hunters. Outlet malls
throughout Oregon are reporting an increase in Canadians
driving down for what they dub “shopping
vacations.” The weak dollar and the boosted purchasing
power of foreign currencies make the outlet malls all that more
attractive, say retail experts. Foreign shoppers want the
American goods that cost less to buy here, brands such as Nike
shoes, Levi’s jeans and Calvin Klein underwear.
Staci Miethe, general manager of Seaside Factory Outlet
Center, estimates that this spring and summer 70% of business
was from tourists. About 25 miles south of the Washington state
border, a good chunk of the outlet mall’s annual 2
million visitors also come from out of state because
there’s no sales tax in Oregon, she says.
Bigger groups of people also are popping up at the Lincoln
City Tanger Outlet this year, suggesting visitors are
carpooling and making a social trip out of it, says Diane Kusz,
general manager of the outlet for 15 years. The mall is one of
33 owned by Tanger, the second-largest developer and owner of
outlet malls in the nation. More than just a place to shop,
“we have looked to be a destination,” says Kristy
Kummer, marketing director at the outlet in Woodburn.
The first factory outlet malls were anything but a destination
event, starting out as nothing more than a collage of boring
stores with substandard merchandise and odd-sized clothes,
built far from urban and downtown areas because of non-competes
with conventional department stores. As factory outlet stores
became more popular with bargain-hunting Americans, brands
decided they needed to spruce up their image by offering
betterquality stores.
Outlet malls are no longer the neglected stepchildren in the
retail family with flawed goods and taste. Now they’re
designed to be aesthetically appealing to shoppers and offer a
greater variety of popular brands, an approach that is
contributing to their quiet success, experts say. “Outlet
malls are holding their own,” Humphers says.
They’re getting bigger, too. In 1996, there were 329
outlet malls with an average size of 188,000 square feet. By
2007, the average size of a new center was 450,000 square feet,
according to VRN. Woodburn’s outlet, which opened in
1999, is more than 300,000 square feet.
The Columbia Gorge Premium Outlets in Troutdale is
one of six outlet malls in Oregon.
PHOTO BY DENISE FARWELL
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Developers see dollar signs and plan to go after them, planning
35 new centers nationwide by 2010. An additional 18 of the
existing malls plan to expand their sites, according to VRN. At
Woodburn, while shoppers stroll through walkways with stuffed
bags from the Gap and Adidas, the sound of hammering is heard
as construction crews erect an additional building to house
seven more merchants, including J. Crew and Kenneth Cole, when
it opens in early 2009.
While scarcer financing has halted the expansion plans for
some industries, outlet developers secured money because
they’re doing so well, says Chris Sherland, an analyst
with the global valuation real estate firm Cushman &
Wakefield. “They are a proven concept now,” he
says.
The concept has not always been so successful. The whirlwind
of outlet building through the 1980s and early ’90s
outpaced a solid understanding of what consumers wanted.
Smaller outlet malls failed because they were in unfortunate
locations and didn’t have the right variety of brands
shoppers wanted, says Sherland. It wasn’t worthwhile to
do all that driving to shop at just one store. “Having
the right tenant mix is important,” he says.
While many of the ones that closed were ill-conceived, others
got bigger. And big is precisely what’s now the
successful formula, says Sherland. The bigger and most
successful outlet malls are one-stop shops, offering a greater
diversity of luxury and popular brands. Sherland credits the
Woodburn outlet as the first in the state to emphasize this.
Outlets “have a healthy future in Oregon,” he
says.
Humphers, who has covered the outlet mall industry for more
than 20 years, says that in the past 10 years developers have
been making wiser choices to build outlet malls in more
populous areas than before.
Kusz, of the Tanger-owned Lincoln City outlet, says she gets
calls every day from businesses wanting to lease space, but
she’s constantly telling them the outlet is 100% full.
Seaside’s outlet mall has no room for new tenants,
either. According to the VRN, the average occupancy rate for
the two biggest outlet-mall owners, Chelsea and Tanger, is
above 96% nationally.
Popular brands such as Portland-based Columbia Sportswear
Company see outlet malls not just as another way to distribute
their goods but as a savvy way to promote their
company. “We think it’s more important to
brand,” says Kerry Barnes, Columbia’s vice
president of retailing. The company has 23 outlet stores in 19
states, three of them in Oregon, he says.
Part of what drives the bargains at outlet malls is the
relatively cheap rent for tenants. At more conventional
shopping centers, anchor stores like Macy’s and Nordstrom
push up the rent for smaller to midsize tenants. Outlet rents
can be up to 8% less than in a traditional mall. A VRN survey
says shoppers get on average a 37% savings at outlet malls
compared to traditional retail stores and malls.
Sales are direct so there’s no markup to drive up the
cost of merchandise. At Columbia, overstock merchandise or
goods that aren’t sold at its flagship store in downtown
Portland are often discounted up to 25% at outlet locations,
says Barnes. And one of those locations is the thriving
Woodburn outlet.
By late afternoon at the Woodburn outlet, construction crews
have vacated but the parking lot is packed. Josi Yett is
sipping coffee with friends. She lives in Portland, about a
35-minute freeway drive away, and used to shop here more often,
but gas prices have her staying closer to home. For her, the
savings aren’t there anymore. “Why drive so far
when the prices are comparable?” she says.
She’s come to Woodburn just to meet friends, not to
shop.
So far, soaring gas prices haven’t deterred people from
making the trip, industry analysts say. For now, many
shoppers are still drawn to the drumbeat of markdowns and
irresistible bargains on top-brand merchandise all the outlet
malls promise.
For most consumers, the “gas prices are
negligible,” Humphers says. On average, it’s no
more than two gallons of extra gas in the tank to get to one,
she says.
The outlet industry takes the price of gas very seriously,
though. But the fear of empty parking lots hasn’t yet
come true. At Woodburn, more of its 4 million annual visitors
are carpooling, says general manager Teri Sunderland. In the
business formula of outlet centers, “gasoline prices are
just one factor,” she says.
“We haven’t seen any clear-cut cause and effect
[from gas prices],” says Michele Rothstein, senior vice
president of marketing for Chelsea Property Group. The company
owns and manages the most outlet malls worldwide, 38, including
the Columbia Gorge Premium Outlets center in Troutdale.
“The distance isn’t that great,” she says,
staying in tune with the message that has served the industry
well so far.
Sales at Chelsea’s outlet malls are up 5.5% from the
second quarter of last year, according to a recently published
Merrill Lynch report on the retail industry. “People are
still spending,” says Rothstein, “it just depends
on where they are spending.”
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