Wrapping up bargains

State’s outlet malls offer discounts in an upscale environment

Published December 1, 2014 by M.J. McAteer

Outlet malls used to be a dumping ground. They were a place where major retail chains sent odd lots and flawed merchandise.  Shoppers had to cull through a lot of poorly displayed dreck on the chance of scoring a designer jacket at a deep discount.

Today, these malls are the hottest success story in retailing, both nationwide and in Virginia. They’re still a place to find bargains, and they are much more high-end.

Since 2006, 50 new outlet malls have opened across the country, according to Linda Humphers of the International Council of Shopping Centers. Compare that with the paltry three regional malls built during the same time frame.

Jeffrey Was, president of the Was Group — a real estate consulting firm that represents landlords and retailers nationwide — says he knows of 30 outlet malls in the pipeline now, making continued growth a given for this sector during the next few years.

Virginia currently has three major outlet centers: Potomac Mills, a 220-store mega mall in Woodbridge that mixes straight retail with discounters; Leesburg Corner Premium Outlets (110 stores); and Williamsburg Premium Outlets (135 tenants).  A fourth, the plain Williamsburg Outlet Mall, closed in 2013.

“It got old and outdated,” says Tony Nero, president of development for Armada Hoffler Properties in Virginia Beach. Nero’s company is razing the old 230,000-square-foot mall and replacing it with a traditional suburban shopping center anchored by a Harris Teeter supermarket.

Two more on the way
Yet that outlet mall’s demise is an anomaly. In fact, in Maryland, just across the Potomac River from Alexandria, Tanger Outlets opened in late 2013 at National Harbor and now has about 85 tenants with plans to expand. Two more outlet centers also are in development in the commonwealth.

Simon Property Group, the country’s biggest player in this area of retailing, owns 70 outlet malls in the U.S., including all three in Virginia. It is currently in negotiations to build a fourth, $75 million mall in Norfolk, at the site of the now defunct Lake Wright Golf Course, which abuts Virginia Beach.

Les Morris, director of corporate public relations for Simon Property Group,  says his company does not have a date to start construction, and he provided no particulars.  All the tax revenue from the mall would go to Norfolk, while initial parking and plans for access roads around the mall fell on Virginia Beach property, causing a dustup between the two localities. In an effort to keep Virginia Beach politicians out of the mix, Norfolk revamped sections of the project to bypass Beach property, although the route on one access road is still to be determined.

Simon’s outlet malls typically have about 90 stores, and an occupancy rate of 96.5 percent or better.  That’s higher than the 93 percent national occupancy rate for open (as opposed to enclosed) shopping centers in 2013, reported by the Institute of Real Estate Management (IREM).

According to an overview Simon presented to the Norfolk City Council, the Lake Wright development should generate at least 300 construction jobs and 800 retail jobs and produce estimated annual tax revenues of $3.3 million.

The other outlet project in the works in Virginia is the 350,000-square-foot The Outlets at Richmond near the Bass Pro Shops off Interstate 95 in Hanover County. It falls into the typical size range for outlet malls these days. Costar, a commercial real estate research and analytics company, reports that in 2009 outlet malls averaged 270,000 square feet. By the end of 2012, that size had ballooned to an average of 380,000 square feet.

Groundbreaking on the project has been delayed by land issues, but the developer, California-based Craig Realty Group, expects to begin construction in 2015. The mall is projected to have at least 75 stores, which probably will include retailers such as Nike, Coach and Tommy Hilfiger, which are regular tenants at other Craig properties.

High sales per square foot
What makes outlets so “white hot,” as Was describes them? The obvious answer is money. The International Council of Shopping Centers reports that a square foot of outlet space at a mall generates an average of $532 in sales, while a regional mall generates an average of $480 per square foot. This elevation of outlets’ earnings has come about thanks to a uniquely American trait: the talent for reinvention. 

As recently as 20 years ago, the stock-in-trade of outlets was seconds and wrong-sized or faulty merchandise, Was says.  “The outlets were a dumping ground for retailers,” he says bluntly.

Although outlet malls still target savvy bargain hunters, known in the industry as “value shoppers,” for the past decade or more they have been luring them with promises of a much more high-end experience. Today shoppers have a pick of first-quality products and lots of designer and luxury goods. 

Upscale department-store retailers such as Saks, Nordstrom and Neiman Marcus have followed the money, moving into discounting in a big way. Costar reports that the number of retailers with outlet stores grew since 2008 by nearly14 percent, to about 15,000. Nordstrom, for example, was planning to open only one full-service department store in the country this year, but Costar predicted that it could add as many as 60 off-price Nordstom Rack stores by the end of 2015. 

Today’s outlet malls rely heavily on brand-name stores, such as DKNY, Jones of New York, Ann Taylor, Brooks Brothers, Burberry, Theory, Kate Spade and Michael Kors. That trend toward fashion labels is going to continue.

“We are seeing a bigger influx of new brands that want to open in outlets,” Humphers says, adding that about 85 percent are apparel companies. “We’ve added 40 or 50 brands in the past couple of years,” she says, and even more high-end retailers are on the way, such as jeweler David Yurman; couturiers Tom Ford and Alexander McQueen; and European luxury good purveyors such as Tod’s and Brunello Cucinelli.

Upscale amenities
Amenities are going upscale, too.  At Potomac Mills, General Manager Sam Hosn says new restaurants include Bahama Breeze and the Cheesecake Factory. At Tanger, General Manager Juan Carlos says customers can dine at Johnny Rockets or take a short shuttle ride to National Harbor’s array of steakhouses, seafood restaurants, and Italian and Thai restaurants.

“Amenities are huge,” Morris says. Simon is pushing to provide healthier and varied eating options at its outlet malls, such as Great Salads, Green Leaf’s and Far East Asian Fire. Other common upgrades include renovated restrooms, children’s play areas and bag stores to provide shoppers with a convenient way to haul home the loot.

Increasingly, those shoppers won’t have to travel as far anymore to get to outlet malls, either. Once upon a time, discounters kept their distance from regional malls so as not to cannibalize their business.  “The old model was to have outlet malls located 45 minutes outside city centers,” Morris says. “Now, more are being located in denser areas.” That move represents a shift in the targeted demographics of outlet shoppers. While tourists continue to be the mainstay, tapping into the permanent population has become the new growth area.

Yet with all these upgrades can outlet malls still provide deals this holiday season? And what about e-commerce? Why fight the crowds when consumers can find discount deals online?

Not surprisingly, mall managers say deals are still to be had at outlet stores. Hosn, who expects a 3.8 percent increase in business for the holiday shopping season, says 70 percent off is not uncommon at Potomac Mills, while Carlos says everyday discounts combined with special promotions can mean as much as 75 percent off at Tanger Outlets. Morris cites discounts of 25 percent to 65 percent off at the Leesburg and Williamsburg outlet centers. Was, however, says that “prices are not dirt cheap now, not a giveaway.”

Regardless of whether shoppers can get a steal anymore, outlet malls expect to be bustling this holiday season. The thrill of the hunt for high-end goods at low-end prices is a lure that value shoppers just can’t resist.