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Outlet malls expand beyond their niche to
attract masses

Austin Business Journal - December 15, 2006

by Pam Losefsky

Contributing writer

The outlet malls in San Marcos attract regular customers from as far away as Mexico.

Thirty years ago, shopping at an outlet meant digging through tables piled high with marginally acceptable merchandise, scrutinizing every seam to make sure that what you took home was wearable.

"In those days, you might find gloves with six fingers," jokes Paula Rowland, chief marketing officer with Prime Retail, parent of the San Marcos Prime Outlets. But her quip isn't far from the truth.

The outlet industry originated in the early 1970s in Reading, Penn., a gritty factory town that converted several old textile mills just east of the city into factory outlets in an effort to boost its waning local economy. The original Vanity Fair Outlet store, for instance, was separated from the manufacturing facility by only a suspended piece of cloth. As faulty hosiery, lingerie, and sleepwear came off the line, workers threw them into bins that they wheeled around the flimsy barrier to waiting customers.

Well, no more.

Now elaborate and sophisticated distribution systems divvy up merchandise for shipping to a vast array of outlet centers around the country. Prime Retail, for instance, has 27 properties in 18 U.S. states and Puerto Rico. Tanger Outlets has interests in 33 centers in 22 states.

Now, it might be no more than a missed stitch on a blouse or a streak of ink on a shoe sole that condemns an item to the outlet, and often it's very difficult to tell the outlet merchandise from the full-price merchandise. "These days, there are such high standards of quality control," explains Prime Retail's Rowland. Manufacturers pull items for the smallest of flaws, she adds.

Another thing distinguishing today's outlet malls from those of the past is the growing presence of luxury brands. Once solely the realm of economy names, outlet malls now often tout top-of-the-line merchandise, and San Marcos has one of the most extensive offerings of such retailers.

"It's beautiful, quality merchandise, and it's a great avenue to shop," Rowland says.

Last year's 150,000 square-foot expansion to the Prime Outlets houses an impressive list of luxury names including Salvatore Ferragamo, Neiman Marcus, Lacoste, and Zegna. The 750,000-square foot center also is home to a number of brand stores such as Fitz and Floyd and Fossil -- for a total of more than 130 stores.

Directly next door, Tanger Outlet Center houses 108 stores in 443,000 square feet of space -- featuring name brand clothing retailers such as Banana Republic, Tommy Hilfiger, Children's Place and Limited Too -- not to mention a host of houseware stores.
It's that mix of value brands and luxury items that has made San Marcos a destination shopping haven, drawing more than 6 million customers annually, some 20 percent to 25 percent of them from Mexico.

Combined, the outlets provide more than 1 million square feet of retail shopping space -- prompting ABC's "The View" to name the centers the third-best place to shop in the world, behind New York and Dubai -- based on bargains, short lines and unique inventory.
Defined by a primary trade area -- typically the area from which 60 percent to 80 percent of sales originate -- from 25-75 miles in diameter, San Marcos is an economic force to be reckoned with.

But does the presence of such a consumer draw affect San Antonio and Austin retailers?

No ill effects

For the most part, retailers in Austin and San Antonio live a comfortable co-existence with their off-price brethren in San Marcos. In many cases, the stores are meant to be two sides of the same coin. Neiman Marcus, for instance, locates its Last Call Clearance Centers according to a formula that takes into account the proximity of retail stores. Indeed, especially for the higher-end merchandisers, maintaining brand integrity and building brand loyalty are paramount, and outlets play a role in their overall marketing strategy.

"Some retailers like that this mechanism provides access to their merchandise for people who would otherwise not be able to afford it: the up-and-coming Generation Y, those who have not yet arrived financially but who still want the Coach purse or Ralph Lauren polo shirt," Rowland says. In these cases, the luxury outlets serve as an entry to the market, building a customer base that will eventually shop in the full-line stores when they are more financially secure.

Others, Rowland admits, have a more sensitive relationship with retailers. For example, there are certain manufacturers that only sell in two places: outlet malls under their own brand store or as lines within department stores or other retailers. "In those cases, the brand wants to be sure it doesn't cannibalize the retail market," she says.

But Mollie Calvert, director of marketing for San Antonio's North Star Mall and The Shops at La Cantera, believes there are enough shoppers to go around for both the outlets and traditional centers.

"Full-price shopping centers wouldn't be continuing to expand at the rates they are if they didn't have a lion's share of the business," she says. "There is a certain type of shopper who enjoys shopping the outlets and there are others who will never set foot in an outlet." And there are still others who ride both sides of the ever-shortening fence.

Those shoppers who are savvy can find great deals whether they're driving to San Marcos or staying put in San Antonio or Austin. "If you follow your favorite retailers' sales and markdowns, you can get merchandise at deep discounts even from full-line stores," Calvert declares. What it comes down to, she believes, is what type of shopping experience you want to have.

Having worked in Saks Fifth Avenue's full-line store in Dallas before taking her position in San Marcos, Stacey Conklin, general manager of the Off 5th outlet store, agrees with Calvert's assessment. She says those who seek "the thrill of the hunt," are a breed of shopper different from the typical high-end retail customer. "It's a different kind of customer -- of course you've got the tourists -- but then it's also the bargain hunters looking for the brand names," she says.

While full-line shoppers look for service, comfort, convenience, and selection, outlet shoppers are happy to sacrifice some of those niceties to find a name brand for a bargain price.

Betsy Thompson, director of public relations for the apparel retailer Talbots, says that their outlet stores can be great places to find tremendous values, but cautions that the assortment of colors and styles is not as broad. "If you know the label, then the outlet is a good place to be -- you know the sizes and how they fit -- but it can be a hard thing to do if you're buying gifts for others," she says. "You may find the perfect gifts, but if they have to be returned, there's a chance you won't find the same item in a different size."

Shoppers may also not be getting exactly the same thing they can purchase in the full-line store. Calvert says that some top-end merchants may withhold their finest "black label" or "purple label" products from the outlet system; and likewise, there may be outlet merchandise that never sees the inside of a retail store.

But the changing nature of the retail industry is giving fuel to the outlet business. Outlet stores are gaining credibility, and as traditional retailers look to constantly give buyers something new, product moves faster -- with the outlet stores providing an avenue for a new group of customers.

"It used to be, you'd see a significant period of time before something you saw at Barton Creek Mall was in an outlet store," says Michelle Carswell, general manager of Tanger Outlet Center, adding it could be as long as eight months. "The timeframe for that is much shorter now," she says.

The demand for a variety of shopping experiences is not only benefiting traditional retailers, but those that market their products through outlet stores as well.

"Shopping meets the demands of all consumers," Carswell says.

Misfit merchandise

Today's outlet merchandise mix includes previous seasons' unsold and returned apparel and slightly damaged or mis-manufactured items, but also can include goods specifically made for outlet sale.

"A number of retailers do manufacture separate product lines just for their outlet stores," Rowland says. "They might have the same styling and fashion, but the retail item may be 100 percent cashmere, while the outlet item has a blend of cashmere, angora, and another fiber."
For example, a Banana Republic full-price item may have a more expensive button or a double-stitched seam instead of a single-stitched seam. Small changes like these can allow the manufacturer to offer the product at a much lower price.

But individual stores' offerings can vary greatly. In San Marcos' Gap Outlet, for instance, a shopper can find examples of a range of items -- from seconds to those found full-price at their regular stores. Talbots, however, only sells the previous season's or unsold merchandise from its full-line stores. "Talbots doesn't manufacture lines just for the outlets," says Thompson. "Our 1,100 stores ship leftovers to just a few outlets scattered around the country."

Conklin at Off 5th says there are various ways the store acquires merchandise. "Sometimes our buyers purchase the same manufacturers that the full-line store carries, but completely different lines, and then they add to that through opportunistic buys as they present themselves," she says.

Carswell points out, however, that any irregular products in the clothing arena today are labeled as such.

The "Last Hurrah" shelf at the Crate & Barrel outlet store features odds and ends, slightly damaged goods, and one-of-a-kind buyers' samples that never made it into the full-price stores. Furniture for sale at the Crate & Barrel, Restoration Hardware and Pottery Barn outlet stores shows slight wear -- the result of its service as floor models or because it has been purchased and returned. And on the store's "As is" racks on a recent Friday, Talbot's shoppers could find wool skirts with no discernible flaws selling for as low as $3 or $5.

But whether the outlet shopper seeks the more reasonable deals -- like $80 cotton sweaters marked down to $20, or the unique luxury item such as the Dana Buchman short faux tiger skin jacket for $647 (marked down from the retail price of $1,850) -- it's clear that the outlets now appeals to a wide variety of people with all sizes of pocketbooks.