Factory outlets: how the sector went from dreaded to fashionable

The UK retail landscape has countless facets, from high-profile multimillion-pound flagship stores to independent online start-ups making a name for themselves.

Each of these is an integral part of the retail ecosystem, but the one that is often overlooked is the outlet sector.

Often located away from spaces associated with traditional retail and often sidelined to sell surplus or outdated ranges, outlet centers have shunned the spotlight since the concept was brought here from the United States 20 years ago. .

However, all of that could be about to change. As new urban malls continue to emerge and haggling becomes increasingly fashionable, the sector could benefit from the next squeeze in consumer spending.

Asset management company Realm, which specializes in shopping malls, saw sales of its outlet portfolio increase by 16% in 2016, alongside a 5% increase in footfall.

“For Realm, the point of sale sector is obviously extremely important. It’s a niche and we are specialists and that’s what we do,” Realm chief executive Colin Brooks told The Daily Mail. Official Retail Journal.

“In terms of retail in the UK market, there are probably around 30 outlet centers of all sizes and importance. We are in fact talking about a sector which, in terms of retail sales, is probably no more than 1-2% of retail sales in the whole UK consumer market.

“But clearly for retailers this is a very important way to eliminate excess and/or secondary inventory. And increasingly, as the market has matured over the past 20 years, it is becoming a real market outlet for this type of stock.

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“Retailers see this as an important part of turning their excess inventory into cash, which obviously makes sense for them from a business perspective.

“They have brand protection so their brand continues to be retailed in a quality retail environment by their own staff, whereas 20 years ago you could find some of their stuff in local markets or other rag shops.”

London Designer Outlet (LDO) is a prime example of the new wave of designer outlets, located next to Wembley Stadium in Greater London, with stores representing some of the country’s biggest brands.

A focus on tourism is key to LDO’s success. LDO Managing Director Sue Shepherd explained the levels they go to to meet the needs of overseas buyers: “From an initial perspective when we opened in late 2013, we really started to take tourism in mid-2014 and between then and now there has been tremendous growth. .

“So much so that we have most of our guides and signposts in English and Mandarin. We will probably have something like 6% of our total sales this year coming from duty-free purchases alone.

“We have focused a lot on tourism over the past two years and now have a separate team here who now work with tourism companies, attracting visitors mainly from China, the United States and the Far East. , but more and more from Europe too, especially after Brexit.

“It has become even more appealing to shop at outlets in the UK.”

“It doesn’t sound like rocket science, but it’s fundamentally different from how a mall works.”

While LDO clearly has advantages over outlet centers located outside of high-density areas in attracting tourists, there is an intrinsic quality to the outlet store model that sets traditional retailers apart.

Brooks explained that the main difference between outlet centers and traditional malls is that their rents are based on turnover, which means there is a completely different relationship between retailer and tenant.

“There is absolutely complete alignment between the center owner, the center asset manager and the retailer,” he said.

“Everyone working in and around the asset is all aligned on one thing: to help drive the retailer’s sales, as the asset owner derives revenue from the sales generated by the stores.

“It doesn’t sound like rocket science, but it’s fundamentally different from how a mall would operate.

“That means asset management companies like ours actually run a slightly different business model.

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“Any transactions we do with retailers, we do directly with retailers rather than through an agent. Even further than that, many of our rental team are former retailers. They must understand the language of retail.

This alignment gives outlet retailers a significant advantage over traditional retailers. Not only do they have the full cooperation of their owners to make changes that drive attendance and sales, but they are able to run events at the venues on a holistic level.

In an environment where experience is becoming an essential part of the retail landscape, particularly to attract tourists, it’s a trait outlets like LDO are already using to their advantage.

“We have a very close relationship with the owner and they are on site. I think the whole experiential retail part is interesting,” Shepherd said.

“More and more, people want some sort of shopping, dining, entertainment, experience when they go out in a quality environment.

“So our marketing team works hard to put on events throughout the year that give people a pretty compelling reason to want to come here instead of going to Westfield or Brent Cross down the road.”

While selling premium brands at discounted prices is great for shoppers, it has the potential to drive them away from full-price stores and cannibalize profits.

Brooks believes that in recent years retailers have become more open to outlets and started to take advantage of the benefits they offer as an alternative source of revenue.

“I think the market has evolved significantly over the past 20 to 25 years,” he said.

“When the Americans first introduced the concept to the UK, a lot of high street retailers feared that if they opened outlet stores anywhere near their high street stores there would be a significant cannibalization and it would dilute full price sales.

“You can buy your champagne at Lidl and it’s considered cool now, whereas a few years ago you probably wouldn’t have told anyone you were doing this.”

“That’s why, 25 years ago, most of the original outlet centers were growing out of town, in freeway locations.

“What we have seen over the last five years has proven that retailers have matured in terms of their knowledge of how outlets work, and LDO is one of the forerunners of what we call the next generation of outlet centers urban. Retailers now view them as a positive outlet and revenue-generating opportunity.

“Premium brands can access different markers by selling their brand at a discount to customers who otherwise might not seek out their brand because they consider it too expensive.

“They see it as an avenue to somewhat less affluent customers or maybe price-savvy customers and they see it as an opportunity to sell their brand.”

This “price savvy” consumer has played a key role in the growth of the outlet center in recent years.

Shepherd thinks bargain shopping has become all the rage and is attracting many younger, more fashion-conscious shoppers.

“I think there’s also an element that after 2007/2008 it was seen as more and more savvy to do business and you don’t have to pay full price for Nike sneakers anymore. “, she said.

“Most of our stores don’t sell seconds. They will sell products made for the release or they will sell leftover lines from previous seasons. This is called the Lidl effect.

“You can buy your champagne from Lidl and it’s considered cool now, whereas a few years ago you probably wouldn’t have told anyone you were doing this.

“Especially here where we have a real specialty in sports shoes and the whole athleisure trend. We find a much younger, urban millennial customer. »

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