Retailers tap into profitable outlet
David Ober knows the power of outlet retail centers.
The general partner of Rockvale Outlets Lancaster in Pennsylvania opened his center at midnight on Black Friday, the traditional first day of the Christmas shopping season, and traffic was so intense it clogged the New Jersey Turnpike, he said during a panel session at the International Council of Shopping Centers spring show in Las Vegas.
The world of outlet retailing has evolved from selling surplus merchandise out of distribution warehouses to destination-oriented malls that comprise 80 million square feet and could reach 100 million square feet within five years, Ober said.
Outlet centers generated $15 billion in sales in 2004, about 0.5 percent of total retail sales, according to the latest statistics from Value Retail News.
“Outlets carry their weight,” Ober said Tuesday. “Outlet centers are unique. They’re not everywhere, even though you think they are. There are only 222 in the United States. There’s 36,000 shopping centers.”
Ronald Simkin remembers the naysayers who doubted that an outlet mall could succeed in Las Vegas three miles from the Strip.
“They said it wouldn’t happen, but we built 780,000 square feet in Las Vegas and marketed it as a tourist mall that wouldn’t compete with regional malls,” Simkin, director of leasing for Memphis, Tenn.-based Belz Enterprises, said at the ICSC session.
The Belz Factory Outlet at Las Vegas Boulevard and Warm Springs Road was sold to Chelsea Property Group, a division of Indianapolis-based Simon Property Group, in August 2003. It was renamed Las Vegas Outlet Center.
“We purchased that property the day we opened Las Vegas Premium Outlets (in downtown Las Vegas),” Chelsea Senior Vice President of Marketing Michele Rothstein said. “It was an exciting day for us. We love the market. Each one has their own distinct personality. We’re able to serve everyone’s outlet needs, if you have a particular brand you like.”
In its 2006 annual report, Chelsea showed that comparable sales at its 36 U.S. Premium Outlets rose 6.1 percent to $471 a square foot. Orlando, (Fla.) Premium Outlets led the group at more than $1,000 a square foot in sales.
Average base rents rose to $24.23 a square foot from $23.16 in 2005. Re-leasing spreads, or the difference between expiring and new rental rates, averaged a record 31 percent. At the same time, demand for space remained strong across Chelsea’s portfolio with 99 percent occupancy.
Chelsea is expanding Las Vegas Premium Outlets to 150 stores and adding a second parking garage, Rothstein said.
The outlet concept is emerging as a global enterprise with nearly 400 factory outlet projects operating or planned in almost every part of the world, from North America and Europe to the Middle East and Asia-Pacific, Ober said.
“The outlet center mall in Europe is becoming increasingly crowded,” said Kenneth Gunn, associate director of CACI Information Solutions in London. “There are still strong development opportunities in Turkey, Greece, Romania and Bulgaria.”
Frank Gatski of Gatski Commercial Real Estate Services in Las Vegas said outlet malls differ from other retail centers, appealing to brand-name shoppers looking for value.
“What’s exciting in Las Vegas retail right now is mixed use,” he said. “They’re going to be successful and bring new players to Las Vegas.”
