Observations & Conversations
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Times have changed: Outlet centers have become the dinosaur of retail real estate. |
I ’ve been getting calls lately from novice city
development directors and owners of land in “PoDunkville” with interstate
visibility wanting to find developers to build outlet centers on their sites.
When I get these calls, my first words are “don’t do it” and the next words are
“if you’re gungho call Chelsea or Belz and if they don’t want to joint venture
then definitely DON’T DO IT.” Then comes their sales pitch on why the site is
ideal for an outlet center... traffic counts are high (holding my tongue for the
sake of professionalism, but I’m thinking... you have high traffic counts for
the market, but there ain’t no people living within 10 to 20 miles), tourist
counts are high (my next question is compared to Orlando or the Poconos?), and
land/development costs are cheap (so is 1,000 acres in Texas Hill Country but I
wouldn’t build an outlet center there and I definitely wouldn’t build any center
without a mortgage and getting financing for outlet tenants is next to
impossible or really expensive), and the town is extremely agreeable to an
outlet development (unfortunately many non-salaried town councils haven’t a clue
what is the best use for most sites). Then I ask what outlet tenants have
expressed an interest in the site and every time the reply is “we haven’t gotten
that far.” But mostly, I wonder why the hell are they so dead set on an outlet
center rather than your regular, meat and potatoes variety of retail center and
I have yet to hear a valid reason.
More evidence to that fact that many of the proponents of outlet centers really
don’t know what they’re doing... The town of Hercules, CA has an almost vacant
project called Creekside Center that the council is adamant about converting to
an outlet center. In June 2000, the city hired Gibbs Planning Group to do an
analysis of the market with the understanding that Creekside Center would be
converted to a 250,000 sq.ft. upscale outlet mall. The study revealed that the
immediate trade area needed a hardware store, video rentals, a furniture store,
card shop, restaurants, specialty sporting goods, dry cleaner, beauty salon and
professional services such as accountants or insurance offices. In a recent
edition of the local newspaper the headline read “Developer’s option for
Creekside Center fizzles.” The article revealed that the developer explained to
the city that an outlet center was no longer feasible and that he could develop
a traditional project and use the same GLA, but with several larger tenants and
adjustments for parking, moreover the tax revenues should be the same no matter
if the tenants were outlet oriented or traditional stores. To make matters
worse, the city began working with this developer in 1999 when he had Home Depot
interested in the site, but the city turned him down at that time because the
town officials thought an outlet center would bring more sales tax revenues than
a mega home improvement chain which had a strong track record and the blessings
of Wall Street.
To date, the city officials have said that they would approve the site as an
outlet center and even though the developer’s option to buy the site from the
town’s redevelopment agency expired in a matter of weeks they chose not to vote,
but instead to have the developer resubmit a proposal to the planning commission
with the city manager stating “if he were to build the outlet mall, I think the
city council would stand behind him.” Talk about one frustrated developer...
this guy earned a gold medal for patience.
Still not convinced that you need your head examined if you want to develop an
outlet center? Check out the stats for Prime Outlets, an owner of 47 outlet
centers, last time I looked its stock was selling at twenty five cents a share.
Sarasota Outlet Center in Florida is partially occupied and Benderson
Development, who acquired the site a few years ago, recently razed part of the
center to make way for BJ’s Wholesale Club and renamed the project as University
Consumer Square. Another example of a troubled outlet center is the Buyers
Marketplace in Indiana. It never got solid footing as an outlet project, then
Schottenstein Stores bought it out of receivership and repositioned it with
Value City Department Store, Value City Furniture, Office Depot, and Toys R Us.
Worcester, MA city officials have mentioned the possibility of locating a casino
at the problematic Worcester Common Outlets. Jones Lang LaSalle Inc., manager of
the Worcester Common Outlets since April, is analyzing the best use for the
project. Cigna Investments Inc., the majority owner of the mall, was relieved to
hear that the city is willing to adjust the provisions of the TIF to accommodate
non-retail uses such as office or hotel.
Not all outlet centers are destined to fail, there are still some strong centers
operating. But the old adage of “build it and they will come” doesn’t ring true
any more. Times have changed, and this small segment of the retail industry has
become a dinosaur, partly of it’s own undoing. Outlet stores have been notorious
for selling cheap stuff at discounts, rather than staying true to their origins
of selling high quality merchandise from the last fashion season or irregulars
at below department store prices. Unfortunately the true high-end discounters of
yesteryear disappeared. Loehmanns isn’t the same merchant it was 15 years ago,
where you could find a $2,000 Chanel suit for $500 and Hit or Miss at one time
actually sold designer goods, then went to popular priced and eventually met its
demise. As times changed, so did the American public level of sophistication...
they got wise to the fact that the Polo in the outlet store wasn’t the same cut
nor the same fabric as what was sold in the department store. The department
stores retaliated with more sales or dropping the manufacturer’s lines from the
retail floor. So, if your intent on bringing an outlet center to your site, take
a step back and look at the history of the business... the odds are that the
risk isn’t worth the return. Until next month,