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Factory Outlets Find International Audience

A new outlet mall is coming to a country near you. Almost entirely a U.S. concept until the mid 1990s, factory-direct retail centers that double as tourist destinations have taken hold in regions the world over. Currently, there are 400 outlet projects open or in development outside the United States, according to the Developers of Outlet Centers & Retailers (DOC&R), an industry trade group.

“The outlet industry itself is about 30 years old, and it’s really been in the last 10 years that it took off overseas,” says David Ober, general partner of PA Outlet Management in Lancaster, N.J. and president of the DOC&R. “It was a giant hit in England and then the western developed countries, including Germany and [more recently] Italy and Spain. The biggest growth in the last five years has been in Eastern Europe and then in China and in the Middle East.”

Ober led a discussion session on the globalization of outlet malls Tuesday during the International Council of Shopping Centers’ Spring convention in Las Vegas. This is the second year that ICSC has devoted an entire session to outlet malls, which reflects growing interest in the factory outlet concept among retailers, developers, lenders and investors.

The 225 outlet malls in the U.S. generate about one-half of 1% of the nation’s retail sales. Given that U.S. retailers number about 36,000, that’s a hefty contribution from a relatively small number of properties. “It’s the power of the few,” Ober says.

Investors interested in joining the outlet party have few new opportunities for development in the U.S., however. Construction has slowed since 2001 to about four new outlet projects per year, Ober says. Overseas markets, however, continue to provide growth opportunities.

Outlet projects may find an easier entry into developing economies such as those in Eastern Europe than would other large-scale retail. “In a lot of these countries, because they still have manufacturing, they’re more open to allow an outlet center in Europe where there would be strong opposition to what we would consider a North American-style regional mall,” Ober says.

Chelsea Property Group, a division of Simon Property Group and owner of the Premium Outlets brand, will open an outlet mall in Seoul on June 1. The following month, Chelsea will open its sixth outlet center in Japan.

Chelsea’s overseas program stems from customer research at the company’s 36 Premium Outlets in the U.S., says Michele Rothstein, senior vice president of marketing at Roseland, N.J.-based Chelsea. At Premium Outlets in gateway cities like Orlando, New York and Boston, the company noticed large numbers of international visitors among its shoppers.

Chelsea began attending retail trade shows in Japan and other countries, determined which markets it wanted to enter, and then established joint ventures with developers in those countries. In addition to its properties in Japan and the pending opening in Korea, there is a Premium Outlets mall in Mexico City.

“We have a group that is looking at other countries as well,” Rothstein says. “We’ve seen that this concept of Premium Outlets works in every country we’ve brought it to.”

The large numbers of tourists at Chelsea’s properties are typical of the factory outlet format. Outlet malls take destination retail to its highest level, drawing on tourists for a large portion of their customer traffic. They also serve much larger market areas than a typical mall. That’s no accident, according to Ober. Tourism is a key part of outlet mall promotions. “We have been very successful at tying outlet shopping to the tourist experience and the vacation experience.”

Manufacturers don’t advertise their factory outlet stores, which could detract from advertising by their wholesale accounts, Ober says. Instead, most manufacturers with outlets contribute funding directly to the outlet center to promote itself. For that reason, outlet malls require larger staffs and involve more active management than a traditional community retail center. “Our center, Rockvale Outlets in Lancaster, Pa., gets more than 4,200 tour busses a year, and those people have to be greeted and given coupon books,” Ober says.

The future of outlet malls remains bright, both domestically and overseas, because the concept appeals to the wallets of consumers and manufacturers alike, Ober says. “The ability for that retail (manufacturer) to cut out the middle man allows more money to drop to their bottom line, and at the same time, to provide a product at a better value to the consumer.”

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