Can Full-Price Stores and Outlets Coexist in the Same Mall?

Retailers facing sluggish sales at particular locations are opting for a lucrative alternative to shutting down: They are converting weak full-price stores to outlets. Among those taking this step are Abercrombie & Fitch, American Eagle Outfitters, Express, Gap, J.Crew and New York & Company, particularly at malls in secondary and tertiary markets.

“We had Abercrombie do that in one of our malls, a tier-two mall, a few years ago, and sales have improved,” said Stephen D. Lebovitz, president and chief executive officer of CBL & Associates Properties, on an earnings call. J.Crew, too, is converting some of its mall stores to outlets, he noted. Chains are testing such conversions in markets where they believe their prices are too high relative to those of their competitors, Lebovitz said. “The J.Crew store at CBL’s Hamilton Place mall, in Chattanooga [Tenn.], is a factory store, and it’s doing really well,” he said.

In a call to analysts last December, Michael Weiss, then CEO of Express (he retired this past January), said the chain is looking at the benefits of transforming more of its mainline stores into outlets. Express launched its Express Factory Outlet division last April with a store at Tanger Outlets National Harbor, in Washington, D.C. The chain has focused hard on outlet growth, and the division was reportedly on track to post $60 million in sales its first year of operation, or more than double the company’s projections.

A few years ago Simon’s Towne West Square mall, in Wichita, Kan., lost its full-price Sears store. This month, however, Sears Hometown and Outlet Stores is set to open a 10,000-square-foot store at the mall. The concept gives consumers access to Sears Hometown and hardware merchandise as well as outlet goods the retailer bills as “new, one-of-a-kind, out-of-carton, discontinued, reconditioned, overstocked, and scratched-and-dented products.”

At Mills malls, American Eagle Outfitters and Express have already converted all their full-price stores into outlets — 14 stores for American Eagle, and 15 for Express. “Sales in most cases have gone up dramatically,” said Gregg M. Goodman, president of The Mills: A Simon Company. “The customer has responded to the thought that there is a value proposition there for them.”

Gap has been quietly converting some of its full-price stores into outlets at both regional malls and strip centers, according to retail consultant Jeff Green, who heads an eponymous firm in Phoenix. Last year, in fact, Gap relocated an outlet store from the Traverse City (Mich.) Outlet Center to Grand Traverse Mall, a four-anchor regional mall built in 1992. Some developers are courting this phenomenon, says Green, though others say they do not want to encourage the trend. New York & Company, a wear-to-work retailer for women, is among the chains experimenting with outlet conversions, according to consultant Josh Podell, who heads Podell Real Estate Advisors.

If the only other option is to take a huge write-off by closing the underperforming store, then turning it into an outlet instead is certainly preferable for both the chain and its landlord, according to James McCandless, managing director of Streetsense, a Washington, D.C.–based multidisciplinary design and strategy firm. “Vacancy is the enemy of vibrancy,” he said. “It feeds more vacancy. Foot traffic is good for everyone.” Moreover, today’s highly efficient, omni-channel-focused retail chains have other compelling reasons to consider converting some of their stores to outlets, says McCandless. “They’re looking at the situation and seeing that they expanded and now probably have too many full-line stores,” he said. “Are they going to shutter them, or is there a way to create a new opportunity? This is a natural next step.”

http://www.icsc.org/sct/newsletters/article/can-full-price-stores-and-outlets-co-exist-in-the-same-mall/

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