Roughly one out of every 11 store sites is empty at traditional malls around the country. That’s the highest mall vacancy rate in over a decade, even though rents at these properties are likely to have decreased or leveled off recently. At the same time, outlet malls—where both rent for businesses and prices for consumers are cheaper—are thriving, with new outlet shopping centers popping up left and right, and existing outlet malls expanding as quickly as building permits and construction workers allow.
Three new outlet malls are under construction in the Chicago area, expected to collectively deliver more than 1.5 million square feet of retail space to Second City shoppers in the near future. According to the Chicago Tribune, another Chicago area outlet mall—one that’s already built and drawing eager bargain-hunting shoppers—just announced plans to grow by one-third, adding another 130,000 square feet next year.
In the Los Angeles area, the story is much the same: Workers at the Citadel Outlets are finishing up a 152,000-square-foot expansion, while a 650,000-square-foot outlet mall called Plaza San Clemente is slated to open in 2012, and while several other outlet shopping centers have been renovating and adding new stores.
To meet high demand in the Pacific Northwest, Seattle Premium Outlets also announced a coming expansion, with groundbreaking on a 100,000-square-feet addition set to begin in 2012.
What explains the outlet mall boom? To quote a former president, “It’s the economy, stupid.”
Shoppers have turned en masse to outlet malls because the goods sold there are less expensive and offer more value than their traditional mall counterparts. Or at least that’s the impression outlet malls give. And so, as the economy has struggled, outlet malls have thrived. The general manager of the Ontario Malls explained it this way to the Los Angeles Times:
“I tell everybody the economic downturn for us was kind of a blessing,” general manager Marc Smith said.
A recent report from market research group NPD Group said that sales figures demonstrated the “new ‘value-centric’ consumer mindset,” with apparel sales up 17.9% over the last year at factory outlets, compared to a rise of just 2.5% at department stores.
The traditional malls where those department stores are likely to sit seem to be the losers in the current mall wars. Per the Wall Street Journal:
The average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, according to real-estate researcher Reis Inc. Those vacancy figures are the highest Reis has recorded for malls since it started tracking malls in 2000.
Reis Inc. data also indicate that average asking rents at traditional malls dropped 0.1% in early 2011—and that today’s rents at these shopping centers now stand at about the same levels as 2006.
Outlet malls, on the other hand, are cheaper to build and operate, and, lately at least, have been more profitable. The Chicago Tribune details some of the outlet mall business model:
The malls are typically on one level and outdoors, so rents are cheap. The common area assessments are also low compared with traditional malls, since there are no elevators or escalators, no heat or air conditioning and generally fewer frills in the mall. The stores themselves are bare-bones.
As for the goods shoppers encounter at outlet malls, it’s foolish to assume they’re pretty much the same as the items found in traditional malls. It’s estimated that 85% of the items sold at outlet malls were never sold in full-price stores. The vast majority of what you’ll find at outlet malls isn’t leftover items or goods damaged or returned at first-run, full-price stores at the traditional mall, but goods that are produced specifically for sale at outlet malls—and typically, they’re produced on the cheap. Here, some insight courtesy of the LA Times:
“In today’s world, the outlet business is a business upon itself. The average consumer cannot tell the difference between a golf shirt made for an outlet center compared to one made for a full-line retail store,” [NPD analyst Marshal] Cohen said. “The difference mainly is cosmetic — you’d see a little less embroidering or a little less detail.”
So, as is usually the case, when you pay less, you can expect to get less. Given the state of the economy, that may be OK with today’s consumers.