Designer outlets have been a standout success during the downturn but with the UK being Europe’s most mature market, the sector is having to evolve to meet consumer requirements. Mark Faithfull reports.
Not every US retail import has been a success, but designer outlets have definitely crossed the pond with some style. Purpose built, multi-tenanted factory outlet centres began to emerge in the UK during the early 1990s, borrowing heavily from a concept developed in the US. But the sector really took off in the UK from 1995 onwards with the opening of what remain two of the UK’s best known designer outlets: Cheshire Oaks and Bicester Village in Oxfordshire.
Since then outlets have sprung up not just in Britain but around Western and Eastern Europe, fuelled by a desire on the part of manufacturers to dispose of surplus goods in a controlled environment at 30–70% below recommended retail prices, and on the part of the shopper to uncover great value.
A desire for designer
Two decades of expansion across Europe has delivered almost 200 factory outlet centres, with the UK and Italy the most highly developed markets. Yet even in the UK the sector remains a somewhat under-the-radar success story. Many centres are achieving sales growth that the mainstream shopping centres could only dream about, while pioneering an open-book-style lease system, which means rents are based on turnover and that retailer churn is high, as under-performing units make way for new entrants.
Henrik Madsen, managing director Northern Europe, of McArthurGlen – the continent’s biggest designer outlet operator – points to double-digit growth in the Christmas trading period against strong like-for-likes, but says despite everything in the UK the model remains a “slightly unknown phenomenon”.
Quoting figures most retail centres could only dream of, Madsen also warns that designer outlets need to evolve to retain their consumer appeal. “Constant innovation is vital, because people see a trip to a designer outlet as a day out and a number of basics needs must be fulfilled,” he says. “Obviously it has to be an easy customer journey, it has to be easy to navigate and, increasingly, there has to be a good food and beverage offer to make the day more enjoyable and to increase dwell time.”
A leisurely visit
McArthurGlen has just completed a European-wide piece of research, which Madsen says underlines the importance of food and beverage to its centres. He says because it can track the customer journey so closely, it has been able to see that they don’t just stay for longer, they spend more.
Not surprising, then, that London Designer Outlet (LDO) developer Quintain led out the leasing of its Wembley City project not by retail anchors but by the leisure offer, securing a cinema operator and its core restaurant tenants before it started to secure retail names such as Gap and Nike. Pizza Express, Prezzo, Frankie & Benny’s, Handmade Burger Co and Jimmy Spices are among the names signed up to the designer outlet, due to open in autumn 2013, situated within the M25. In total, 15 new restaurants, cafes and coffee shops will trade alongside 85 designer retail units and a nine-screen Cineworld.
Quintain managing director of retail Phil Cottingham says: “I’ve long been of the opinion that a good restaurant and leisure offer is crucial to the vitality of any retail scheme and I think that in this day and age you have to provide as many reasons as you can to attract visitors and then to keep them there.”
Adjacent to the national stadium and to Wembley Arena, LDO’s urban location makes it unusual in that visitors will come from a mix of destination shoppers, event visitors and locals, which means that the leisure offer is also able to extend trading hours on the site. “What we are hoping is that people visit for a day out and then decide how to spend their time,” says Cottingham.
Of course, not all designer outlets are as high profile as LDO and how the retail offer should be complemented has to be location-specific. But Ted Schama, partner at Shelley Sandzer, points out this should not be a barrier to refreshing the mix. “At one end you have a scheme like Bicester, where we were able to attract operators like Carluccio’s, Villandry and Busaba Eathai, which reflects the high-end nature of the centre,” he says. “But for a smaller centre the introduction of, for example, Nando’s or Ask can really boost the offer. There are plenty of operators out there now providing a very consistent level of food in environments and at prices which consumers are very comfortable with.”
Schama points to the low level mix of food across many estates – often about 5% by space – and to the Far East where the food offer can make up as much as a quarter of a given scheme. “OK, the potential in the UK is unlikely to be that high but at the moment the perceived ceiling seems to be at about 10%, so there is still plenty of scope to increase the proportion of restaurants on a designer outlet. It’s all about the experience, and increasingly that’s provided or supported by food.”
Madsen agrees and also sees events and promotions as a way of tapping into a younger demographic compared with the core 35-50-year-old market. McArthurGlen is working very hard to increase the 18-29-year-old market. He says: “By getting them younger and convincing them that our centres are a place to come we have the opportunity to retain them as customers as they leave university, start work and start families.”
Unique selling point
At the McArthurGlen sites, the approach has varied from a winter wonderland set up over Christmas and new year at York, complete with ice rink, fair and opened by professional iceskaters Torvill and Dean, to more celebrities at Cheshire Oaks, where former X Factor winners Alexandra Burke and Joe McElderry were special guests. But he stresses that events don’t have to be huge spectacles. He explains that they could be anything from a food fair to an antiques market. At Cheshire Oaks, where its centre is next to the main retail offer, it has set up skateboard ramps near the sportswear brand retailers. “You always need to be challenging and coming up with ideas,” says Madsen.
Similarly, Peel plans a £60m investment to create a new leisure and shopping quarter – The Quayside – at Gloucester Quays to include 11 restaurants, a 10-screen, 1,600-seat cinema and new shops. Work is scheduled to start early this year with The Quayside expected to open for business by autumn 2013. Gloucester Quays has also run a series of major events over the past few months, including in July its first Gloucester Quays Food Festival, which attracted 50,000 visitors.
Tracey Mills, development director at Coffer Group, says flexibility is key to establishing the right mix and introducing food without detracting from the retail offer. “Planning can limit the opportunities but an increasing number of food offers, such as sushi, can take up A1 consents for retail,” she says. “There are also some very good mobile options, such as Street Kitchens, which allow a centre to bring in a mobile unit that doesn’t simply serve up fast food.”
Madsen remains confident of further growth in 2012, convinced that despite the maturity of the market, consumer appetite for designer outlets remains unabated. “It’s all about understanding what drives the customer,” he says. “Restaurants and events can be used to help position the centre and to support the major brands.”
Attracting new brands to expand the offer
The UK’s designer outlet sector has worked hard to make the tenant profile appeal to a more youthful demographic over the past two or three years and brands such as Penguin, G-Star and Superdry have joined the usual names, acting as a big draw for the 20-30-year-old market. Accessories and leather goods have also grown in prominence, while consumer electronics brands such as Sony and Toshiba have also opened some outlet stores, and premium and specialist brands such as Aquascutum, Gieves & Hawkes, LK Bennett, Jaeger, Jigsaw, Billabong and Kurt Geiger have opened or expanded their outlet portfolio.
French brand The Kooples opened a flagship outlet store at McArthurGlen’s York Designer Outlet on December 21, in its first venture into the designer outlet retail market, with a 1,286 sq ft store positioned alongside other premium brands.
Other speciality retailers are also testing the outlet model. Welsh jewellery brand Clogau Gold launched into the English outlet market with the opening of a 454 sq ft store at McArthurGlen’s Cheshire Oaks Designer Outlet, after its outlet debut at McArthurGlen’s Bridgend Designer Outlet, near Cardiff.
“The advantage for retailers and brands is that it’s comparatively low cost to dip your toe in the channel,” says Quintain’s Phil Cottingham. “Fit-out costs are lower, leases tend to be shorter, with plenty of break clauses, and turnover rents reduce much of the risk.”
Cottingham notes that the demand for larger units is increasing, while McArthurGlen’s Henrik Madsen says he expects the growth this year will principally be through existing players but that there is more interest from overseas retailers of supporting market entry with a designer outlet offer.
The other growing trend is manufacture purely for the factory outlet market. While outlet centres have traditionally been used to sell out surplus stock, with retailers and brands now manufacturing far tighter quantities, strategies for how they balance stock and manufacturing specifically for outlet are becoming more widespread. This is a model replicated from the US, where manufacturing techniques for certain products are adapted for outlet – enabling the brands to sell at cheaper prices – and core lines are made available to complement the outlet offering.
Despite the almost universal success of designer outlets, even in this market there is early evidence of polarisation says Chris Warren, partner and head of European outlets at Cushman & Wakefield. He cites the growing presence of luxury and upscale brands at some of the best known centres, such as Bicester Village and Cheshire Oaks, and speculates that the strongest and best located centres could prosper while weaker centres decline.
“One of the key drivers for success has been that there isn’t a designer outlet in every town and so they remain destinations,” says Warren. “The big have definitely got stronger in recent years and are attracting top brands, churning the mix and building on their reputations.”
Warren believes the market has reached maturity, with the bias towards fashion as a proportion of the mix strengthening, but warns that retailers must work the category carefully to exploit maximum benefit. “What we have seen is more brands stock properly, increasing the depth and breadth of their offer – and getting away from the old situation where a retailer stocked a range only in XL, XS and green,” he reflects. “I have mixed feelings about moving towards manufacture for outlet, as it seems to be getting away from the point.”