If you grew up in the ’90s, you know that “going to the mall” was a given for fun weekend plans.
While a big part of the experience included socializing and simply visiting your favorite stores, for a lot of consumers on a budget looking to snag a piece of luxury, outlet malls also offered a great deal.
“[Outlet stores] provide a platform to reach a broader audience without compromising the brand’s image in their main retail channels, which helps with market penetration and brand visibility,” Sam Vise, CEO at retail intelligence platform Optimum Retailing, told Retail Brew via email. “Additionally, outlet stores are an effective way to manage inventory by clearing out excess or past-season items, thus reducing markdowns in primary stores and supporting overall profitability.”
But over the past few years, it almost seems outlet malls have been falling out of fashion with some consumers looking to e-commerce for discounted luxury items.
“The rise of e-commerce giants has significantly impacted the US outlet mall industry, leading to a slower recovery post-pandemic,” Nora Kleinewillinghoefer, partner in the consumer practice division of Kearney, told Retail Brew via email, adding that economic factors are also significant as inflation and reduced spending power have limited American shoppers’ visits to outlet malls.
But while inflation has certainly pushed consumers to cut back on discretionary spending, it has also in many ways revitalized the humble outlet mall.
The comeback: Placer.ai, which provides location-based analytics for retailers, notes that while there was indeed a drop in shopper interest right after the pandemic, footfall at outlet stores is steadily picking up. “Visitation trends to luxury outlet malls remain down compared to pre-pandemic levels, but have seen steady improvement the past few years as consumers increasingly look for deals,” RJ Hottovy, Placer.ai’s head of analytical research, told Retail Brew via email.
Rising costs have further pushed cash-strapped consumers to look to off-price retailers and outlet stores. This trend has also further helped reshape the perception of outlet malls, once viewed by many shoppers as a place for off-season or out of fashion items.
“Over the past two years, there has been a sweeping destigmatization of shopping at discount and off-price malls amid the cost of living crisis,” Candice Medeiros, senior strategist at WGSN, told Retail Brew. “Value has become a top factor influencing consumer purchases, above quality, selection, convenience, and transparency.”
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Additional data from global market intelligence and research agency Mintel substantiates Medeiros’s perspective; 30% of luxury shoppers say they’ve bought luxury goods less often because of inflation. And a further 74% of consumers agreed that discounts and sales were imperative in order to get good deals.
Shifting POVs: “Luxury brands have often shied away from discounting strategies for fear of diluting brand reputation, but this fear is largely unfounded with consumers,” Brittany Steiger, principal analyst of retail and e-commerce at Mintel, told Retail Brew via email. “Discounting allows luxury [to] build brand affinity with the aspirational shopper.”
Medeiros agreed, adding that WGSN had been tracking the rise of off-price concepts and found that “consumers of all tax brackets share fiscal concerns regarding credit card debt and the ability to make large purchases…This has really forced brands to provide top-notch products at discounted prices.”
Many companies are already taking note, most recently LVMH-backed private equity firm L Catterton, which acquired Hammerson Plc’s $1.9 billion stake in outlet mall landlord Value Retail.
The deal, which encompasses nine luxury retail properties across Europe, is likely to generate 600 million pounds in cash proceeds for Hammerson.
“This is a sign that L Catterton recognizes the value of these kinds of shopping channels,” Vise said. “Value Retail’s properties have proven resilient in the rise of e-commerce, attracting millions of international shoppers seeking discounted luxury items and a high-quality shopping environment.”
And L Catterton is not alone. The CEO of Tanger Outlets, the shopping-mall chain with 39 locations in the US and Canada, has seen steady consumer interest in its properties and is positive about its future.
“Tanger has continued to see success with high-end retailers across our portfolio, prompting us to further invest in and expand these partnerships,” Stephen Yalof, president and CEO of Tanger Inc., told Retail Brew via email. “For the retailer, outlet centers provide an opportunity for luxury brands to engage with a new customer that isn’t shopping on Madison Avenue, and once that connection is made, those shoppers often move up through the brand ecosystem and make them customers for life.”