As the UK factory outlet market matures, it will face tougher questioning on the number and size of discounts on offer and how to get the best tenant mix. Elaine Cavanagh reports
Armani recently opened its first-ever factory outlet store at BAA McArthur Glen’s York complex – introducing yet another cachet name to the increasingly heavyweight line-up of brands found in some of the UK’s discount centres.
The international label joins a roll call that now includes the likes of Nike, Polo Ralph Lauren and Versace. Meanwhile, other luxury brands such as DKNY, Dunhill and Dolce & Gabanna are taking an increasing interest in the market.
It is a trend that is likely to continue, according to Melanie Taylor, who heads a Jones Lang LaSalle team dedicated to leasing the BAA McArthur Glen portfolio of schemes. “As the market develops, we expect to see increased interest from stores and international and domestic designer labels,” she says.
But, having made an average 60-minute drive to a factory outlet mall, will the shoppers still find genuine discounts?
Jo Skilton, group retail manager of BAA McArthur Glen, is adamant about its strategy.
“Absolutely,” she declares. “The integrity of our brand insists on all tenants adhering to a strict discount policy. Every tenant has to be prepared to discount to an agreed level and the criterion for discounting is 30% off high street prices.
“We have no stores – apart from catering concessions – selling at full price,” she stresses.
Paul Brewer, retail partner at GVA Grimley, says that many of the factory outlet centres in the UK are constrained by the planning controls imposed on developers who, subsequently, insist their tenants sell merchandise at the minimum 30% discount.
“Even in those instances where this planning control is not enforced, in order to attract customers, developers tend to insist that at least 80% of the tenant’s selling space is given over to goods merchandised at 30% or more discount,” he explains.
Chris Warren, partner responsible for outlet work with Healey & Baker, says that most operators are ensuring they maintain discount credibility.
“If tenants stopped discounting, it would spell disaster. Consumers are much more streetwise now and they would be disappointed if they discovered that a factory outlet centre was like any ordinary shopping centre,” he says.
There is growing concern, however, about the infiltration of “grey market” operators – selling multiple high-fashion brands under one roof. This raises two key issues – the danger it poses for the integrity of high-quality brands and the damage it could do to repeat business.
“High street operators are playing it very safe and ensuring they don’t dilute their mainstream business,” says Peter Heron, senior retail associate at King Sturge in Leeds. “But I am suspicious of these ‘grey market’ operators. The high-fashion names that they trade, like Armani and Calvin Klein, could face a problem by losing their cachet.”
Two multi-brand operator types
According to Steve Mitchell, head of factory outlet centres for UK and Europe at DTZ Debenham Thorpe, there are two types of multi-brand operators – those with access to the brands on a professional basis and on long-term licences and those that are “quasi-market traders” .
“Professional factory outlet operators wouldn’t entertain the latter,” he stresses. “But there may be other operators that are under pressure to let space who may speak to such people.”
According to Hans Dobke, chief executive of Outlet Centres International, there are customer loyalty issues that also need to be addressed.
“A number of schemes now promote themselves by claiming they have a superior tenant line-up when there are really very few direct-from-the-manufacturer-stores on-site,” he says. “An operator may say it has merchandise from one of the major designers when, in fact, there are only a small number of pieces sold through a multi-brand tenant.
“The consumer may not find a wide selection – if any – of a certain designer’s products. The disappointment may not matter to the bargain-hunter, but it is of critical importance to the ‘value shopper’ who through important repeat business contributes to a centre’s long-term viability.”
Tenant trends
Meanwhile, views are mixed as to the latest trends in the tenant line-up. OCI’s Dobke believes there is an increasing push for premium brands as developers now understand the significantly higher sales densities they produce. However, he points out that, because demand for factory outlet space from such brands is finite, the market is characterised by several operators chasing relatively few key tenants.
OCI’s own new scheme – Gretna Gateway in Scotland – is one of them. Ahead of its official launch in September, Gretna is marketing itself as a premium brand oriented centre with Polo Ralph Lauren as its anchor.
GVA Grimley’s Brewer, on the other hand, says that in order to obtain repeat business, some operators are including a mix of upmarket designer label, “middle of the road” fashion and other high street retailers.
As the FOC market matures, a distinct hierarchy of centres is evolving. DTZ’s Mitchell breaks it down into the top-tier BAA McArthur Glen supercentres, followed by a “solid second tier”, comprising the likes of MEPC and Freeport, and finally, mill concepts.
However, he believes there could be some danger in centres becoming too “massive and sprawling”.
“They could face problems if the market shifts in any way, because there is only so much distressed stock to go round,” he warns. “Some of the smaller centres might be more able to stand the test of time.”
King Sturge Retail’s Peter Heron agrees, believing the future lies in smaller, “village”operations. And he considers that themed centres work well. Among newcomers to the FOC market is Swan Hill’s Whiteley Village at junction 9 of the M27 in Hampshire. The 12,077m2 (130,000 sq ft) complex, which opens in the autumn, is being modelled on a traditional market-town design. “We’re aiming to give it a traditional Hampshire feel,” explains Swan Hill development manager Simon Hope.
Leisure and tourism important
Tourism and leisure are also becoming key elements of FOC development. Craig Ballentyne, associate partner of Knight Frank in Glasgow, believes this trend is likely to continue.
“The market is moving away from pure FOCs and towards a general leisure mix,” he says. “Clarks Village works because it has created itself as a destination in its own right. But I don’t think other schemes will be able to work in the same way in the future. They will need to be part of an integrated leisure mix.”
The Berkeley Group and Lordland Property Holdings have adopted that philosophy with the Gunwharf Quays development, which is taking shape on the site of a former Royal Navy dockyard at Portsmouth.
It embraces a 17,187m2 (185,000 sq ft) FOC, coupled with a 14-screen Warner Village multiplex, various leisure operators, restaurants and bars. Berkeley’s commercial director at the scheme, Robert Tincknell, says: “We believe this is the future for factory outlets – to fully embrace leisure in this way.”
It is also hoped the scheme will capitalise on the visitors that flock to the nearby historic ships museum.
MEPC, which is developing a new scheme at Bideford in north Devon, similarly recognises the potential of the tourist pound.
Malcolm Godfrey, retail operations and marketing manager for MEPC Factory Outlets, comments: “Four of our outlets are based in areas recognised for their attraction to tourists.”
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UK factory outlet centres |
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Customers drive for an average of one hour to reach an outlet |
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Existing schemes |
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Name |
Size (m2) |
Name |
Size (m2) |
|
1 Argyll Factory Outlet Centre |
5,574 |
2 Bicester Village |
10,879 |
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3 Bridgend Designer Outlet Village |
16,800 |
4 Cheshire Oaks |
26,012 |
|
5 Chorley Mills |
6,690 |
6 Clacton Common |
10,869 |
|
7 Clarks Village |
9,530 |
8 Derbyshire Designer Village |
14,400 |
|
9 Festival Park |
8,361 |
10 Freeport Village (Fleetwood) |
11,333 |
|
11 Freeport Village (Five Sisters) |
10,219 |
12 Great Western Designer Outlet |
18,580 |
|
13 Gretna Gateway |
7,432 |
14 Hornsea Freeport |
11,148 |
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15 Jacksons Landing |
6,975 |
16 K Village |
1,767 |
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17 Lightwater Village |
3,800 |
18 Merchant Quay |
3,720 |
|
19 Paxton Place |
5,574 |
20 Royal Quays |
12,000 |
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21 Sterling Mills Factory Outlet Centre |
7,432 |
22 The Galleria |
19,500 |
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23 The Yorkshire Outlet |
14,400 |
24 Tobacco Dock |
14,865 |
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25 Wellington Dock/FOC Dover |
2,200 |
26 Wilton Factory Shopping Village |
4,645 |
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27 York Designer Village |
36,231 |
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Schemes and extensions in the pipeline |
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Name |
Size (m2) |
Name |
Size (m2) |
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1 Chapel Hill Retail & Leisure Village |
26,012 |
2 Designer Outlet Centre – Ashford |
19,509 |
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3 Gunwharf Quays |
16,257 |
4 Whiteley Village |
16,000 |
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5 Festival Park |
2,787 |
6 Ramsgate Boulevard |
6,039 |
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7 Cheshire Oaks |
9,290 |
8 Bathside Bay |
11,600 |
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9 Freeport Village (Yorkshire) |
23,200 |
10 Leven Fields |
7,400 |
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11 Designer Outlet – Livingstone |
20,000 |
12 Bideford Factory Outlet Centre |
8,000 |
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13 Bicester Village |
3,500 |
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Source: Healey &Baker |
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