When a sector matures very quickly it isinevitable that people start talking about oversaturation, closures and consolidations. And this is just what has happened within the factory outlet market. Surpassing all expectations, the US concept of large out-of-town stores selling end-of-line or last season’s clothes from fashion’s biggest names has seen phenomenal growth since the first outlet opened at Clarks Village, near Taunton, Somerset, 11 years ago.
Compared with Europe, which has around 70 outlets, the UK has a gut-busting 47 covering almost every area. The sheer number has left outlet owners such as Ray Terrafranca, managing director of Gretna Green – which is expanding its 78,000 sq ft by a further 48,000 sq ft – predicting closures and consolidations.
Until that does or does not happen, Chris Warren, head of European leisure services at Cushman & Wakefield Healey & Baker, says: “Factory outlet owners have to grow their business, but getting the planning permission to do that is difficult. Plus, there is a lack of sites, so where is the growth going to come from?”
European market
There are several answers: change use, introduce new brands, or forget about further UK sites and look to pastures new, namely the European market.
Chris Blair of Blair Kirkman believes some factory outlets will morph into shopping centres. “It is possible that the more successful factory outlet centres with more open planning consents could, in the future, become mainstream shopping centres,” he says.
“At the very least it is likely that factory outlets may take on more of the physical appearance of shopping centres, with roofs installed to provide an environment that complements what many already do to attract shoppers with regards to entertainment, food courts and crèches.”
A site owned by major UK factory outlet operator, Freeport — West Calder in Scotland — could be on course for such a change if Freeport’s chairman Sean Collidge’s ideas go to plan. West Calder was 100% let with all 60 units operating when it opened in 1996. But business was hit when McArthurGlen opened its nearby Livingston outlet in 2000, and attracted some of West Calder’s retailers. At the time of going to press, there were only four units trading, including Versace.
Collidge refuses to accept defeat. He plans to roof over the outlet, and turn it into a shopping village. Sources at the outlet say work should start on redeveloping the site later this year.
But with the market at bursting point, there could be more scalps up for the taking, especially the smaller outlets. Tracey Pollard of retail specialists Markham, Vaughan, Gillingham says: “Existing centres will have to fight to protect and grow their market share due to the increase in size of the regionally dominant centres.”
Stock control
As a result, there is a need to stop outlets all looking the same. One way to keep customers interested is to offer new brands to sit with the usual suspects of Polo Ralph Lauren, Suits You and Ben Sherman, which have been in the market for the past few years.
The problem, says Julia Calabrese, chief executive at McArthurGlen, is that the factory outlet market is still misunderstood by retailers. However, she believes that is now changing as many look to the example set by Marks & Spencer, which initially shied away from the sector until it matured.
“The success of M&S is prompting other retailers to take a fresh look at how selling a product via the outlet market can increase their revenue and help their stock control and supply chain,” Calabrese says.
New Look and Zara are now said to be seeking sites, and commentators are predicting that Selfridges and Harrods could soon follow in the footsteps of US department store giants Saks and Barney’s, which are in US outlets and look to take units in the UK.
Donaldson’s John Percy says that, for major retailers to move into the market, “it would need to be a very significant outlet, and it would either have to be an extension to the outlet or a new build.”
Scott Malkin, chairman and founder of Value Retail – owner of the hugely successful Bicester Village, which boasts DKNY, Burberry and Karen Millen – hints that there has already been some interest from this sector. “Pretty much everybody has been around Bicester at one point to have a look at what we’re doing.”
Selfridges was unavailable for comment, while Harrods had “no reaction” to the question.
Brand expansion and copying the US will only take an outlet so far. And with continued planning restraints and lack of land, there are only a handful of sites considered to be available (see panel). Other options are needed.
Ultimately, the bigger players are going to look to less saturated markets to grow their brands. And this can only mean Europe.
When asked if expansion in Europe was important, Calabrese emphatically states: “You bet.” Moving into Europe is not a new thing for the likes of McArthurGlen, which first opened a centre in Troyes, 170km south-east of Paris, in 1995. However, the company, which now has 13 European outlets, is keen to expand. It has just started constructing its third Italian site at Barberino di Mugello in the heart of Tuscany, and is looking for at least one more in the country.
In fact, so eager are outlet owners to conquer Europe that they have been selling their UK outlets to finance ventures. In March, Freeport’s Collidge oversaw the sale of the £245m portfolio of some of its UK factory outlets to Hermes in a move designed tobolster its European standing.
However, David Burland, retail director at Dunlop Heywood Lorenz, which represents brands in the factory outlet and full-price sector throughout Europe, warns of the pitfalls. He points out that there may be the space to develop, but that it can take years to overcome stringent planning regimes and obtain retail permits.
There was surprise when Freeport announced in June that Freeport Lisboa in Portugal — which, at 1.2m sq ft, is the company’s largest outlet – was going to temporarily open, despite only 70 of the 200 outlets trading. Collidge says it was to coincide with the start of the Euro 2004 football tournament.
Malkin also says it is not easy to go cross borders. “Mistakes will be made, and there will be some stopping and starting of outlet openings.” But, for the factory outlet companies with nowhere else to expand in the UK, it is a risk they are willing to take.
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Dominic Goold has an air of slight annoyance when asked about saturation in the factory outlet market. “Saying the market is saturated is over-simplistic,” he states. “There’s always room for a fresh innovative offer, no matter how many outlets are already in the market.” Goold’s optimistic view is no surprise, given that he is spearheading the new Shannons Mill site in Walsall in a joint venture with St Modwen– one of the only factory outlet schemes under construction in the UK. Goold has struck lucky with the Walsall site. The Midlands is seen as one of the last available patches for outlet development in the country, along with Spalding in Lincolnshire, Gloucester Docks and one or two sites in Northern Ireland. Even though the site is prestigious, opening a factory outlet in the present market is still difficult. Goold admits to having problems with the development that will house the 250,000 sq ft outlet, along with a food store next door. Traffic issues have meant the completion date being moved to an opening date of next spring. “We have taken our time because planning has been problematic.” He also says opening a factory outlet is risky in terms of covenant strength. But Goold is optimistic everything will turn out fine. “We have 35% exchanged, with 35% in solicitors’ hands and the rest in negotiations.” |
