Mark Watts’s Expert Opinion Piece on Inflation in Outlets

Mark Watts, Finance Director and Head of Realm’s Advisory Division recently featured as an expert opinion for Costar to reveal the impact of price inflation, detailing how it is impacting on the performance of outlets and mindest of the sector’s shoppers.

Published 27.6.23.

With general levels of inflation at +8.7% (March CPI +10.1%, April CPI +8.7%), we’re asking ourselves what level of price increases we are seeing in our UK outlet schemes and, importantly, what this means on the ground. How is it impacting sales, footfall and the type of shopper outlets attract?

Throughout their history, outlet retail – like many other retail formats – has encountered countless trials and tribulations, and yet – unlike many other retail formats – outlet invariably remain on top.

With reams of data on sales, footfall, conversion and average transaction value, operators of outlet retail are well-equipped to be able to shed light on how outlet remains notoriously adaptable, even in the face of recent increases in inflation.

We put some science into understanding how inflation is impacting outlet in real terms, using an ‘Outlet Price Index’. We reviewed shopping lists of over 50 ‘staple’ purchases to define a typical basket, including the average meals and beverage options across our centres, to compare how prices have changed since March last year.

The reality of inflation on outlet shopping

The Realm Outlet Price Index (March 2023) shows that outlet retail prices rose by +10.9%, while F&B rose by +8.1%.

Within the categories we have been tracking it is beauty and cosmetics products that are averaging the highest increase at +16% whilst sports, outdoor wear and fashion all showed between a +10% and +12% increases in selling price.

The lowest ticket price increases we found were in the homeware sectors, at +6% – perhaps reflecting the fact that these products had experienced a major boom during the covid period and therefore had already benefited from economies of scale in faster production and distribution. Footwear also appeared more inflation resistant, with prices rising by +6% :- a figure that belies the more stable stock supply issues seen immediately post covid.

How this is shaping outlet shopping behaviour

The evidence confirms that even outlet shoppers are seeing an uplift in the price of shopping which may, in part, be contributing to the sales growth we are seeing across our portfolio; for Q1 this year, we saw sales increase 14% on 2022 and 9% over pre-pandemic levels. However, we are also seeing footfall rapidly recovering; across our portfolio it is at +9% vs 2022 (though not yet surpassing pre-pandemic levels). Recent analysis by the ONS and outlets are clearly benefitting from an influx of a new kind of shopper who is drawn to value.

On the ground, we’re finding that it is inevitably, the longer they spend at a scheme, the more they spend.

Newer customers are typically being drawn from a longer drivetime and the relationship between distance travelled, and money spent has proved just as robust. Total spend generally increases by as much as 80% between those staying for an hour and remaining on site for 2 hours, according to our data.

Another important piece of data we collect from our retailers is the daily transaction count or, more simply, how many customers are actually parting with money in exchange for goods in the stores each day. In Q1 we saw 2.1m purchases across our centres, – 11% down on pre-pandemic 2019 but, like footfall, recovering fast at +7% on 2022.

Taking a holistic view gives us a much clearer picture of how price inflation is interacting with trends we’re seeing in our schemes and across the market more generally. Viewing the percentage increases at a granular level, we can tell the story in the following formula:

Footfall = + 9% → transactions up by 7%, subject to +10% inflation, resulting in sales up +14%.

By utilising the insights our data collection models afford us, and our new Realm Outlet Price Index, we can draw the following conclusions.

1. Price inflation is no deterrent to our customers spending in our outlets.
2. Outlet shoppers are buying more items when they visit an outlet in 2023.
3. Due to inflation, there is a double boost as shoppers are spending more at a higher price point.
4. Footfall is recovering quickly but, for the short term, inflation and an influx of new customers is more than compensating for the gap between pre and post pandemic counts.
5. New customers are on the rise and particularly valuable. They spend more time and therefore more money at outlets, again compensating for any drop off from those more established customers who may be reducing their visitation and purchasing due to a squeeze on their discretionary spending.

The evidence gives credence to outlet retail’s tenacity and resilience – with a capacity to withstand, recover and hang tough that is frankly quite remarkable.  While we continue to navigate a challenging market with adverse economic headwinds and significant shifts in consumer behaviour, we can count on outlets’ resistance. In a market full of uncertainty, the idea of ‘value’ gains renewed appeal and greater importance for shoppers; because value is hard to resist.