Outlet retail at thirtysomething – the secrets behind its enduring investor appeal

An article that featured in BE News 29th May 2024.

Only 0.8% of all the shops in Europe are outlet stores and yet there is something disproportionately powerful in the DNA of these unique and niche retail habitats. Despite having reached their early thirties (the first such stores to open in the UK were at Clarks Village, Somerset, in 1993), outlet centres remain more dynamic and attractive to customers, brands and investors than ever.

Flicking though the trade press you would be hard pushed to find a negative story about outlet shopping. Footfall always seems to be rising and sales are forever growing. Aside from the rather obvious conclusion that outlets are winning over a new wave of value-seeking shoppers due to cost of living and inflationary pressures, there has been little in the way of a deeper dive into exactly why outlets have become so popular and resilient. What gives them that Teflon-like quality, which repels the negative forces that have impacted other retail centres in recent years?

The continuing potency of outlets lies in four key drivers:

Fun: An obsession with functional efficiency can rob modern shopping of its enjoyment. Outlet shopping has a built-in element of surprise and delight. As Forrest Gump said when he likened life to a box of chocolates, you are never sure what you’re going to get, but you persist in in the hope you will soon find something that is to your taste. While most outlet shoppers are aware of those brands on offer, the mystery of which SKUs (stock keeping units), styles and sizes engenders an element of serendipity that is genuinely enjoyable. While not, perhaps, an experience that suits all types of shopper, individuals with a penchant for deals and a fondness for outlet shopping often revel in the classic, hands-on method of arriving at a location and discovering what’s there.

Safe and calm: Outlets are oases of retail therapy which, by virtue of their partial reliance on tourism, capture that holiday feeling. This can make for a great day out, which is both sociable and inclusive. Easy to get to – and to enjoy for many hours – a well-manicured destination where a ‘guest culture’ permeates holds huge allure for many shoppers as it creates an important sense of safety and calm. These attributes don’t arise by accident. Whether through design or intervention, events or installations, the outlet environment is one of the most actively managed and curated of retail destinations.

Nimble and growth supporting: As a specialist outlet operator, Multi-Realm has enjoyed huge success thanks to its ability to welcome brand partners to an outlet channel and help them grow their businesses. To open, refit or expand an outlet store is always a business decision made in close partnership and one where modelling and trading data fuels the conversation. Working closely with brands for mutual gain has built higher levels of trust in the outlet proposition. Some of the world’s biggest labels now know that schemes are exceptionally well controlled and marketed in ways that mean brand integrity is not at risk.

If physical stores are added as an integral part of an omnichannel strategy, it is easy to understand why outlet shopping destinations are increasingly attractive to retailers as they serve multiple uses beyond simply clearing inventory. Brands may seek to trial a pop-up store to understand first-hand whether they can profitably coexist alongside full price stores and how an outlet presence can act as an acquisition channel. The confidence gained from operating an outlet portfolio can subsequently give rise to longer-term commitment and improved stock management systems.

Discount shopping: If outlets were viewed as operating systems, there have been a number of key updates or shifts in strategic direction over the last three decades as the proposition, customer and brand expectations have evolved. These ‘genetic’ changes for the better have been both top down and bottom up as schemes have welcomed international and independent local brands.

This isn’t just off-price shopping; it’s a parallel world where consumers can express their own lifestyles and strike a chord with some of the biggest issues of the day. Changing social norms have generally supported the retail proposition offered by outlets and have undoubtedly helped boost their popularity. Remaining financially prudent, caring for the environment and being a conscious consumer are all behavioural choices that have put a trip to an outlet onto the agendas of large numbers of shoppers.

We firmly believe that outlets have come of age and – in doing so – have become a favourite of all ages. Indeed, they are increasingly beginning to attract a new generation of younger shoppers, often encouraged by social media, who are more environmentally aware and constantly looking for quality and uniqueness in their purchases.

The increasing appeal of outlets to customers and brands has produced impressive sales growth and strong trading performance. These factors, combined with the turnover rent lease model – and underpinned by indexed and sustainable base rents – has only enhanced the investor appeal of outlets. As a result, the prognosis for outlets is extremely positive.

For those brands and investors who understand the specialist operational requirements of outlet retailing, active asset management and data-driven partnerships, outlets form an incredibly rewarding asset class where data visibility and turnover rents combine to be empowering.