es. But from a development perspective, outlet centres in Australia have had relatively few opportunities to achieve the kind of scale that they’re reaching in North America and Europe. So why pay attention to them at all? There are reasons why factory outlets are important as niche players. One is that they are a key channel worldwide for brands to reach new customers at entry-level prices. Another is that they are slowly, but surely, becoming a remedial option for challenged shopping centres. Overview of the global outlet industry According to Value Retail News – the factory outlet industry’s bible based in Clearwater, Florida – there were approximately 415 factory outlet centres in operation at the end of last year. Collectively, they accounted for 12.6 million square metres of gross leasable area at an average size per centre of 30,360sqm. Around 45 per cent of the centres (192) were located in the US. Europe accounted for another 38 per cent of the centres (156), most of which are concentrated in the UK, Italy, France, Turkey, Spain and Germany. There are roughly 50 factory outlet centres in the Asia region, including Australia. New development, including expansions, is still heavily concentrated in the US, for a number of reasons. First, American lenders are less risk-averse than overseas counterparts, making the financing of non-mainstream formats easier to obtain. Second, American planning regimes have always been less prescriptive and more supportive of non-traditional retail formats than in many other parts of the world. And third, retailers in the US see outlets as a growth business that can help them to engage with new customers. It would be fair to say that they view the factory outlet business now in a similar way to how they viewed the regional or superregional centre business in the 1980s. This positive view of outlets as a distinct and growing line of business is driving demand for more outlet space. It’s this third point that is giving factory outlet stores a new role outside of factory outlet centres themselves – outlet stores are being blended into traditional shopping centre formats. Nordstrom, the upscale department store retailer, has long used its ‘Nordstrom Rack’ off-price format to anchor value-oriented shopping centres. Other retailers are now being rolled into these kinds of centres, sometimes as a remedial strategy. As a result, we are seeing an increasing number of centres that are neither fish nor fowl, with regular stores doing business next to outlet stores. Key trends at the leading edge Factory outlet centres themselves, like other shopping centre types, have evolved significantly over the years. Their growing popularity has been underpinned by some key trends, including: Upscaling of the tenant mix: More upscale European and American brands have infiltrated the tenant mix. Department stores: Outlet formats of the major department stores such as Neiman Marcus, Saks, Bloomingdale’s and Lord & Taylor in the US, and Marks & Spencer in the UK, have become almost automatic anchor tenants in modern factory outlet centres. Most are single-level and cover a footprint of about 2000-3000sqm. Merchandise made exclusively for outlet stores: Retailers have dedicated outlet divisions and most of the merchandise they sell in factory outlet stores is now made specifically for those stores, as opposed to selling cast-offs from full-priced stores. The merchandise is typically made according to different specifications that enable it to be priced 30-70 per cent lower than in the full-price stores. Shopper amenities: The better centres have amenities that match those of traditional shopping centre formats, including more ‘street’ furniture, upgraded restrooms, concierge services and common area WiFi. Place-making: Modern factory outlets have looked increasingly like town centre developments, with attention to design details and leasing strategies that encourage people to linger at the centre and use it as a social hangout rather than just a shopping venue. Visual merchandising and store fit-out: These have improved tremendously over time, with the result that it is often difficult to distinguish a retailer’s outlet stores from its full-price units. Food options: The number and variety of dining options, ranging from grab-and-go through to white tablecloth, has improved dramatically in modern factory outlet centres. These are helping to extend the shopper visit duration and provide an experience more akin to that of a conventional shopping centre. Proximity to urban cores: Factory outlet centres are now being opened much closer to urban areas as retailers overcome fears of cannibalising their full-price stores. Outlet retailers reach a shopper who is usually distinctly different from the one visiting their full-price stores. These customers are spend more than average on clothing and accessories, they are aspirational, and they are value-seeking despite having above-average household incomes. What the future holds Asia – as for every other kind of shopping centre development – is the part of the world that has outlet developers licking their chops. Recent openings in China and Malaysia are the tip of the iceberg. Meanwhile, outlet specialists will keep opening them wherever possible in Europe and North America, and, as noted earlier, increasingly slotting outlet stores into conventional shopping centres. So long as retailers themselves are struggling to generate growth from full-line stores and striving to harvest previously unreached customer segments, factory outlet centres have a willing constituency – and a bright future. Want more Inside Retail? Subscribe to Inside Retail Weekly now and get our premium print publication delivered to your door every week.