Open for returns
A sharp rebound at outlet malls ahead of the holidays delivers a rare high note during an otherwise dismal year for brick-and-mortar retail.

By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: Nov 27, 2020

Outlet malls, once the bargain-basement beacon of the American road trip, are emerging as a retail darling in the wake of the novel coronavirus pandemic.

Although the vast majority of brick-and-mortar retail has been decimated by the pandemic, a transformation already underway in the outlet-mall sector has buffered those properties from much of the pain hitting traditional, largely indoor shopping districts. Consider it the rare silver lining in an otherwise perfect storm of troubles battering retail.

The sector’s recent emergence — data indicates foot traffic is rebounding at a far faster clip than at standard shopping malls and retail centers — already is reshaping project pipelines for retail developers. Experts say it’s because the premium-outlet model is ready-made for a world where room for social distancing and outdoor space are in high demand.

“They actually were adapting pre-Covid,” said Richard Frolik of CBRE Group Inc.’s value and outlet center group. Newer outlet malls in the U.S. have been built closer to densely populated areas and are much smaller than their predecessors, he said, though older properties have been redeveloped in recent years to add restaurants and hotels. Whereas an older outlet mall might have close to 1 million square feet of retail, Frolik said newer centers range from 350,000 to 400,000 square feet — meaning they were already right-sized for a post-Covid world.

Signs also point to a shakeup in the traditional tenant mix, threatening some staples of traditional shopping districts. For example, in Kansas City, Kansas, plans are in the works to add German discount grocer Aldi to Legends Outlets Kansas City, owned by Walton Street Capital LLC. In Florida’s densely populated Broward County, construction is underway on an AC by Marriott hotel at Simon Property Group Inc.’s Sawgrass Mills outlet mall.

By Frolik’s count, the United States has about 215 “true” outlet centers, and although they make up only 1% of gross leasable retail space, outlets account for 10% to 11% of all retail sales. Ownership is also extremely consolidated, with real estate investment trusts Simon, based in Indianapolis, and Tanger Factory Outlet Centers Inc. of Greensboro, North Carolina, the dominant players.