Deafening silence on factory outlets

Copyright: David Lawson 1996

Every now and again a new idea comes along that is so obvious, everyone wonders why they didn't think of it before. The problem with new ideas, however, is that you have to shout about them to educate the uninitiated. But try asking a retailer about factory outlets, perhaps the most exciting idea to burst out of the sector since Sam Chippendale opened his first Arndale and introduced the joys of the covered shopping centre. The silence is deafening. It is not that they dislike the prospect of new outlets in fresh locations. In fact, most of the half-dozen or so centres now under way are filling faster than a British Gas director's pockets. 'They just don't want their names headlined,' says one developer.

This curious ambivalence has an internal logic. Factory outlets, as the name implies, were invented to relieve manufacturers of products they could not sell in the high street, such as seconds. Certain retailers then realised they had similar needs. Clothing stores, for instance, change inventory several times a year as seasons and fashions move on. Cut-price 'sales' help move the stock at lower margins: 'But this takes up space where higher-margin products would be displayed,' says Paul Knight of shoe retailers C & J Clark. The company picked up the idea in the US and set up Street Village in the West Country, one of the first UK factory outlets.

Retailers are reticent about their roles because they don't want to be seen as boasting that customers can get top-brand goods cheaper than in the prime high street stores. 'They like us to blow our own trumpet but have been ordered by some tenants not to use their names in our publicity,' says one developer. That is only one of the complications outlet developers need to cope with. 'Firstly, you have to be aware that these centres are not all the same,' says Peer Courtney of retail specialists Lunson Mitchenall. For instance The Yorkshire Outlet, near Doncaster, which he is working on for developers RAM Euro Centres and C & J Clark, will have a different flavour than 'first-generation' Street.

That was effectively a mill-shop extension. This is linked to a leisure centre and business park. 'It is important that an outlet is a place to go - or on the way to a destination,' says Courtney. 'That picks up customers on repeated visits.' Value Retail's Bicester Village in Oxfordshire is different again - distinctly upmarket, anchored by Ralph Lauren and selling goods little short of high street standards. Customers will come here for quality as much for price.

Developments like Doncaster and BAA McArthur/Glen's Cheshire Oaks scheme near Chester lie in between, aiming for a broader 'midscale' customer base. While Courtney is keeping tight-lipped about potential tenants for the 14,400m2 (155,000 sq ft) centre, a pool of names is likely to be interested. Nike, Levi, Timberland, and Jaeger, for instance, are at Cheshire Oaks. Liz Clairbourne, Laura Ashley and Black & Decker are at Street. Most are looking for small outlets selling surplus or imperfect goods with the attraction of a famous brand. 'In the past they would have a sold to jobbers, but this left the danger that they might turn up on a stall outside one of their own shops,' says Knight.

But apart from market range, subtle differences in location preferences make a complex, swirling pattern that keeps developers and agents on guessing about who they can attract. Knight, with a vested interest as a developer, is one of the few retailers willing to talk about such complications. A retailer or famous brand name has first to ensure they do not undercut the high street. 'We would not intrude on one of our stores but also have to keep faith with retailers we supply,' he says.

That often writes off edge-of-town schemes, even though factory outlets need between 4m and 5m within an hour's drive to be viable. The equation worked out at Doncaster, where Clark's is anchoring the scheme with four outlets under different names. it might not for a retailer like Laura Ashley, which may seek more remote locations to protect its high street sales. Some retailers are never likely to seek this niche. Marks & Spencer has the muscle power to direct surplus and sub-standard goods back to the supplier. But that merely means the goods get sold by a third party - often in a discount centre.

Others may not bow to a strong landlord. Next is understood to have demanded too large space at one factory outlet. Owners are careful to ensure a variety of smaller spaces rather than the conventional shopping centre pattern of a dominant anchor. 'A strong landlord is important,' says Chris Booton, UK director for RAM. 'They have to have a strong awareness of the remainder trade and ensure the right mix.'

That mix will vary, not just by market sector but by area. Paxton Place, a 5,600m2 (55,000 sq ft) village just given approval in Derbyshire, will reflect the Peak District location by concentrating on outdoor leisure goods such as climbing gear and jeans, say developers Terrace Hill/Hinkley. Some retailers are seeking to fill gaps in their networks. Levi is in Cheshire Oaks and Scotland as Big L, and probably have scope for one more large store in the south, says Courtney.

Choosing a centre can be ass simple as refusing to taint high-profile brands by rubbing shoulders with trade seconds. 'We are certainly not planning shops full of surplus bog rolls,' says Booton. But there are degrees snobbery. Mike Fitton was in the china trade before he took over as centre director for the Galleria, a struggling shopping centre on the A1M north of London, so he sees the value of shops selling seconds.

'These do not compete with the high street because customers know they are getting different products,' he says. The centre, at 28,000m2 (300,000 sq ft) perhaps the largest in the UK, has therefore a wider range than fashion-dominated ones like Bicester. He also points out that retailers are learning to stratify their strategy. Top-name retailer Jeffrey Rodgers opened in the Galleria last year cat the same time as starting full-price stores in Brent Cross and Lakeside, two centres also on the London fringes. 'Businesses are continuing to change their ideas, so no-one knows the most successful style of centre that will evolve,' says Paul Knight.

'Globalisation of retailers like Nike means they have that much more stock which needs to be discounted when seasons and markets change,' adds Courtney. He sees room for 10 or a dozen 'proper' centres and a similar number claiming the title - if not the true ethos - of factory outlets. That all depends, of course, on scaling the planning hurdles being erected by a government determined to halt greenfield development.

A couple of consistencies emerge in this morass of uncertainties, though. Outlets will be linked to leisure - 'a good day out is essential', says Fitton. Healthy turnover will be essential, and rents are already geared in this direction. Street, for instance, is tilted mainly towards turnover rents while Doncaster is a combination of base rents and turnover. 'It shows retailers that landlords will share the risk,' says Knight, finally donning both hats to leave himself free to examine his crystal ball. Risk is certainly part of the cloudy future; but there should be rich rewards for those who get the concept right.