Why outlet shopping centres are back in fashion

Thursday, 24 October 2024

First there was Dress Smart, and now there’s Auckland Airport’s Mānawa Bay. Retail experts say outlet shopping centres are having their moment ‒ and it’s perhaps not hard to see why, amid tough economic times.

Retail spending has been flat through the year as consumers grapple with the cost of living crisis and having less discretionary income amid high interest rates.

While rates have started to come down, and more cuts are tipped to come, there has been little material movement in overall spending patterns.

The latest Stats NZ figures show electronic card spending increased by 0.3% in September, with notable increases recorded across apparel, up 1.1%, and motor vehicle sales, up 0.8% last month.

Experts say outlet shopping has evolved from once being focused on offering old or end-of-the-season stock at discounted prices to a wider product mix offered at up to 70% off typical prices.

Outlet stock can be current items that are now discounted by the retailer, or last season or out-of-season items. Often retailers in outlet centres carry a mix of all three types of stock.

Dress Smart was the first shopping centre to bring the concept of outlet shopping to New Zealand almost 30 years ago. Its Onehunga and Hornby locations in Auckland and Christchurch have “remained resilient” in the face of tightening economic environment.

Outlet shopping as a category has been growing in popularity as cash-strapped shoppers seek out the same brands at reduced prices.

Jennifer Andrews, asset manager of retail at Oyster Property Group which manages Dress Smart Onehunga, says the East Auckland shopping centre has seen its shopper foot count grow in recent months, and increasing demand from retailers keen to set up shop in the centre.

Over two and a half million people visit Dress Smart Onehunga each year. It houses over 100 retailers, and has grown significantly since its early days with just 20 shops.

The past two years had seen particularly strong growth for the centre, said Andrews.

The recessionary economy and the general consumer adjusting to having less discretionary income amid high interest rates had put outlet centres front of mind for shoppers looking for savings, she said.

“In tough economic times, people want value for money and but they still want good quality, branded products.

“We've got many brands up to 70% off, and that genuinely drives families to come here to get the best value for money, and I think with the cost of living crisis that everyone's gone through, [has driven more demand].”

Andrews said foot traffic through Dress Smart Onehunga was up 10% in August ‒ an unexpected but instant boost following the Reserve Bank’s decision to cut interest rates at that time.

“From a retailing perspective across New Zealand, it's been a tough 12 months, but Dress Smart Auckland has been growing through that time, and that reflects that value for money [desired by consumers].”

Dress Smart Auckland’s earnings had not been impacted by the downturn in retail spending, said Andrews.

New shops have opened in Dress Smart, including Coach, Tommy Hilfiger and Calvin Klein, while others such as Seed, Peter Alexander, Puma, Under Armour and Flo + Frankie have expanded their stores in the centre recently.

Smiggle, Connor and Pat Menzies will open stores before Christmas.

Andrews said the growing number of international brands taking up tenancies in the centre had made it more attractive to more shoppers.

The mix of new and old stock also added to the appeal, she said. “Outlet shopping has really evolved ‒ now you can easily find current styles at discounted prices too.”

Auckland Airport’s answer to outlet shopping, Mānawa Bay, opened last month, targeting the growing Auckland market and international tourists.

The $200 million centre is home to 14 eateries and about 100 shops, including 20 brands that opened their first New Zealand stores in the centre, such as Lindt.

The centre has already been in pulling shoppers in troves, causing some congestion in and around Auckland Airport.

Andrews said she did not expect Dress Smart Onehunga would lose business to Mānawa Bay: “Ultimately, outlet shopping is growing, and so competition is good for customers. We expect to follow our current growth trajectory.”

Dr Drew Franklin, senior marketing lecturer at the University of Auckland, said outlet shopping had undergone a renaissance of sorts ‒ the whole category was in growth mode, driven by shoppers hyper-attuned to only wanting to shop when there is a discount on offer.

He said the category had seen faster growth than it would have otherwise due to the recessionary economic environment.

“Outlet stores have been around for a while, and typically sell end of line or excess stock, such as end of season type of stock. But they have evolved and the outlets themselves, rather than a clearing shed of what it is left over at the end of the season, are becoming an experience, with their own exclusive sort of stock that have been purposely developed for that market,” said Franklin.

“People are more sensitive to discounting, and a risk of this that's been observed in academic literature and practice for retailers, is that if you prime consumers too much for a deal, they'll expect it.”

“That sensitivity to price or to deals has meant many have become desensitised so retailers now have to discount so heavily to induce that purchase behaviour that a discount would normally [be applied] at very high levels in excess of 40%, 50% sometimes.”

That behaviour had been exacerbated by the high cost of living and meant discounting had become a lot more common across retail, begging the question if there was really a difference between any shopping mall whether it called itself an outlet or not, said Franklin.

He said often retailers used “artificially high reference prices” when advertising discounts and the rise in demand for discounted goods could also be fuelling predatory pricing practices by retailers.

“Something to consider is, is the price actually a discount, or is it simply something that's been artificially increased to increase appeal.”

Outlook for retail

The last few months of the year are a crucial time for retailers, who typically make at least 60% of their earnings over the busy festive period over Black Friday, Christmas and New Year.

Andrews expected Christmas to be fruitful for the sector, particularly if the Reserve Bank delivered another cut to the Official Cash Rate this month.

Retail expert Chris Wilkinson said he believed spending would increase over the next few months.

“Consumers will want to reward themselves for a fairly tough year, so we do expect that people will be spending on products, but increasingly too on experiences including hospitality, entertainment and wellness. There's expected to be some pent-up demand, and businesses across these categories are positioning to maximise seasonal potential,” said Wilkinson.

“Shoppers will be increasingly thoughtful about their purchasing, seeking to buy less, but buy better. [My pick is] thoughtfulness will include useful, enduring gifts with retail categories such as gardening, home improvement, homewares, books, outdoor and recreation equipment and crafts being the best performers.”