By Henrik Madsen
The race for the consumer’s attention across the (outlet) industry remains as intense and fierce as ever. The principle ”give me what I want, make it personal to me, and I will offer you some time” remains the catalyst for success and prosperity. If you weren’t listening prior to the Covid-19 crisis, you were in trouble. If you survived but remain reluctant to expand into new parameters, you run the risk of being stuck in survival mode rather than a growth mindset.
For the outlet sector, the financial impact of the Covid-19 crisis, to a large extend, mirrors the commercial and operational challenges that resulted from the 2007-2009 financial crisis. Income affected by closed stores or bankruptcies, valuation affected by lesser income and shifting yields. But –as expected from the experience gathered in previous crises – the stronger, smarter, established, and well-funded businesses with great operators have survived the pandemic crisis and are probably in better shape than many conventional shopping center portfolios.
Believe it or not, I personally feel there is more good news for the outlet industry across the globe. Firstly, the mid-market and increasingly irrelevant full-price department store competition has become all but extinct – in UK alone 388 department stores have closed over the last 5 years, among them more than 230 are still empty buildings. Another clear warning that survival as a retail destination requires not just great brands but a truly relevant, engaging leisure destination proposition, with consistent and personalized, digitally integrated communication. And like during the last major financial crisis, new innovative business models have been created and true entrepreneurship with proper consumer engagement strategies flourish.
The objective of the outlet sector has not changed at all. Yes, of course we know the surge in online shopping behaviours continues to eat away consumption from bricks and mortar. But we also know humans need interaction and it will take the online industry some time to provide anything close to the experience that bricks and mortar contribute.For the best outlets, this need represents a potential commercial advantage that many existing full-price destinations find hard to meet. Cease to fight online competition, embrace it and use your efforts to sell your value-add.
I expect the brand mix of many outlets to change, with the larger, dominant, and luxury brand partners choosing to only be in ‘gold standard’ centers – ones that are regionally dominant, with size and scale. Secondly, smaller brands and incubator brands, including pure players, are now actively searching for new consumers to bolster their reach. This will impact the desire to trial and test the outlet model and outlet operators’ need to be ready to offer these brands the space and flexibility to succeed.
I could go on at length about learnings for the outlet sector during the past 24 months, but surely it remains more simple: Your business is fit for purpose when curated to accommodate, communicate, and entertain the local, regional catchment as well as any returning tourist visitors. A commercial business delivered by a dynamic mix of new and trusted brand partners in the best village developments, will support visitor development and, dwell time, which, in turn, will still deliver growing income streams in the top quartile of the retail industry.
The operational parameters of success in themselves also seem simple while much harder to deliver consistently: determine a realistic baseline, use data sources to predict outcomes of short-term investments, have a clearly articulated destination proposition driving long-term strategic planning, and understand the implications of integrated p- to e-commerce sales and channel marketing. Moreover, remain relevant, flexible, and strive for innovative adaption to the customers and their preferences and experiences.