As some light appears at the end of the Covid-19 tunnel, the outlet sector is in a unique position to begin fighting back. Here, RLI turns to industry experts to ask about their views on the subject and how they and their companies have navigated through these unusual times.
Otto Ambagtsheer, CEO – VIA Outlets
Without a doubt, the Covid-19 pandemic and the measures implemented to contain it have been some of the biggest disruptors to the retail industry in our time. The outlet sector, which has traditionally seen much of its growth generating from international tourism, has particularly felt the effects of travel restrictions and flight bans. At the same time, long periods of store closures have caused retailers to look for reliable sources for offloading accumulated stock, setting our industry up for a significantly stronger bounce-back than full-price retail. And here we are, already a year into the crisis, we can see that outlets have been one of few sectors that, alongside online, has proved to be truly resilient.
As a business, we believe that much of our resiliency results from our ability to be agile in a highly uncertain environment. From quickly adapting to advice from WHO and local governments to working with Bureau Veritas to certify our portfolio as a ‘Safer Shopping’ destination; from reducing operating costs in closed centres to working closely with brand partners to offer additional or different space, such as pop-up shops in new centres to help them sell off surplus stock or adapt quickly to their own changing requirements. We have even helped our brands offer virtual selling with home delivery or store pick-up, and developed a platform for customers to book shopping appointments as imposed by some governments– we have continued evolving and adapting to changing circumstances.
With vaccine programmes across Europe now picking up speed, we are (knock on wood!) hopefully nearing the end of this crisis – and at VIA Outlets, we are feeling more confident about the future. It is an established truth that outlets have always performed better than full-price retail in difficult economic times, and even from a simple health and safety perspective, most outlets benefit from being open-air.
Outlets also have a built-in leisure element, where a visit to an outlet is an experience in itself and often seen as a day out for the whole family, rather than merely a transactional event. After long periods of lockdown, people will no doubt crave these real, human experiences.
Of course, any crisis will see winners and losers – and this is not the time to lean back. Like any industry, ours, too, needs to innovate and reinvent itself in order to stay relevant in the new normal. We believe that one of the lasting effects of this past year will be that consumers will be increasingly channel agnostic, demanding a seamless shopping experience across physical, digital and social channels – creating a need for an integrated omni-channel approach. As always, offering a good product at a good price point is the absolute baseline, but customer expectations nowadays go beyond convenience. By adapting quickly and responsibly to changing customer needs, we will not only be in a good position to face current and future challenges, but be able to seize opportunities as they arise too.
Carlos González, Managing Director – NEINVER
The Covid-19 pandemic has brought forward a number of key trends that were already reshaping retail and has put strong pressure on many physical retail formats. Outlet centres have not been immune to the pandemic’s impact, but they have proved that their business model is more resilient to market disruption than other retail channels. This is due to a combination of factors, such as brands’ excess stock caused by reduced consumer demand and a more price-conscious consumer, because consumers’ focus on value has grown since the previous economic crisis and tends to increase in times of economic uncertainty. Indeed, the flow of visitors to our outlet centres in Europe rebounded rapidly whenever they were allowed to trade without restrictions.
Our first priority since the pandemic started has been to provide a more socially distanced shopping experience, with all the necessary measures in place to guarantee visitors’ safety. Agility and preparedness to adapt quickly to changes in restrictions with short notice and to the rapid evolution of consumer behaviour has also been key to dealing with the situation.
The shared efforts and commitments between tenants and operators, resulting from leasing structures with turnover rents and shorter leasing terms, has proven vital during these challenging times. The impact of lockdown measures has been significant to many brands and this has required an individual and flexible approach to help their liquidity with different relief agreements. We have reached agreements with close to 100 per cent of our tenants for the first lockdown period and we closed the year with a high occupancy rate of 97 per cent. In addition, we have been supporting our tenants both in the reopening and closure of their stores in our centres, providing them advice and support in implementing health and safety measures and protocols, and recommendations on sales and marketing strategies, among other aspects.
Moreover, the pandemic has accelerated the expansion of omni-channel integration to increase convenience and allow easy planning of visits to the centres. To this end, NEINVER launched a virtual shopping service across its entire portfolio allowing customers to directly contact the stores at the centres in order to shop or explore items without physically being present in the store. Also, in a time in which the most important factor for success is listening to the consumer, new technologies are also key to obtaining highly valuable insights about our customers that allow us to make data-driven decisions and support our tenants’ strategies.
On the opposite side, the pandemic has brought to a halt the focus on the leisure and gastronomic offer as key drivers of footfall and increased visitors’ dwell time. Once the health crisis is over, we are convinced this trend will regain attention driven by consumers’ strong appetite for human connection and social experiences.
Economic uncertainty and health concerns are the two most important factors that will influence customer behaviour in the short term. And although strong outlet propositions have navigated the turmoil better than other retail channels, our continued investment in elevating the shopping experience and in meeting customers’ needs will be necessary to accelerate recovery and turn disruption into an opportunity.
Giles Membrey, Managing Director – Rioja Estates
Before the pandemic, retail and high streets in the UK were already suffering. The lockdown restrictions during the pandemic have further impacted bricks and mortar retail, both in the high street and in shopping centres. As a result of these restrictions, internet sales have rocketed and brands have significantly increased their reliance on the internet as the major sales driver in their multi-channel distribution strategy. However, the case for outlets has been different. Between the two lockdown periods last year, outlets performed extremely well and, in many cases, outperformed or traded close to 2019 sales densities. Therefore, the outlet has become an even more important part of the brands’ multi-channel distribution approach, whilst full price high street and shopping centre retailing has declined, as has wholesale and airport sales.
We have spent, and continue to spend, a great deal of time re-engineering some of our new schemes, looking at measures and ways to improve safety through design, to future-proof our developments. We have looked at different coloured paving every two metres, more sanitisation points around the scheme and areas that allow for safely distanced queuing outside stores. We have also been looking at first floor areas for restaurants to keep the same number of covers, but in a more safely distanced environment, as well as providing more washing and toilet facilities. Additionally, we have been relooking at public realm within our schemes, specifically areas such as landscaping, design materials, servicing arrangements and play areas, to ensure they provide both a safe, sustainable and scenic environment for visitors to dwell in and pass through.
Adaptability is key. Both brands and outlet companies need to adapt. The outlet industry originally established new levels of cooperation between landlords and tenants and has been a beacon for other industries to follow.
Technology is forcing physical retail to rewrite the rules and is a priority focus for our outlets. We are currently developing an e-commerce platform at the Grantham Designer Outlet Village scheme and we have engaged with Wishibam to deliver a fully operational transactional website that will allow our visitors to enjoy shopping even when the physical scheme is not open. This will also allow our visitors to choose between postal or courier delivery and collection in-store or at a central point in the scheme. This award-winning platform has already enjoyed great success in a major outlet scheme in France, and we expect to repeat this for all our future schemes and acquisitions.
We have learnt that being able to adapt our approach in all areas, from design to operations is essential. We have learned to rise to the challenge of maintaining customer and brand satisfaction in what is now more than ever one of the most important retail channels in a brand’s distribution strategy, and a key asset class in an investor’s portfolio, that can be either a key driver of returns in good times, or a hedge in times of downturn.
Iestyn Roberts, Chief Executive – Freeport Retail
I’m due a massive pay rise. The future for Freeport – and the rest of the outlet industry – is bright. I’ve earned it, we’ve earned it! But the company bank account is currently a bit empty…
Our award-winning centre near Lyon, The Village, is subject to trading restrictions and our nascent projects in Grantham, Egypt, Bahrain and India are progressing much more slowly than we expected but looking forward to 2022 and a Covid-19 resilient global economy, things look good.
Pre Covid-19, Freeport and its competitors have consistently out-performed traditional retail. Recently, when not locked down, outlets have bounced back quickly. When open, the majority of outlets are reporting trade at 90-110 per cent of pre Covid-19 levels. Freeport’s The Village, Lyon traded at +32 per cent in December 2020.
We all know why, firstly, outdoor ‘village’ environments feel safer and easier to make Covid-19 safe. The same goes for good quality retail parks which are experiencing a similar uplift, also probably supported by easily accessible edge of town environments convenient for WFH consumers and without using public transport. Secondly, customers have money in their pockets but need a reason to spend it – a great bargain is a great reason.
For brands, supply chains have been horribly disrupted by Covid. There is lots of surplus stock to clear but it’s the wrong season or in the wrong place. Outlets fill that gap. The outlet business model – turnover related rents, shorter flexible leases and on-site management motivated to promote and curate the experience – will come to dominate retail real estate. The elephant in the room is e-commerce. Internet has had minimal impact on outlets partly because e-commerce generates surplus stock too and marketing broken stock in a store is cheap, efficient and discreet. This is partly because outlet shopping entices customers to sample new brands and products. A key benefit of outlets for brands is to discount without competing with their own full price ranges. Google search makes it too easy to find the discount online. Nevertheless we are integrating e-commerce into our business with Wishibam, which enables existing customers to view and buy outlet stock. Stores have reported sales uplifts of 10 per cent or more.
So 2022 looks great – what next?
There is going to be a culling of secondary retail, some malls will try to limp on as pseudo-outlets, few, if any, will succeed.
Europe is a relatively mature market and few good, new development opportunities exist. These few are very valuable but equally the good outlets that exist will become even better and more valuable.
Brands cutting back drastically on full price stores may find themselves needing more outlet space.
Customer experience and day long visitation will become key – expect to see service offerings and more entertainment, leisure, F&B within or adjacent to outlets.
More tools are arriving for customer analysis and loyalty – successful operators will serve their customers better and earn more from domestic customers in the long wait for the Chinese to return.