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Outlet Centers Are Adding Food, Groceries, Regional Tenants and Even Non-Retail

July 18, 2022

The outlet sector outlook is optimistic as consumers continue to seek value from their shopping excursions and retailers follow the traffic. “The outlet sector has grown even stronger than it was going into COVID, and there’s momentum,” said David Hinkle, principal of TORG, which manages six outlet centers across the country.

New outlet centers are under development, and leasing activity is robust at existing properties, where legacy outlet brands are expanding, nontraditional tenants are moving in and growing brands like Athleta are opening outlets for the first time. “Tenant sales and domestic traffic are now outpacing pre-pandemic levels,” said Tanger Outlets president and CEO Stephen Yalof.

Tanger’s same-center net operating income in the second quarter rose 88% from the second quarter of 2020 and has reached 93% of second-quarter-2019 NOI. Traffic at the company’s 36 U.S. properties in the second quarter of this year was higher than in the same period of 2019. Sales have recovered, too. Average tenant sales productivity grew to $424 per square foot, up 7.3% from the comparable 2019 period’s $395 per square foot. On a same-center basis, average tenant sales increased 5.5%, Yalof said. Categories that are performing particularly well include athleisure, youth-oriented brands, jewelry, accessories, beauty and home, he added. New tenants opening units at Tanger properties this year include Dick’s Sporting Goods, Nantucket’s Meat & Fish Market and Purple mattresses.

In fact, sales and traffic are improving so strongly the company is holding some space open so it can bring in higher rent when certain tenants are ready to grow, Yalof said. More than 300 leases and renewals totaling 1.6 million square feet commenced at Tanger centers during the past 12 months. As of the end the second quarter, renewals executed or in process represented 54% of the space scheduled to expire during the year. “This pace reflects our strategy to hold on some of our renewal leasing activity while the market continues to rebound and rental rates improve,” Yalof said. “This has proven sound as our sales and traffic continue to build.”

TORG worked on 98,000 square feet of leases signed or stores opened in the first half of 2022. The 29 new leases include national brands and regional and local business. National chains include Aerie, Champion, Lids, Puma, Victoria’s Secret, Rally House and Sperry.

Food continues to be a major factor at outlet centers. TORG is adding 10,000 square feet of small food tenants to its centers. The landlord is also in discussion with grocery store operators at two projects. “Curate your mix of outlet tenants and bring in an operator to bring in weekly traffic, and it gives a whole different dynamic to the outlet experience,” Hinkle said.

RELATED: Outlet centers have some advantages coming out of COVID

Tanger, too, is adding food. “The addition of new food concepts — such as sit-down restaurants, cookie and cupcake brands, local microbreweries and upscale gourmet grocers — have added to our placemaking, experiential activation and entertaining uses, which have helped achieve our goal of driving shopper visits, frequency, dwell time and ultimately bigger baskets,” Yalof said. “Welcoming these new uses to Tanger’s properties provided the opportunity for our retailer partners to introduce their brands and concepts to a whole new shopper base.”

RELATED: Outlet centers add more food, family-entertainment tenants

The mix now includes traditionally non-outlet retailers. Outlet centers are adding more local and regional full-price retailers to fill in merchandise categories that don’t have outlet operators, Hinkle said. TORG signed leases with local and regional operators attracted by its centers’ traffic and tourism factors. Local and regional retailers like Leggings Park, Ginger Roots, Relax in Comfort, Earthpothecary, Lived Experience, Old Tyme Toys and Pop Culture also are opening shop at the company’s properties. And farming equipment seller Cove Equipment and Williamsburg Community Child Care Center have signed leases in at TORG’s Outlets Williamsburg in Iowa.

Tanger, too, has brought in more local and regional tenants. Not all sell factory outlet goods, but they do fill a hole in the merchandise mix. “These uses are working,” Yalof said. “They’re enhancing and they’re replacing old legacy space. They might be doing so at a lower base rent, but we’re being strategic in the variable rent component of these deals. And in many instances, the sum of those two parts is higher than the old base rents that we were collecting.”

RELATED: Small Businesses Gain Ground at Tanger Centers

How did Tanger make it through the pandemic and the bankruptcies of several high-profile tenants? “We empowered our general managers,” Yalof said. “We essentially deputized 36 new members of our leasing team to go out and help us fill vacancy that was created by brandwide restructuring and other bankruptcies, and they did a fantastic job. We brought new tenants that brought different customers, and some of those uses turned out to be great draws for our properties and ones that we’re in discussions with right now to turn into longer-term deals.”

As the threat of a recession drives consumers to seek familiar brands at cheaper prices, outlet center fundamentals could strengthen further. “We’re possibly entering a period where there may or may not be a recession,” said Hinkle. “The outlet sector does well in economically uncertain times.”

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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