Outlets grow south of the border

In all, there are now 10 shopping centers that call themselves outlets with an aggregate gross leasable area of 291,403 square meters. In the pipeline are at least two major undertakings scheduled to open between this year and next. They will deliver to the market an additional  77,600 square meters, according to Mexico City-based MAC Arquitectos, an architectural and retail real estate market research firm.  

Outlets are a relatively new industry in this country of nearly 124 million inhabitants. Mexican developer GICSA opened the first one, Las Plazas Outlet Lerma, in 2004, in the municipality of Lerma, in the state of Mexico. With a GLA of 64,260 square meters, it hosts outlet stores as well as a Walmart, El Palacio de Hierro (a well-known Mexican department store) and a movie multiplex.

GICSA owns that mall and operates three other Las Plazas outlets in the cities of Cancun, Guadalajara and Monterrey.

“It is a business niche developers have neglected because nowadays these centers cannot be located near a fashion mall or too far from the urban clouts where people live,” said architect José Luis Quiroz Robles, president and CEO of IQ Real Estate, a Mexico City-based retail real estate developer and consulting firm.

“The challenge is to keep the construction investment low since the leasing rates are lower than regular malls,” added Quiroz, a former GICSA executive. “But to build a one-level center with an ample parking lot will require securing a suburban lot measuring at least 60,000 square meters.  

The land cost for such projects in Mexico is very expensive.”

Developers are also still trying to meet the pent-up demand for shopping malls. At last count, only 15.8 percent of Mexico´s retail sales take place in a retail center, compared to 49 percent in the U.S., according to ICSC market data.

Mexican consumers, many of which periodically trek across the border to shop in U.S. outlet centers, are demanding this shopping option.

GICSA executives state growth is being driven by consumers that have become more conscious of their personal and family budget in recent years. That also goes hand in hand with global brands aggressively going after the outlet niche with specialized merchandise, no longer seeing outlets as a warehouse to liquidate remaining inventory.  

Mexico´s growing economy and expanding middle class are  spurring consumption, stirring the battle among retailers which are continuously updating the sales floor with new merchandise. Since 2011, over 50 new global retailers have entered the market thanks to Mexico’s significant slashing of import tariffs, particularly from China, which allows retailers to offer competitive prices. The roster of new retailers debuting in the market since then includes the likes of American Eagle Outfitters, Crate & Barrel, Forever 21, Gap and H&M.

The continuous arrival of players bodes well for the two projects slated to open this year and next: Las Plazas Outlet Sur and  Premium Outlets Querétaro.

Developed by GICSA, Las Plazas Outlet Sur is located in Tlalpan, one of Mexico City´s 16 administrative boroughs. Its town center outlet format will be part of a mixed-use project that includes an office building and residences. The firm has announced it will open in 2019.

The other main outlet player in Mexico is Mexico-based Grupo Sordo Madaleno, an architectural firm and retail real estate developer. In a 50-50 percent partnership with  Simon Property Group, it owns Premium Outlets Punta Norte, located 17 miles northwest of Mexico City in a 10-acre lot. It opened in 2004 with a GLA of 25,827 square meters. Thanks to several expansions, including one finished this year, the center´s GLA is now 31,585 square meters.

The same partnership is behind Premium Outlets Querétaro, scheduled to open this December in Querétaro, a small Mexican state. As characterized by Grupo Sordo Madaleno´s projects, many award-winning for their architectural design, the new outlet emphasizes ambience with design details like the use of local wood for its pergolas and walls with natural stones from the area. Wooden frames also demarcate storefronts.

“We have changed the usual outlet paradigm to expose visitors to a different experience where shopping results of a visit to a nice destination,” said Boris Pena, project director at Grupo Sordo Madaleno. “We want visitors to spend a leisure afternoon that ends with shopping.”

With a GLA of 25,000 square meters, the Querétaro project highlights landscaping with a garden and ponds at the entrance.  And rather than the traditional food court, eateries are scattered throughout the green areas.

“The professional outlet shopper doesn´t necessarily appreciate the quality of a center´s architectural design since his focus is to shop, eat, resume shopping,” said Pena. “We also want to attract the consumer that comes to visit and shops attracted by the offer and prices.”

To that aim, like most retail centers throughout Latin America, the outlet will regularly host activities like music concerts and events.

Grupo Sordo Madaleno says it is evaluating other Mexican cities for new outlet projects. Of the 10 shopping centers calling themselves outlets, not all are outlet malls. That´s the case of the two-year old, 167-shop Outlet San Martín, located in the city of León in the state of Guanajuato. It intended to be an outlet center but discarded such plans and operates as a regular mall. It has kept the outlet word because its location is known as “los outlets”, explains spokesman Samuel González.

Other so-called outlet centers specialize in a merchandise category. Nine-year-old Mulza Outlet del Calzado, located in León, focuses mainly on shoes with 189 shops. León is known for its shoe industry with some 700 local manufacturers, of which 160 have shops in Mulza. Mulza claims at least half of its shoppers are foreign consumers.