Will the outlet mall help or hurt other F-M retailers?
FARGO -- In a brochure that developers of a proposed new outlet shopping center in Fargo sends to prospective tenants, West Acres Mall is featured prominently as part of a vibrant local retail scene.
FARGO - In a brochure that developers of a proposed new outlet shopping center in Fargo sends to prospective tenants, West Acres Mall is featured prominently as part of a vibrant local retail scene.
The mall, the brochure boasted, has 7 million visitors a year and sales of $517 per square foot in 2015, which puts it in the top category of Class A malls. All the mall's tenants are then listed.
"The reason this project has validity is because of the strength of West Acres," Travis Voegele, a commercial agent with Fargo-based Property Resources Group, said in an interview.. "If it didn't have that strength these tenants wouldn't see as much value."
PRG hopes to break ground next year on Fargo Outlets at Timber Creek just northeast of the intersection of 52nd Avenue South and Interstate 94. The 300,000 square-foot center would have enough space for 60 stores, compared to West Acres' 950,000 square feet and 120 stores.
Voegele said that while he believes the market is robust enough to support a new outlet center, he expects the center would expand the market by attracting even more shoppers.
But that hasn't necessarily been the case around the country as outlet centers increasingly take the place of traditional shopping malls. Many malls have had to close or change format to become less reliant on retail. In Palm Beach, Fla., the outlet literally replaced the mall; the mall was demolished and the outlet built on top. Retail experts suggest that part of the reason outlets are succeeding is because today's shoppers demand more brand names at lower prices, and they perceive outlets are better at delivering than malls.
At West Acres, Alissa Adams, a senior vice president responsible for business development, said it's too soon to tell what Fargo Outlets' impact will be.
"Overall, it would definitely be competition, but it could also be beneficial in bringing additional visitors to the Fargo-Moorhead area, which in turn would have a positive impact on us as well as other local businesses," she said.
Adams said in an email that the outlet center is a "long shot" but if it did come to fruition, the mall will be ready for what she called "coopetition."
Out of the factory
Malls and outlets haven't always been competitors.
Outlets, short for "factory outlets," first opened more than a century ago at factories as employee-only stores selling defective or surplus merchandise, according to a 2004 industry survey by marketing professors Anne Coughlan of Northwestern and David Soberman of INSEAD, a France-based business school. Gradually, the factory outlets were opened to the public, then moved outside the factory and then clustered with other outlets.
By the 1980s, outlets would begin to sell merchandise identical to that sold in traditional stores, albeit in locations far away from urban centers where malls are located.
Today, many outlets also sell merchandise made specifically for them that are similar to but cheaper made than merchandise in traditional stores, further blurring the line between the two. And many outlets are now opened in urban centers, bringing them closer to malls.
Merchandise manufacturers used to be concerned about their outlets taking business away from traditional stores where shoppers pay full price, according to outlet developer Steven Sless in a 2003 journal article. But as they earned more from their outlet stores, they became less hesitant.
Ironically, malls helped to lay the groundwork for outlets, Dartmouth marketing professor Nora Ganim Barnes noted in her 2005 analysis "Fall of the Shopping Mall." During the recessions of the 1980s, traditional stores at malls used big sales to attract shoppers, which "trained" them to expect low prices as the norm. When traditional stores tried to untrain shoppers with fewer sales in the 1990s, they were unable to do so because this coincided with a boom in non-traditional channels such as outlets, catalogs and online stores.
Voegele said the Fargo-Moorhead market is different because West Acres is very healthy. The mall is practically at full occupancy, and that means stores that might want to be part of such a retail environment can't find space, he said. PRG's goal is to bring new brands here to capture a portion of the market that now must drive to the Twin Cities to purchase those brands, he said.
One prospective tenant that has already talked about opening at Fargo Outlets is Brooks Brothers; the closest stores is in Minneapolis.
At West Acres, Adams said she doesn't expect the mall will do anything different in response.
"Our strategy is to always be focused on the future, to not rest on our laurels, and to continuously work to ensure that West Acres remains a top destination for shoppers by providing the best possible experience and mix of stores and services," she said in an email. "With that in mind, even with the addition of the outlet center, it would be business as usual."
In discussions with tenants, mall management have not detected any tone of concern, she said.
That might be because management believes PRG still has a long ways to go, including winning city approval for tax incentives to build the outlet center. "Using tax incentives for a new retail development is unprecedented and would be expanding the use of incentives in an environment when they are coming under more scrutiny, and therefore a longshot," she said.
Current city policy is primarily aimed at helping manufacturing and technology firms with jobs that pay well. Help for retail and hospitality firms outside of downtown is generally frowned upon because they do not generally pay well. There's also the possibility these firms have competitors within the community that wouldn't be pleased they didn't also get help.
PRG President Kevin Christianson has said he's prepared to explore other retail concepts at the site if the outlet center doesn't work out.
Though PRG's goal is to bring in new brands, it wouldn't be unprecedented if brands already present at West Acres or elsewhere in Fargo appear at Fargo Outlets.
Coughlan and Soberman suggest that outlets are a way for manufacturers to reach shoppers that they can't reach effectively with malls, namely those that demand steep discounts but don't care as much about service or ambiance.
Marketing professors Gonca Soysal of the University of Texas in Dallas and Lakshman Krishnamurthi of Northwestern said a 2015 study that outlets can be effective at familiarizing price-sensitive shoppers to an upscale brand they usually avoid. Once such shoppers are comfortable with the brand, they are more willing to pay full price at traditional stores.
Retail experts report that manufacturers take care to differentiate what they offer in outlet stores from what they offer in traditional stores to avoid "cannibalization," which is what happens when a brand's stores steal business from each other.
Some manufacturers provide fewer services and a less luxurious setting in their outlets compared to their traditional stores. Some sell cheaper merchandise that never appears at their traditional stores. Some release merchandise later in the season; in some cases, it appears traditional stores are given a few weeks to sell a merchandise at full price and, when they begin mid-season discounts, the merchandise appears at outlets with exactly the same discounts.
These strategies apparently work because traditional stores are reacting to the success of outlets by emulating them.
Abercrombie & Fitch, American Eagle Outfitters, Gap, J.Crew and Sears have converted traditional stores at malls in secondary and tertiary markets to outlet stores, according to writer Joel Groover in Shopping Centers Today in 2015. Macy's, which didn't have an outlet store, opened Macy's Backstage in 2015.
A case study
But not all outlets have an impact on nearby malls.
That's not the case in Boise, Idaho, a metro area that, like Fargo, is surrounded by a large rural region.
When Boise Outlets opened in 1993 by the side of Interstate 84 as it exits the city's southeast, there already was a traditional mall. Boise Towne Square had opened seven years earlier.
At the outlet center, Morgan Beveridge, the on-site manager for the last four years, said he was there for the center's opening day and it was booming. But that changed with the recession of 2008-2009, he said, when many tenants left never to return. There's space for 33 tenants now but only six outlet tenants remain, he said. Some other spaces are filled by non-retail tenants such as a fitness club and a nonprofit group, he said, and the new owners plan to continue that trend of mixed-use development.
Linda Low, an administrative assistant at the mall, said recently that she hasn't seen any impact from the outlet center.
Beveridge said the outlet stores that remain are enjoying healthy sales from loyal customers, many of whom have been stopping on their way through Boise for years. These are shoppers who hate the crowds at malls, he said, and wouldn't otherwise stay very long in town.
The problem is, he said, some of the tenants aren't able to achieve the traffic volume their corporate owners would wish.