Developers compete to open outlet centers in Chicago

By Sandra M. Jones, Chicago Tribune reporter

Finding a place to park at the Chicago Premium Outlets mall in Aurora on a Saturday will test any fashionista's fortitude.

Minivans filled with passengers pull into the drop-off zone between the Adidas and Lucky Brand stores. Drivers creep behind shoppers returning to their cars in hopes of snagging a parking space. Inside the stores, more lines await as shoppers stock up on Coach handbags, Puma running shoes and True Religion jeans.

In a shaky economy teeming with discount-hungry shoppers, the outlet mall is thriving.

Before the recession, Americans satiated their desires for designer duds by tapping their credit cards and home equity lines. In these frugal times, Americans still want their polo shirts and designer denim. They are just unwilling, or unable, to pay much for them.

"Americans are so focused on price," said Lee Peterson, executive vice president of creative services at WD Partners, a retail design firm in Dublin, Ohio. "It is the No. 1 motivation when shopping. It's an American obsession."

Instead of planning a once-a-year excursion, consumers are increasingly making outlet malls a part of their shopping routine. The shift in shopping behavior comes as traditional regional shopping malls are struggling. And it is prompting retailers and developers to take a fresh look at the outlet as a vehicle for growth.

In the Chicago region alone, developers are working on separate deals to build three outlet malls, in Rosemont, New Lenox and Country Club Hills, totaling more than 1.5 million square feet. In addition, Simon Property Group Inc., owner of Chicago Premium Outlets, announced last week that it plans to add a 130,000-square-foot wing to the 440,000-square-foot Aurora center, increasing its size by one-third to 570,000 square feet. The Aurora outlet is one of four Simon outlet malls nationwide slated to expand in 2012.

The financial fallout from last week's U.S. credit rating downgrade could mean that the commercial mortgage-backed securities (CMBS) typically needed to finance construction of new malls will be tougher to secure, said Michael Niemira, chief economist at the ICSC, the New York-based shopping center trade group.

"Is money available for even that expansion?" said Niemira. "Yes and no. The highly capitalized companies, such as Simon, can pull it off. If the deal is dependent on the nascent recovery of the CMBS market, that market seems to have imploded again."

Still, the economics of outlet malls are enticing.

For retailers, operating an outlet store requires minimal investment. The malls are typically on one level and outdoors, so rents are cheap. The common area assessments are also low compared with traditional malls, since there are no elevators or escalators, no heat or air conditioning and generally fewer frills in the mall. The stores themselves are bare-bones.

For developers, the revenue potential is hard to ignore. A healthy regional mall filled with full-price stores typically generates annual sales of $400 to $500 a square foot. But Chicago Premium Outlets in Aurora generates $700 a square foot, a figure that has been steadily climbing since the mall opened in 2004, according to Simon, the nation's largest shopping mall owner.

Simon's top-performing outlet mall, Orlando Premium Outlets in Florida, generates $1,300 a square foot, on par with the best-performing, full-priced luxury malls in the nation. A Simon premium outlet typically attracts 5 million to 10 million shoppers a year.

In another sign of the growing appeal of the outlet mall, Bloomingdale's and Lord & Taylor are jumping into the outlet market for the first time, after watching sales soar at Nordstrom Rack, Saks' Off Fifth and Neiman Marcus' Last Call outlets. Niche brands are opening outlets as well, most recently Not Your Daughter's Jeans, Vince Camuto shoes and Under Armour athletic wear.

It is a remarkable turn of events, given that a decade ago department stores fought fiercely to keep branded outlet stores on the outskirts of major metropolitan areas, far away from the full-price collections that filled their traditional mall stores.

"We've all come out of the recession with this whole new awakening that maybe we've got to do things a little differently," said Michele Rothstein, senior vice president of marketing at Simon's Premium Outlets division in Roseland, N.J. "The brands recognize now more than ever that an outlet shop may be their first connection with the consumer."

Alison Witkin, 45, visits Lighthouse Place, another Simon-owned outlet mall, in Michigan City, Ind., whenever her family comes for a visit or she wants to pick up some end-of-the-season deals. The Valparaiso resident does most of her shopping at J.C. Penney and Kohl's but on occasion gets an itch to shop among higher-end brands at the outlet mall.

"Every now and then I get the taste for something a little more up-market," said Witkin. "I'm not knocking J.C. Penney or Kohl's, because I've picked up some great things there, but it's nice to go to the smaller stores (at the outlet). I like to get the feel of a little more glamour."

Even though outlet malls are growing quickly, they are still a small part of the U.S. shopping landscape. There are 325 outlet malls in the U.S., compared with 1,500 traditional shopping malls nationwide, according to the ICSC. Outlet malls make up a meager 1 percent of the total square footage of shopping centers nationwide, the trade group said.

Meanwhile, some of the malls calling themselves outlets in reality are a hybrid of discount stores, regular-price stores and outlets. Earlier this year, Gurnee Mills, another Simon property in the far northern suburbs, announced an unusual deal to bring department store Macy's as anchor of a new full-price wing.

The full-price Macy's store, set to open in 2013, would have been unthinkable when Gurnee Mills debuted in 1991. But today, Macy's, like many retailers, relies more heavily on in-house and exclusive brands than the big-name vendors that once populated its shelves.

At the same time, popular brand names such as Coach and Banana Republic create products specifically for the outlet stores that differ from the merchandise in their full-price locations, eliminating some of the conflict inherent in locating outlets close to full-price malls.

As for the Chicago area's trio of planned outlet malls, all three projects had been on the drawing board before the recession put a halt to development. If they are resurrected, they would mark the first major new shopping centers in the region since the Arboretum of South Barrington and Block 37 in the Loop. (Both of those malls, while still operating, wound up in foreclosure.)

The Spring Creek Outlets of Chicago is planned to go into a farm field in New Lenox near the interchange of Interstate 355 and U.S. Highway 6. The 550,000-square-foot, $225 million outlet center is scheduled to begin construction in the second quarter of 2012 and open in 2013. The outlet is expected to anchor a million-square-foot mixed development across from a new hospital.

The companies behind the Spring Creek project are Chicago-based mall developer and property manager Urban Retail Properties LLC, Chicago-based commercial real estate investor Mansur & Co. and Center Creek Development of Lake Zurich.

Another, 400,000-square-foot outlet mall is on tap about 20 miles away from New Lenox in Country Club Hills at Interstates 80 and 57. Construction of Chicago Outlets at Country Club Hills is targeted to start next spring and open in 2013.

The project has five signed leases so far: Esprit, Timberland, Levi's, Le Creuset and Perfumania, according to Steve Craig, president and CEO of Newport Beach, Calif.-based Craig Realty Group, who along with Chicago-based Capri Capital Partners LLC of Chicago is developing the project.

A third area project is in the works for Rosemont — a two-level, 550,000-square-foot outlet mall called the Fashion Outlets of Chicago, across from the Muvico cinema complex. The developers are Coral Gables, Fla.-based outlet mall developer AWE Talisman LLC and Chicago-based Silver Rock Development Group LLC. Officials declined to comment on the project.

The plans come as traditional shopping mall development slows. Since 2009, there have been only four malls built in the U.S., according to the ICSC.

The average vacancy rate at U.S. regional malls in the second quarter reached 9.3 percent, a 10-year high, according to Reis Inc., as the specialty chains that once populated their corridors — from Ann Taylor to the Gap — are closing stores and seeking smaller footprints.

"People are flocking to these outlets," said Jeff Middlebrook, principal with Center Creek, one of the developers behind the Spring Creek Outlets. "They still want to wear the Polo guy or alligator on their shirt, but they don't feel special paying $80 at Macy's. They do feel special paying $25 at the outlet mall. Brand consciousness still exists, but it's all about pricing now."