The Telegraph
Twenty years ago it was difficult to imagine that Chinese tourists would, one day, be bussed out of London so they could go shopping for leftover clothing that no one else wanted.
Back then, designer outlets were a figment of the imagination in the UK and Bicester was just a small town in Oxfordshire with a rich Saxon history.
However, in 1993 Joey Kaempfer, an American construction boss with an MBA from Harvard, believed that there was a gap in the UK and Europe for shopping centres selling clothing that retailers had left at the end of a season.
A company called McArthurGlen had developed and operated a collection of so-called designer outlets in the US in the 1980s with relative success. So, Kaempfer bought the rights to create a new European arm of the company.
Two years later, McArthurGlen opened Cheshire Oaks, the first outlet village in Europe. The idea was initially greeted with scepticism. It was an American idea that could never survive on the other side of the Atlantic.
Why would northern shoppers travel to a centre with very few of Britain’s leading retailers to buy out-of-season and out-of-fashion clothing?
Those doubts seem rather naïve now, because designer outlets and their discounts of up to 70pc have not only proved hugely popular with British shoppers, but prompted tourists to visit from around the world.
Today, there are around 50 designer outlets in the UK - half of which are of a significant size - and we are about to see even more.
This week, Abercrombie & Fitch has become the latest luxury brand to confirm that it plans to open an outlet store, following in the footsteps of Burberry, Mulberry and Ted Baker, and more mainstream names such as Marks & Spencer and Next.
Later in year, the first designer outlet within the M25 - the London Designer Outlet - will open next to Wembley Stadium. The site will have 85 stores, including Nike, Marks & Spencer, LK Bennett and Superdry, and up to 15 restaurants and bars.
After an encouraging start in the 1990s, the financial crisis and ensuing recession have catapulted designer outlets forward. They have found a niche between discount and luxury retail - the best performing parts of the market.
Sales at McArthurGlen’s 21 European outlets, including seven in the UK, grew by 18pc to €2.5bn (£1.6bn) sales in 2012.
Bicester, run by rival Value Retail, has grown like–for–like sales by double-digits every year since opening in 1995, shortly after Cheshire Oaks blazed a trail. Bicester is the self-styled Bond Street of outlet villages, with brands including Alexander McQueen, Hugo Boss and Versace.
Its popularity with Chinese tourists, who want luxury Western goods at bargain prices, is underlined by the fact that sales to non-EU tourists are rising by more than 60pc. Sixty-five per cent of Bicester shoppers are international tourists. Even at Cheshire Oaks in the North West, sales to Chinese tourists are up 20pc. So significant a chunk of their market is it that McArthurGlen became a founder member of the UK China Visa Alliance, which campaigns to ease the restrictions on Chinese tourists.
The unique success of designer outlets is based on the basic instincts of a shopper - the thrill of grabbing a bargain on a well-known brand that you would normally not be able to afford.
Perhaps even more central to their progress has been the co-operation between retailers and landlords. For retailers, outlet villages have offered an avenue to offload unwanted out-of-season stock, while attracting new customers to a brand.
Julia Calabrese, the chief executive of McArthurGlen, said: “The retail director [of a brand] used to run it off the side of their desk. Now it has developed as a viable distribution channel.”
McArthurGlen says it has a number of retailers lining up to open outlet stores. As well as Abercrombie, which will be at the Ashford Designer Outlet, Links of London, Reiss and Lulu Guinness have opened new stores in the past year.
Calabrese, an American, says she holds a meeting every week with brands who may look to start selling their end-of-line stock. “It’s a lot easier now than 15 years ago,” she says of the search for brands to open stores. “And it is a lot easier than it was five years ago.”
Another reason for the success of factory outlets is their rental structure. Because they are a relatively modern format and require significant management, the rents are linked to revenues. This means that, unlike on a high street where rents will be subject to upward-only reviews, retailers will only pay for what they earn. “It drives us and the brand,” said Calabrese. “They make money, I make money.”
For those who doubt whether flexible leases could help the high street, outlets provide the evidence of their impact.
The revenue-lined rents encouraged great co-operation between retailer and landlord, as well as more innovation in the store design and events held in the centres to drive up visitor numbers. At Gunwharf Quays in Portsmouth, the property company Land Securities has clauses in some of the leases that mean it can move retailers around its stores if they are underperforming.
While designer outlets are thriving, they are unlikely to replace shopping centres and retail parks as the staple of out-of-town shopping.
First, there are a limited number of brands with the prestige of Burberry that can make outlet retailing work. Secondly, these brands do not want to fill the country with shops selling their products at a discount because it could damage the value of the brand. They also simply don’t have enough stock.
A key reason why outlets have thrived in the recession is precisely because it is a recession - retailers have sold less in their normal stores, so they have more leftover stock to sell. McArthurGlen is extending its Swindon centre and believes it could develop another site.
Traditional shopping centre developers are also paying more attention to design outlets. Hammerson, the owner of Brent Cross in London and the Bullring in Birmingham, has spent £400m on buying a stake in the owner of Bicester Value Retail. Designer outlets are still a relatively new phenomenon, but they are growing fast.
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