Article updated: 3/4/2014 2:41 PM By Madhu Krishnamurthy - Daily Herald
Outlet malls. The concept took hold in the '80s and '90s. Clusters of stores occupied by manufacturers selling directly to customers seemed like a can't-miss way to compete with traditional shopping centers.
Their success is evidenced by their growth: The number of outlet malls nationwide quadrupled from 113 in 1988 to 472 last year.
But the past decade has been a challenge for outlet malls, which have taken a hit from more traditional shopping centers offering aggressive promotions and discounts, and the migration to online shopping, analysts say.
In the suburbs, Chicago Premium Outlets in Aurora, Huntley Outlet Center and Gurnee Mills each tell a different story on staying viable in a tough market.
Chicago Premium Outlets, viewed by some as one of the more successful outlet malls in the country, has plans to expand. Gurnee Mills is undergoing a massive interior renovation this spring aimed at creating spaces where families will want to hang out.
The struggling Huntley Outlet Center is marketing itself to local stores by working with area chambers of commerce and community economic development officials. It's banking, too, on a new tollway interchange.
But with little evidence of economic pressures easing anytime soon, outlet malls, as well as traditional ones, could be in for a bumpy ride, said George Rosenbaum, retail analyst and president of Chicago-based GR Research and Consulting.
Historically, the incentive for shopping at outlet centers was lower prices. But factor in gas prices, travel and shopping time, and bargain hunters of today are less inclined to go to the trouble, Rosenbaum said.
"If the present climate were to continue and the migration to online shopping doesn't hit a wall soon, we are going to see a continuing decline in the number of major shopping centers, and even secondary shopping centers, that are viable," he said. "If you have to sell at a lower margin, this does not bode well for a healthy future. This is a mark of gradual decline."
Here, then, are the specifics of the three outlet malls' efforts.
Hope for Huntley
The Huntley Outlet Center, marking its 20th anniversary, today has a nearly 50 percent vacancy rate with many prominent stores, such as BCBG Maxazria and Calvin Klein leaving in recent years.
Years ago, the Huntley mall was acquired by Indianapolis-based Simon Property Group Inc., the same group that owns the outlet centers in Aurora and Gurnee.
A new Skechers outlet opened in Huntley in December. Yet, overall, the Huntley center has struggled with attracting traffic, said leasing agent Rick Scardino, director for Rosemont-based retail brokerage Lee & Associates of Illinois LLC.
"The fact that it never had full access, and 9/11 and 2007 came along ... it put a severe hurt on centers that didn't have great access," Scardino said.
That is expected to change with the $61 million full-access tollway interchange at I-90 and Route 47 that opened in the fall.
"There's a lot of great buzz about Huntley, and justifiably so," Scardino said. "And we're going to try and remind retailers of that. It's our hope to lease these spaces one at a time. We're trying to make the center more accessible to the local community. We want to host more communitywide events here to make it more of a focal point of the community."
Scardino's firm was hired last fall to attract local retail tenants for the outlet center. He has been working with Huntley's business recruitment and economic development staff who are visible in the community, attend chamber and business events, and know firsthand the shopkeepers looking to expand, he said.
"This center really wasn't marketed to brokers in metropolitan Chicago for years just because that's not the way malls or outlet centers are traditionally marketed," he said. "We don't see them hiring us as any sort of panacea or overnight success."
The outlet center ultimately will need to expand its offerings beyond softgoods and apparel.
Scardino hopes to reach out to Chicago companies in the businesses of furniture, home improvement, kitchen and bath, carpeting, tile and sporting goods.
"We're looking to get creative out here," Scardino said. "A company that has a dozen stores in Chicago and has never contemplated an outlet store, we want to give them a reason to consider that. There's a lot of second-generation spaces that have some very attractive build-out that could be relatively easy, cheap turnaround spaces.
"I don't know if we can reinvent the wheel. Tenancy and traffic begets more traffic. If you have the goods and services that people are looking for, they won't necessarily drive past you to go to Pleasant Prairie (Premium Outlets in Wisconsin) or Rosemont."
Fashion Outlets of Rosemont opened last fall and caters mostly to an upscale clientele. The two-story, 530,000-square-foot enclosed mall runs upstream of traditional outlet malls, experts say.
Aurora gets bigger?
Chicago Premium Outlets, now 10 years old, plans to add next year about 294,000 square feet of retail space to its existing footprint of 437,342 square feet. Area General Manager Darcy Rutzen would not offer further details about expansion plans, nor discuss vacancy rates.
Sales tax revenues from the outlet center declined slightly after the 2008 market crash but started picking back up in 2011, according to figures from the city of Aurora.
"If you ever watch the parking lot out there or tried to get a place in the parking lot, there could have been a fall-off (in sales tax revenue), but it's pretty hard to notice,"Aurora Mayor Tom Weisner said. "We've projected about $40 million in sales tax revenues overall for this year and a very strong percentage of that comes from the outlet mall."
Nearly 9 percent of the city's sales tax revenues comes from the outlet center.
"I think their success exceeded even their expectations and ours," Weisner said.
The center helped put the state's second largest city with a population of nearly 200,000 on the map as a shopping destination.
"They are part of a continuing saga in Aurora being a regional retail anchor," Weisner said. "That (mall area) annexation was the second largest in the state's history after O'Hare Airport. That really continued to solidify us as one of the best retail destinations in Illinois."
Property tax receipts from the mall also have given a substantial boost to the city's finances. The city created a special taxing district in 1989 to spur redevelopment of the area that includes the mall property east of Farnsworth Avenue abutting I-88.
At the time, Weisner said, annual property tax revenues from the area was $25,000. Today, "that same area generates $8 million in property tax revenues yearly." The outlet center accounts for about 50 percent of that revenue, he said.
The original 60-acre mall was built on 140 acres. The expansion will take up an additional 45 acres on the east end of the mall property.
Weisner has high hopes for the center's continued success.
"This considerable expansion certainly is a vote of confidence by them in the property," he said. "It's been a great thing. It's provided a lot of employment opportunities."
Gurnee now a hybrid
The 22-year-old Gurnee Mills recently renovated and added a full-price wing anchored by Macy's, much like a traditional mall, General Manager Randy Ebertowski said.
It includes stores such as Lego, Ann Taylor Loft, Bachrach, and Charming Charlie women's accessories, and new amenities.
"Of course in retail you're going to have turnover of new stores, that's something that's healthy," Ebertowski said. "A mall is about fashion, and fashion always changes, which means you've got to reinvent yourself with new stores, new additions to keep up with the times. We're unique in the fact that we are the only hybrid shopping center in Illinois and anywhere throughout this area."
Gurnee Mills is the only other enclosed outlet center that also offers full-price retail, discount retailers, and designer outlet stores under one 2 million-square-foot roof. The mall has an attached movie theater, which recently added a 70-by-29-foot Ultrascreen, plush seating and new sound system. It also has entertainment and dining venues meant to keep shoppers on property as long as possible.
"We're also renovating this year one of our two food courts so it will be completely redone to new, comfortable furnishings, improved lighting, new restaurant fronts, new dining options," Ebertowski said. "There's always some exciting things in the works."
Analyst Rosenbaum doesn't have such a rosy prediction for the future of outlet centers.
"All major shopping centers are being affected by migration to online shopping," which accounts for nearly 12 to 15 percent of retail sales, he said.
Traditional mall anchor stores can make up for losses in in-store retail sales online. But malls like Gurnee Mills don't have the same kind of online sales, he said.
And while amenities are attractive, they can distract customers from shopping, which defeats the purpose, Rosenbaum said.
"My guess is that (mall) shopping is not going to return to its glorious era," Rosenbaum said. "Online shopping has continued to grow. ... That means thinning out of shopping centers and conversion of shopping centers to alternative uses."
