Gloria Outlets’ opening two years ago was a sign of impending change in the retail environment, from urban department stores to suburban shopping centers.
A number of recently opened outlet malls are tempting shoppers to spend, even though overall consumer confidence has dipped due to rising prices and anemic salary increases. Retail market experts say this development indicates a sea change in shopping habits and points toward a future of large-scale shopping centers and diminishing returns for stores in central business districts.
Mega developments such as Mitsui Outlet Park (林口三井) in New Taipei’s Linkou, Gloria Outlets (華泰名品城) in Taoyuan, Outlet Mall (麗寶) in Taichung, and E-Da Outlet Mall (義大購物世界) in Kaohsiung are sucking up business by offering generous discounts and introducing new brands and restaurants. Strategically located in areas where retail space is cheaper but not far from major conurbations, outlets are breathing fresh life into an exhausted retail environment.
Mitsui Fudosan plans to open two more outlets in the near future, while Gloria Outlets is focused on making the most of the government’s ambitious plan to develop the area around the Taiwan Taoyuan International Airport into an “Aerotropolis” that includes an international shopping destination.
Ichiro Shimomachi, managing director of Mitsui Fudosan Taiwan, says Taiwan can “in the end probably accommodate 10 outlets.” The Japan-based holding company has roots stretching back to 1673 and built its first factory–outlet mall in 1995. It currently owns 40 shopping centers in Japan and elsewhere in Asia, including 13 outlets.
For its next venture in Taiwan, Mitsui Fudosan has partnered with Taiwan Life Insurance, part of CTBC Financial Holding Co., to develop the Lalaport outlet in Taipei’s Nangang District. Besides the shopping area, the complex is slated to include a five-star hotel, office space, and entertainment and recreational facilities.
Another project on the drawing board is an outlet at Taichung Port, with construction scheduled to start this year for an opening in 2018. “Each outlet has to suit the surroundings and therefore has its own challenges,” Shimomachi says. “Our Taichung Port outlet restaurants will make the most of the marine environment, such as seafood restaurants with a sea view. We are thinking of extra entertainment options too, such as a Ferris wheel.”
During a mid-February visit to Mitsui Outlet Mall, during the free trial phase of the MRT line from Taipei Main Station to Taiwan Taoyuan International Airport, it was obvious the new link will boost visitor numbers to the shopping center. It takes about 20 scenic minutes on the train and a five-minute stroll from the newly minted MRT stop to reach the outlet.
It was Sunday and good weather, so the crowds were out in force. The open-air section looks similar to outlets in Europe and America – strictly pedestrian, clean, community-like, with stores from familiar brands. The plaza feel gives way to an indoor mall style of operation, with more stores and the popular food court. There were lines for many of the Japanese eating options and it was hard to find seating. Overall, it was bright and lively, with pop-up stands and entertainers.
Visitor reaction was favorable about the environment and food, but discounts weren’t quite as steep as expected, while the goods weren’t the latest on offer at leading Taipei department stores. While such observations have been a common refrain in Chinese-language posts online, clearly there is a lot of consumer enthusiasm as well. So much so, in fact, that the development of bigger and better shopping centers and outlets seems assured.
The Asian way
It should be noted that outlets in Asia are somewhat different from those in North America and Europe. There, manufacturers usually sell their wares directly to the public and deal largely in returned or discontinued goods. Discounts are steep, enabling consumers to get branded goods for about 30-40% of the full price.
While factory outlets were a feature of life as far back as 1930s America, it wasn’t until 1974 that the first multi-store outlet center opened. Data from Value Retail News Exclusive Research estimates that 215 outlet malls, with combined sales of US$45.6 billion were operating in the United States in 2015. Another 48 outlets were expected to open between 2016 and 2018.
Here in Asia, outlet stores are rarely run by manufacturers and the goods are much the same as those found elsewhere at department stores. Whisper it quietly, but in Asia outlets and big malls are fairly similar, the only difference being a kind of marketing exercise that entices shoppers to expect something fresh and possibly the same kind of discounts as in Western outlets. Instead, there is more of an emphasis on providing a family friendly environment, with entertainment on tap and plentiful restaurants.
Addressing this issue, Shimomachi says: “It’s true the concept of outlets in the West and Asia is not quite the same. There has been a cannibalization. Actually, consumers aren’t quite sure of the concept – they just want to spend quality time with their families, shop, eat, and have fun.
“Of course, there are foreign brands and good prices, which are attractive. Sometimes there may be a different selection of goods compared with department stores and malls in the city center, such as last year’s goods.”
As for criticisms about discounts, he says: “Each outlet store is different. Actually, you can’t say the prices aren’t cheap, but we do have to take into account national conditions, such as taxes, transport costs, and the fact that many of the goods are not made here. And of course, there is the economy – and we know that at the moment it is not so strong, though we anticipate 2017 will be better.”
Speaking of the overall Japanese feel of the outlet in Linkou, Shimomachi notes that people in Taiwan are accustomed to that country’s culture and cleanliness, service standards, goods, and management. “I think there is a special relationship, partly due to history and shared values,” he says. Essentially, those factors are why department stores like Sogo and Mitsukoshi have done well over the past two or three decades. The Japanese-style outlet stores are a continuation or even an upgrade of that phenomenon, but on a regional rather than city-wide level.
As for food and beverage offerings, Mitsui has a huge advantage when it comes to sourcing goods and restaurants because of its retail success at home. The lethargic Japan economy means that many restaurateurs are looking for opportunities to expand overseas, and Taiwan is a natural first step given its proximity and cultural similarities.
Asked how Mitsui Outlet Park has performed since opening in January 2016, Shimomachi says with a smile that “business has been very good,” with NT$6.6 billion (US$214.4 million) in sales for the first year.
Naturally, one big reason why outlets are spreading throughout Taiwan wherever there is a large enough population with disposable income is the opportunity for profit. A Taiwan Life Insurance official quoted in the local press on the Lalaport venture with Mitsui said the companies’ investment would generate annual returns of 5% in rental income, compared with the average of 2-2.5% for commercial real estate in Taipei’s prime business districts.
The online impact
Another reason for the waxing popularity of outlets is the influence of online shopping, which has eroded sales in brick-and-mortar stores. Outlets have emerged as a counterweight by offering lower prices and fashion products. They are cashing in on the challenge of providing more than just shopping by creating an experience worth spending on and returning to.
“We did a survey two years ago on how consumers like to shop, and found that though people do Google, they still want physical stores,” says Ping Lee, head of research at CBRE Taiwan, part of the Fortune 500 real estate services group. “They often compare prices online, but want to go to physical stores to see and touch, grab and go. They like good service, such as sales people telling them how to use or wear products properly.
“It’s all about boutique stores, shopping as retail therapy, dining, movies, Ferris wheels, entertainment,” says Lee. “Certainly we are expecting more outlets like Mitsui, which is developing a shopping mall culture. If high street rents stay high, or do not decline, then many retailers will not be able to survive. We expect a slight decline in the next two years. Vacancy rates are rising, so landlords need to act and reduce rents.”
CBRE Taiwan reports suggest that local shoppers are currently picky and reluctant to spend, leading to “disappointing sales growth” of 0.3% year-on-year registered by department stores and shopping malls in Q4 2016 – “the lowest figure for the final quarter of the year since the onset of the Global Financial Crisis in 2008.” Consumer caution about making purchases because of rising prices and slow salary growth, despite a recovering economy and improving job market, shows just how testing the times are for retailers moving forward.
“Private consumption is growing, but at a slow pace,” Lee says. “The environment will become more challenging for retailers and brands in the near term. Certainly, they have to think creatively to attract customers.” The rise of outlets is seen as one solution.
“In my opinion, Gloria Outlets is more like outlets in America, while Linkou could be described as a community or lifestyle center, a place for the family to get together, have a meal and shop. In terms of discounts it’s not as attractive,” says Lee. “Lalaport in Japan is defined as a lifestyle outlet, so I think that’s what we will see here.”
Gloria Outlets has a village-like design, with courtyards and separate storefronts for each brand. Owned by the Gloria Hotel Group, it is managed in cooperation with the American outlet center operator The Outlet! Co, which may account for its more Western approach. Open for just over two years, it has started on a new phase of development due to be completed in 2019. This stage aims to pull in at least 8 million visitors a year, with an annual sales target of NT$7 billion (US$227.37 million).
“According to Gloria Outlets, everything is discounted at up to 35%, but I think they are aware the discounts are not deep enough, so they also have special offers, like buy-one-get-one-free,” Lee says. “After all, Taiwanese are generally well traveled, have experience with outlets overseas, and expect deep discounts. A major problem, however, is inventory because Taiwan just does not have the mass scale of major markets like Japan and China. Also, it does not have the manufacturers, so there are added importation costs.”
Xiao Fei, a young man who works in car sales and lives near Gloria Outlets, says he occasionally browses but has bought only one branded jacket since the opening, as he can find cheaper goods elsewhere. “I don’t take the family because the kids aren’t old enough yet, but when they are we’ll check out the entertainment and get something to eat. It’s a cool place and good for Taoyuan, but if I want to get something really fashionable and up to date, then I go to a Taipei department store.”
The rapid expansion of outlets and large shopping malls might suggest that spending big is the best policy to escape the retail slump. Compared with malls and department stores in city centers, outlets have performed reasonably well in a difficult economic environment. If the economy lifts, they can expect to do even better and possibly offer even better discounts.
With city centers nearly fully developed, leaving large parcels of land scarce and expensive, the route forward would appear to be outlets or lifestyle centers in decentralized areas. “Certainly we are expecting more of them,” Lee says, before expressing some doubt about Mitsui Fudosan’s projection of an eventual 10 outlets in Taiwan. “We think the outlook will be more challenging for outlet operators. Taichung will do fine and Nangang looks very interesting, but more might be difficult.”
Still, there is no doubt that outlets are helping the retail industry focus more on destination shopping, upgrading the experience and providing something for everyone, Lee says. “Taiwan is becoming more of a mall culture and consumer shopping habits are changing.” Outlets fit the bill.