Our new 2017 European Outlet Shopping report explores this fast-moving sector, to help our clients better understand opportunities for growth. In this dedicated series of outlet focused posts, we’ll start by looking at the state of play specifically within the UK market.
Our report shows that the UK is the leading outlet market in Europe, generating total sales of €3.5bn from 43 major outlet centres. Italy is second at €3bn, with Germany (€1.8m) and France (€1.7m) occupying third and fourth place respectively.
So how did the UK gain and maintain this leadership? Vanity Fair Corporation gave birth to the modern outlet industry in 1970 when it began to sell stock from across the Group at its Reading, Pennsylvania factory. The format grew quickly and was brought to the UK by entrepreneurs trawling the US for new concepts, early examples including Boundary Mill Colne and Clarks Village. The UK of course has the great advantage of a common language and by the early 1990s, McArthurGlen and Value Retail had ‘crossed the pond’, opening Bicester Village and Cheshire Oaks in 1995.
The UK hit its peak development year in 1999 when 6 schemes opened, including Junction 32 and Braintree Freeport. After this point, the first discussions about saturation began to appear and a number of minor schemes failed including Jacksons Landing (2004) and Freeport Scotland (2006). As a result, UK Outlets remained a relatively specialist and somewhat misunderstood asset for investors, with the notable exception of Aviva, BAA and Hermes. Looking back however, the entry of TH Real Estate in 2000 can be seen as a turning point in investor awareness in the format.
As more outlet centres appeared, the counter cyclical, regenerative and leisure driven qualities of the format became recognised. Innovative schemes such as Gunwharf Quays and Springfields and more midscale schemes such as Freeport Castleford (now Junction 32) and The Yorkshire Outlet (now Lakeside Outlet Village) appeared, populated by high street retailers such as M&S and Next who saw the outlet as an ideal way to control the disposal of unsold merchandise. These brands proved very popular with shoppers, enabling the UK to expand provision while at the same time maintaining profitable sales densities.
Today, the UK is second to Italy in terms of provision levels but offers customers a wider range of outlet price positions. Midscale outlet centres account for 37% of total sales in the UK but only 5% of outlet sales in Italy. In contrast, while 60% of Italian outlet sales are at luxury positioned outlet centres, these account for 25% of sales in the UK
In the main however, UK centres typically offer consumers a selection of brands which are not always available on local high streets. This creates large catchments which are two to three times the extent of large town centres, while low visit frequencies and the complementary nature of goods means that they have very limited impact on full price shopping locations. Discounted prices encourage shoppers to experiment with new brands, increasing the importance of outlet centres for brands, beyond just disposing of unsold merchandise. In the USA, recent research shows that large numbers of upscale brand shoppers have their first experience of that brand at an outlet centre, graduating to the full-price store in time. As a result outlet centres are no longer a backroom function for brands but an essential channel which complements their full-price physical and digital channels.
The UK has also capitalised on its early lead by adapting to the shoppers’ preference to combine shopping with leisure. Stock availability means that outlet shoppers often visit in a speculative frame of mind, and as a result look for complementary activities which will make an enjoyable day-out. A strong F&B offer is a natural extension in the offer and UK outlet centres today typically have twice as much space allocated to F&B as outlet centres on the continent. The most successful example of a symbiotic outlet and leisure day out experience can be found at Gunwharf Quays in Portsmouth which has become an inspiration for the development of outlet centres in urban locations such as London Designer Outlet and Gloucester Quays.
Looking forward, the UK outlet centre industry is set for further growth. Far from the saturation described by commentators a decade ago, consumer interest and innovation in the format has maintained a sales growth more akin to on-line retailing than high street shopping. This has attracted more high profile investors including Peel, LaSalle IM, Land Securities, M&G, UBS and Tristan Capital and the further development of new outlet centres for example, Midlands Outlet Village (Tewkesbury), Mill Green (Cannock), the O2 (Greenwich), Glasgow Harbour (Glasgow), Hackney Walk (London) and Scotch Corner (Richmond). With FSP’s report identifying substantial untapped capacity in the Midlands and parts of South East England, and a number of developments being considered in addition to those mentioned, the UK looks set to maintain its reputation for innovation and its leading position within the European outlet industry.
FSP’s European Outlet Shopping report offers more insight into the UK market. For more information please contact FSP.