By MARINA STRAUSS
Tuesday, October 9, 2018
Just a few years ago, outlet malls were a beacon of hope in a rocky retail industry.
Industry officials were predicting a big rush of new outlet centres - large malls that draw a wide swath of customers with discounted prices on brands such as Gucci and Kate Spade.
But after a wave of seven outlet centres were built in Canada since 2013 - nearly doubling the total number here - the segment is showing signs of starting to reach a saturation point as some major players scale back their plans.
"It hasn't been the boom industry people thought it would be," said Mike Kehoe of Fairfield Commercial Real Estate in Calgary. "It's been a mixed bag of results - it's a work in progress. These projects take time to mature."
A slowdown in outlet-centregrowth comes as the mall sector has had to grapple with store closings - from the retreat of U.S.-based Target Corp. in 2015 to the collapse of Sears Canada Inc. last year - and the rise of e-commerce, which is putting pressure on landlords to give consumers more reasons to head to bricks-andmortar stores.
In Canada, there are just 16 outlet centres, according to the Canadian Directory of Shopping Centres, which is compiled by Monday Retail IQ. (Industry insiders are divided on what an outlet mall is, with some saying only the 10 largest here fit the mould and others offering different variations).
Sluggish outlet mall growth here follows a similar pattern in the United States, where outlet centres are a more established niche. In the United States, there are more than 200 outlet centres, researcher Green Street estimated early this year.
"The outlet sector is the only retail real estate channel that has seen meaningful development in recent years," Green Street said. "While dozens of outlet centre projects are announced each year, only a few are opened."
Outlet openings in the United States have slowed to one this year and one planned for next year, from 11 in 2013 and 10 in 2014, according to data from the International Council of Shopping Centres.
Industry executives in Canada point to an array of reasons for the slowing pace of growth here: It is tough to find the right, affordable locations that can become discountshopping destinations; it's been a challenge to attract high-profile retailers that can lure enough consumers; some luxury merchants have been slow in Canada to open outlet stores as they bolster their full-price presence here; and an array of retailers have struggled and closed stores, leaving landlords to search for alternatives.
"The business is just not as great as people think it is," said Edward Sonshine, chief executive of RioCan Real Estate Income Trust.
After RioCan teamed with U.S.based Tanger Factory Outlet Centers Inc. in 2011, they rolled out four outlet malls in Canada. However, both companies have taken writedowns on two of those centres in the Montreal area. RioCan has pulled back on investing further in outlet malls and plans to eventually sell its stake in the two weaker ones, Mr. Sonshine said.
As for the other two, "they do fine, but they're not great," he said.
Despite the slowing growth, outlet malls remain a relative bright spot for an industry in which there are almost no plans to build other types of malls.
"Everyone was saying outlet centres are the new flavour of the year," said Mauro Pambianchi, chief development officer at SmartCentres Real Estate Investment Trust, which partnered with U.S. giant Simon Property Group Inc. in 2011 to develop outlet centres here. "I think there's room for two or three more."
Stephen Yalof, CEO of Simon's premium outlet division, said its two outlet malls, which it runs jointly with SmartCentres, have enjoyed mostly double-digit sales increases.
Of those, Toronto Premium Outlets (TPO) in Halton Hills, west of the city and off Highway 401, is one of Simon's top performing outlet centres, he said. It was so popular that it quickly became known for its traffic jams and cars lined up looking for parking. Now, the parking snags have been addressed by adding more spaces, he said. On Nov. 15, TPO will expand the Toronto centre by about 40 per cent to 500,000 square feet, adding 40 more retailers to the current 87, including such luxury brands as Gucci, Montblanc and Prada.
As for the parking issues, "these are good problems," Mr.
Pambianchi said, adding SmartCentres and Simon are planning two more outlet centres.
The trouble, industry observers said, is that those types of plans are growing increasingly scarce in Canada.
Fairfield's Mr. Kehoe said some outlet centres are winners, but a number of newer developments in Western Canada have had a slow start, noting that outlet centres "will find their way and adapt to their specific market demands."
One of the latest, near the Edmonton International Airport and opened in May, is a joint venture of Simon and Ivanhoé Cambridge (the real estate arm of Caisse de dépôt et placement du Québec.) Ivanhoé also had raced several years ago to carve out a niche in the outlet mall space.
Ivanhoé officials declined to comment.
Simon's Mr. Yalof predicted business at the Edmonton centre would pick up in the coming months, benefiting from being an enclosed mall in chillier weather.
The story was different in 2011, when U.S. retailers were clamouring to expand to Canada in a postrecession era. U.S. titan Target announced with great fanfare it was opening its discount stores in Canada, starting in 2013. RioCan and SmartCentres (then called Calloway REIT) rushed to get a bigger piece of the bargain-shopper action by signing deals with U.S. partners Tanger and Simon, respectively, to build U.S.-style premium outlet malls here.
Other U.S. merchants launched their first stores in Canada, including fashion chains Express Inc. and J. Crew Group Inc., both of which ultimately struggled here.
By 2015, Target failed in Canada, closing 133 stores and scaring off other U.S. chains, Mr. Sonshine said. That made it tougher to attract must-have brands to outlet centres, he said.
"I can't overemphasize what the Target withdrawal, which was only 31/2 years ago, did to the desire of American tenants to come up here," he said.
Toronto Premium Outlets, which opened in 2013, kickstarted a wave of building in the Canadian outlet mall sector. Industry observers say that growth is starting to slow.
CARLOS OSORIO/THE GLOBE AND MAIL
People walk down a hallway at the Toronto Premium Outlets mall in Halton Hills last Thursday. On Nov. 15, the centre will be expanded by about 40 per cent to 500,000 square feet.
CARLOS OSORIO/THE GLOBE AND MAIL