By Suzanne Kapner and Esther Fung 

Outlet stores had long been immune to pressures weighing on traditional malls, including the shift to online shopping that has sapped customers from physical stores.

Shoppers often were willing to trek miles to outlet centers, located far away because brands didn't want their reduced-priced goods to be too close to their full-priced stores. For that reason, outlet merchandise, typically last season's goods sold at steep discounts, hasn't been widely available online. Until now.

Simon Property Group Inc., one of the largest mall owners, in conjunction with Rue Gilt Groupe, which operates flash-sale websites, has launched, where brands from Vince to Under Armour offer their outlet goods for sale online. It is one of the first curated websites to feature merchandise from outlet stores.

Simon Chief Executive David Simon said he isn't worried the website will siphon shoppers away from his company's outlet malls, which include Woodbury Commons Premium Outlets, a sprawling complex in Central Valley, N.Y., with 250 stores ranging from Gucci to Nike that does more than $1.4 billion in annual sales.

"When you can't make that trip to Woodbury, knowing you can get outlet pricing online makes sense," he said. "We think the two will feed off each other to generate higher sales."

Outlet stores were long a source of growth for retailers, which have been hard hit by the shift to online shopping and competition from startups. Shoppers flocked to these centers for bargains they couldn't traditionally get at malls, but now outlets are showing the same signs of stress as traditional stores.

There are only about 400 U.S. outlet centers compared with more than 1,100 traditional malls, according to the International Council of Shopping Centers. That means outlet centers aren't struggling against the oversupply that has plagued traditional malls, which have seen dozens of their retail tenants close stores or go out of business as more shoppers buy online.

But outlets are feeling the effects of retail bankruptcies and the shift to online shopping, too. Chains including Gymboree and Charlotte Russe have closed locations in outlet centers, and Forever 21, which filed for bankruptcy protection this week, plans to close around a dozen outlet stores.

Outlet centers are also facing stiffer competition from off-price chains such as T.J. Maxx and Nordstrom Rack, which are located closer to where most people live, as well as from regular stores that have cut prices to remain competitive.

"The proposition of driving (typically) much further distances to get to an outlet center seems that much less attractive," Paul Lejuez, a Citi analyst, wrote in a recent research note.

Retailers including Ralph Lauren and Kate Spade have recently called out softness in their outlet stores, a sign, according to Mr. Lejuez, that they may have opened too many locations.

"We continue to clearly see challenges with brick-and-mortar traffic, both full price and outlet," Ralph Lauren Corp. Chief Executive Patrice Louvet told analysts in July when he laid out plans to address the issue. Victor Luis, the former chief executive of Kate Spade parent Tapestry Inc., told analysts in August that a decline in foot traffic led to higher-than-expected promotions among outlet retailers.

Just as with traditional malls, not all outlet centers are created equal. The best ones, typically with higher-end retailers, continue to draw shoppers by the busload while others struggle.

Tanger Factory Outlet Centers Inc., which owns 39 outlet centers, posted a 0.3% decline in net operating income in the first half of the year because of the effect of retailer bankruptcies, lease modifications and store closures. The landlord posted 96% occupancy at the end of June, down from 97.7% at the end of 2016. Over the past year, shares of Tanger have fallen by 34%.

Simon Property, which operates 107 malls and 69 outlet centers among other properties, doesn't disclose the difference in sales and rent metrics between its malls and outlet centers.

Outlet retailers are among the last to venture online, in part because some of these chains are high-end and don't want consumers to be able to easily search the internet for discounts that could tarnish their brand. is launching with just 24 brands, but Mr. Simon said he is in discussions with dozens more.

"We're looking at where the market is going," and increasingly that is online, said Michael Rubin, the chief executive of Kynetic, which owns Rue Gilt Groupe.

Write to Suzanne Kapner at and Esther Fung at


(END) Dow Jones Newswires

October 05, 2019 09:15 ET (13:15 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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