ACROSS: AS WE APPROACH THE END OF THE YEAR, WHERE DOES THE EUROPEAN OUTLET INDUSTRY STAND AT THE END OF 2024?
GILES MEMBREY: 2024 has been a solid year for outlet retail. We are still seeing massive growth in sales densities throughout Europe even though there have not been many new developments – our Malmö project was one of the few. We are seeing transitions, repositioning, and a series of expansion projects and expect this to be the trend for the future: there will only be a few new centers in Europe with the focus on high-quality redevelopment of existing centers and scheme extensions.
ACROSS: WHAT ELSE HAS BECOME CLEAR THIS YEAR?
MEMBREY: The pace of technological development is enormous, and the industry must keep up. I think it’s fair to say that technical development in outlet operation and management will change how we look at outlets in the future. There’s been a definite growth in the use of mobile apps, for instance. If a customer is going to an outlet, they can do a lot of the work before getting there, including getting information about the shops, looking at trends, and what sales are happening. Mobile apps and communication between the outlet and the guest are changing significantly.
ACROSS: NEVERTHELESS, DIGITALIZATION AND THE INTEGRATION OF TECHNICAL SOLUTIONS ARE STILL WEAK POINTS IN THE OUTLET INDUSTRY. IF YOU ASK AROUND, THIS IS ONE OF THE MOST CRITICAL TASKS FOR THE COMING YEAR.
MEMBREY: I agree. The outlet industry is too slow to recognize the benefits of online services. There are a significant number of online solutions that can help. We, for example, are looking at introducing Wishibam, a leading B2B and B2C SaaS platform that enables retailers to reconnect with sustainable growth through omnichannel, into our outlet developments at an early stage. So, before we even started the project at Malmö, we were already talking to companies like that about improving online services. We are all aware that AI will considerably impact business by mapping people’s shopping preferences, as well as their browsing and purchasing histories and so brands will be able to target consumers with personalized information that is very specific to them.
ACROSS: HOWEVER, THIS ALSO MEANS THAT DATA INTEGRATION BETWEEN THE RETAILER AND THE OPERATOR NEEDS TO IMPROVE.
MEMBREY: This is where outlets have a significant advantage over shopping centers. We have always regarded retailers as our partners. The outlet operators and managers know every day how many people have gone into the individual stores and what sales these stores make each day. Based on this information, we can see whether the brand has the right goods in stock and is selling them correctly. We are already discussing all this data with the tenants. That will help when things get even more demanding in the future.
ACROSS: WHAT WERE YOUR PROFESSIONAL HIGHLIGHTS IN 2024?
MEMBREY: My big highlight for the year was funding Malmö Designer Village with FREY and starting on-site with the groundworks at the beginning of July. FREY is a great partner. We hope to develop this relationship and look at other opportunities as well. The fact that FREY bought ROS Retail Outlet Shopping clearly shows their intention to become a big player in the outlet market. The other key highlight is that I’m now being asked to speak more about outlets at conferences – it is so important to share experiences and learn together. Additionally, a massive change is that I have been approached by a couple of significant funds looking at schemes outside Europe, specifically in Africa and the Middle East. I cannot discuss the details, but this could be a massive opportunity for our business.
ACROSS: YOU ALREADY MENTIONED THAT THE EUROPEAN MARKET IS SATURATED. STILL, MANY PLAYERS IN THE OUTLET INDUSTRY SEE SCANDINAVIA AS PROMISING. YOU DEVELOPED MALMÖ. WHAT IS PARTICULARLY EXCITING ABOUT THIS LOCATION, AND HOW DO YOU ASSESS FURTHER DEVELOPMENT?
MEMBREY: There are currently five outlet locations in Scandinavia: Oslo Fashion Outlet, Stockholm Quality Outlet, Hede Fashion Outlet close to Gothenburg, Ringsted Outlet, and a very tiny scheme in the center of Copenhagen. Therefore, Malmö will be the fifth major outlet center, attracting people from all over Scandinavia. Although it is based in Sweden, the Copenhagen market particularly is essential for its success. The site is well connected across the bridge to Sweden and there are electric buses from the site to Malmö Central Station.
ACROSS: WHAT IS THE BIG ADVANTAGE OF MALMÖ?
MEMBREY: I know this is debatable, but the schemes developed to date in Scandinavia are of inferior quality. We’re going to set a new benchmark with Malmö. It is the greenest scheme we have ever developed with features such as ground source heat pumps and recycled water. FREY is a great partner, and we work together, particularly on the sustainability and social aspects of the location. We also work very closely with the local community. For example, a neighboring garden center does the landscaping. Scandinavia has one of the highest GDPs in Europe so it’s worth investing here and creating a premium product. The existing outlets in Scandinavia should perform better than they currently do.
ACROSS: SO, A CERTAIN AMOUNT OF PRESSURE IS NEEDED TO ENSURE THAT THE OTHERS ARE REDEVELOPING?
MEMBREY: Yes, once Malmö opens, people will start examining the existing centers and considering how to improve them. There is enormous potential in all locations. One could examine individual locations, but I do not think there will be much more scope for developing further outlets in Scandinavia.
ACROSS: WHY, ON THE OTHER HAND, IS NEIGHBORING GERMANY DEVELOPING SO SLOWLY?
MEMBREY: The answer is simple: bureaucracy. The retail planning system and securing retail consent is very challenging in Germany and this has limited the number of centers that can be developed. We are looking at a few new plans for Germany, and I hope to announce one next year. But it takes a lot of work in Germany. It is similar in France. If you want to build a center in France now, you have to buy an existing shopping center or retail park and convert it. Getting planning permission for a new outlet center out of town in France is almost impossible.
ACROSS: HOW DO YOU LOOK AT THE SOUTHEAST EUROPE MARKET? THIS SEEMS TO BE A WHITE SPOT ON THE EUROPEAN OUTLET MAP.
MEMBREY: There are different reasons for this. The first one is simply the population density in relation to the GDP ratio. One of the problems is the lower GDP per capita. If the GDP is low, you need a higher population. However, a new location cannot be successful if this is also low. Very few of the 100 largest European outlet centers are in Southeast Europe although the planning, development, and construction costs are very similar. The profitability of a project in Southeast Europe will potentially be lower than in other parts of Europe. Another point is politics. Understanding new countries can be tricky with local legislation often more challenging than the companies are used to.
ACROSS: WHAT DO YOU MEAN BY THIS?
MEMBREY: There are way more distributors in Southeast Europe. One of the key things about outlets – and I’ve said this time and time again to people who have approached us with potential sites – is that you have got to get the mother company’s buy-in to do an outlet. You cannot develop an outlet center with distributors alone. If you do, the distributor must agree to a separate stock supply arrangement with the mother company to access the relevant stock at the right price, meaning a minimum discount of 30% on the recommended retail price. Otherwise, the model doesn’t work. There are some positive examples, however. Fashion House understands the Romanian market because Brendan O’Reilly has lived in that market for over ten years and worked in Russia. It took him a lot of time and effort, but he had a 100% focus on the markets and projects and has done an excellent job understanding how those markets work.
ACROSS: WHAT ARE OTHER ARGUMENTS “AGAINST” SOUTHEAST EUROPE?
MEMBREY: The other main reason is simply logistics. Roughly speaking, the outlet industry has long said that for every seven full-priced stores, there is room for one outlet. Of course, this has changed over the years with many brands now producing products for the outlets. This is one of the significant changes in the industry that people don’t like to talk about. So, for example, a country like Hungary with such a dominant capital city as Budapest would not have enough full priced stores to support an outlet, even though they have the logistics to support one. However, many Southeast European countries do not, and rely on goods coming to outlet from outside the country.
ACROSS: YOU MENTIONED POLITICS: GEORGIA IS DISTANCING ITSELF FROM EUROPE AND TURNING TOWARDS RUSSIA. WHAT DOES THIS MEAN FOR THE OUTLET INDUSTRY THERE, WHICH HAS GROWN RECENTLY WITH THE TBILISI OUTLET VILLAGE?
MEMBREY: That country’s macroeconomic and political position definitely impacted the opening of Tbilisi Outlet Village. It was going to open in spring this year, but now it’s been delayed to spring 2025. Again, the problem is similar: many tenants are working with distributors. Things like country taxes and import/export duties make it quite complicated for companies to come into a country for the first time and open an outlet. My partners have been developing it, and have done a lot of work on the scheme so I hope it comes to fruition, but it is risky with the current politics.
ACROSS: RETURNING TO THE CENTRAL EUROPEAN MARKET: IN TERMS OF FOOTFALL, MANY OUTLET LOCATIONS ARE ALREADY PERFORMING SIGNIFICANTLY BETTER THAN CITY CENTER LOCATIONS. IF BRANDS ARE ALREADY PRODUCING EXPLICITLY FOR OUTLETS ANYWAY, IT IS ONLY LOGICAL TO CLOSE THE STORES IN THE CITY CENTER AND CONCENTRATE MORE ON THE OUTLETS. WILL THIS TREND CONTINUE?
MEMBREY: Some of the most influential fashion brands, especially premium brands, profit more in the outlet than in the city center because the overhead costs are lower. I am probably one of the few developers promoting and developing European outlet centers which are about location, location, location! When we did our retail impact assessments on places like Malmö and Grantham, they amounted to less than 3%, so we should put things into perspective. There are around 220 outlet centers in Europe compared to 10,000 shopping centers. It’s still a tiny percentage of total sales.
ACROSS: GENERALLY SPEAKING, WHAT DOES A PERFECT OUTLET LOCATION LOOK LIKE?
MEMBREY: Grantham Designer Outlet Village, Lincolnshire, UK, which is opening next year, is an example. But in general, you need at least a million people within 30 minutes for the perfect location, three million within 60 minutes and five million within 90 minutes. At the scheme we successfully opened in Birmingham, West Midlands, we’ve got well over a million people within 30 minutes, and we’ve got nearly six million within an hour and 11 million within 90 minutes. Population density is vital to support a scheme, along with high GDP.
ACROSS: APART FROM CATCHMENT AND BIP, THE REQUIREMENTS FOR A PERFECT LOCATION HAVE CONSIDERABLY CHANGED.
MEMBREY: Absolutely. Ten years ago, I would have answered the question about a perfect location differently. Good accessibility, especially good public transport links, has become more important in outlets over the last three to five years. Unsurprisingly, the most successful outlet center in Europe, Bicester Village, has its own train station. Value Retail spent millions and millions on getting that station right next to the scheme.
ACROSS: WHY IS THIS SO IMPORTANT?
MEMBREY: It’s important for two things. Firstly, most goods bought at outlet centers are predominantly light and so guests can easily transport them via train. The other big thing is the employees. For example, with a train station, employees can get to work easily. Anyone can work at outlet centers when they are well connected but you do not want your employees taking away the customer parking slots. Today, the perfect location is not one hour from city centers, as it was in the early 1990s, but 20 to 25 minutes.
ACROSS: HOW BIG IS THE PERFECT LOCATION?
MEMBREY: You need to have the ability to build up critical mass. The ideal phase one is somewhere between 15,000 to 18,000 sq m. Then you need to be able to build up to 25,000 to 30,000 sq m. Size does matter when it comes to achieving critical mass, but you must also have the range and quality of brands to make people travel to you. Parndorf is an excellent example of this. And of course, Bicester Village, where even people from China are visiting. People will generally travel up to 2.5 hours to go to Bicester Village because they know it has got such a fantastic range of brands.
ACROSS: WHAT ROLE DO OTHER FACTORS PLAY OUTSIDE THE RETAIL OFFERING?
MEMBREY: Landscaping and providing extra spaces for customers to relax are essential to improving a location. This includes a good F&B offer. Today, you need at least 15 to 20% of your floor space for F&B. There is a massive debate in the industry about this. Around 60% to 65% of outlet trading is traditionally at weekends, which complicates F&B. But we all agree that people want social interaction, and we need to find answers to this request. Other critical factors include good play areas for children, excellent wayfinding and signage, good lighting, good street furniture and quality pods.
ACROSS: IS LEISURE THE NEXT TOPIC FOR OUTLETS AFTER F&B?
MEMBREY: This is a considerable debate in the industry. There are two schools of thought. Some people think that entertainment and leisure are critical to developing a destination. Cheshire Oaks Designer Outlet, for example, is a big scheme with 38,000 sq m. On the adjoining site, which McArthur Glen did not develop, there is an aquarium, a cinema, and a bowling alley. Another school of thought led by Value Retail, one of the most successful operators, developers, and managers of outlet centers, clearly states: no leisure, no entertainment. They recognize the importance of F&B, but for them, it’s all about outlet retailing. It is about attracting guests to Gucci, Polo, or Burberry. I do not say one school is correct and the other is wrong as there are good examples of both. I would argue that the best solution is to have leisure and entertainment alongside an outlet, so it does not interfere with the core business. And, of course, the individual situation and locations play a role.
ACROSS: WHILE DEBATING THE IMPORTANCE OF LEISURE, THE INDUSTRY AGREES THAT EXTRA SERVICES ARE ESSENTIAL.
MEMBREY: This is especially true for VIP customers and brings me back to Value Retail. They are probably best in class at providing VIP treatment for their customers, particularly overseas customers. These customers, in this instance let’s call them guests, take the train from London to Bicester and, once on site, are immediately welcomed with a glass of champagne. They’ve got personal shoppers who will take them around the center if they want, places where they can store their bags, and so on. This is extremely important if you want to appeal to specific target groups – and even more critical after Covid. Integrating more services is a trend that will shape the future, especially when combined with technical elements.
ACROSS: LET’S TALK ABOUT THE OUTLOOK 2025. WHAT TRENDS DO YOU THINK WILL SHAPE THE OUTLET INDUSTRY IN 2025?
MEMBREY: Sustainability is critical. This affects not only the E in ESG but also outlets, which should be more integrated into local cities. We have already talked about important technological changes. As I said, not many outlet centers are being developed on greenfield sites in Europe anymore, so it is about further developing and repositioning the existing locations. Companies need to look at new brands and, if necessary, develop them in the locations.
ACROSS: WE ALL KNOW THE RELEVANT PLAYERS IN THE MARKET. WHO, ACCORDING TO YOU, HAS THE MOST SIGNIFICANT POTENTIAL?
MEMBREY: I think ROS has the greatest potential because it’s just been bought by FREY. FREY made a big play in wanting to develop an outlet platform in the European market. I can see the key players, McArthur Glen, Value Retail, VIA, and NEINVER, developing their existing portfolios through scheme extensions, repositioning, asset management and refurbishment. They act very sensitively and purposefully when it comes to new locations – they’re not going to go around buying everything. They can also be specific about what they want to do regarding locations that fit in with their existing portfolio.
ACROSS: COMING BACK TO YOUR COMPANY: WHAT PROJECTS AND LOCATIONS ARE ON YOUR LIST?
MEMBREY: We’re considering a new scheme in Cork, Republic of Ireland, and are currently working on the planning application. I hope to get that submitted in the first or second quarter of next year. We hope to be on-site with that by 2027 or perhaps even the end of 2026. And, as mentioned, we have been approached by a couple of companies outside Europe to advise and look at their ideas, mainly in Asia and the Middle East. The other new trend is that we’re also being asked by a few funds, and others, to look at buying existing centers and reposition them. There’ll be much more work in this field for us, particularly in Europe, where we will be looking at the feasibility of buying existing centers and what we can do to improve them in terms of new brands, more sustainable initiatives, and things such as better landscaping, signage, and lighting.
ACROSS: YOU ARE ONE OF THE MOST EXPERIENCED GUYS IN THE EUROPEAN OUTLET BUSINESS. WHAT WOULD YOUR DREAM PROJECT INVOLVE?
MEMBREY: Not easy to answer. But probably an outlet center of 25,000 to 30,000 sq m, built in two or three phases, where the planning process and politics are simple. In other words, support from the local authorities, brands that want to help develop the center and not just sell, and where we have a financing partner on board who understands that co-operation between all stakeholders is the most important thing when it comes to outlets.
Giles Membrey
Giles Membrey is Managing Director of Rioja Estates Ltd and member of the ACROSS Advisory Board
