Various outlet centres in Germany have established themselves as a very popular form of distribution by now. In comparison to other European countries, Germany is still poorly equipped with designer and factory outlets due to its extremely restrictive licensing practice.
There is little doubt that this will change in the midterm. Currently there are 13 outlets in Germany with a sales floor of more than 5000 sqm. In comparison there are approx. 36 outlets in the UK and more than 24 outlets in ltaly.
The rental space of the outlets in Germany is occupied by almost 100%. Nevertheless, a great interest remains. Therefore it is obvious that the real estate product 'Outlet' in Germany is in high demand by potential investors and project developers.
Consequently, next to the classic designer outlets, further kinds of outlets are being developed and established. According to the definition by ecostra1, an outlet has to have a size of at least 5000 sqm . Another prerequisite is that brand manufacturers want to sell discontinued models, second choice products and surplus production etc. there.
Therefore, the characteristic feature of an outlet is that various brands sell their products cheaper as in stationary trade and are offered at a discount of at least 30% or more there.
The better known a brand is, the stronger the attraction will be for those customers who are willing to drive at least two hours there, and that in turn has a positive effect on the outlet centres.
But what is a brand and why are brands so important for an outlet?
Each brand is characterised by something special and has a success story behind it that has been built over years and decades by a lot of marketing and expenditure. Examples like Rolex-timeless luxury watches, Gucci-ltalian luxury brand, Porschedriving in its most beautiful form, Google- epitome for search engines, McDonald's, Coca Cola, Nike etc are all international and very well known brands that are the result of an outstanding performance2
The wholesale, the own retail or the sale of products via licensing partners is surely the most important distribution channel that is then of great importance for the brand image and its successful development. However, the leftover merchandise from the previous season, surplus products and also seconds have to be transferred back under controlled circumstances and sold otherwise. This has to happen without damage to the image of the brand.
The sale of products in outlets has therefore the advantage for brands that the goods can be controlled and can still be presented and sold as a 'brand'. lt is perceived differently in an outlet than in a stationary trade setting. The importance of the 'secured and controlled distribution' for brands increases significantly in outlets. In addition, there is a clear communication or agreement with the other channels of distribution because the retail sensitivity plays an important role. After all, not all retailers are happy if a brand of their product range is sold at an outlet even if it is 50 km or more away.
Consequently almost all brands need to be represented in an outlet sooner or later so that the control over an organised and structured distribution of old goods, second choice products and surplus is guaranteed.
Another bonus is that most brands generate a much higher revenue at an outlet than at in stationary trade. Outlets are very profitable for brands and for many also an important part of their distribution structure. The brand only has to decide which outlet or outlet type is the most suitable for it. Nowadays, there are a number of outlets and outlet types that, apart from their operators, of course, vary in size, number of brands and particularly in their brand genres.
The most important outlets like e.g. the designer outlet in Roermond, Outletcity Metzingen or the Ingolstadt Village were developed over years and have a very distinct mix of brands and sectors. The excellent performance of these centres is due to the premium-, designer and luxury brands among other things. The strategic orientation of the brands is coordinated exactly because the brand and its sustainability for the relevant centre are absolutely paramount.
More specifically, the better known, the more luxurious, the more desirable the brand is and the higher its unique selling point is in comparison to other outlets, the more interesting it becomes for the outlet operator.
The tenant on the other hand only prefers those outlets that are in unison with the image of the brand. The architecture, the catchment area, the number of tourists, the brand variety and the sector of comparable brands are key factors because premium and luxury brands love it when similar brands of the haute couture join in. That way, these brands are among themselves and there is no need for justifying their position against e.g. wholesale or retail sensitivity.
In addition, the customer perceives and associates a brand completely differently in an outlet, so that the brand can benefit from these emotions. In the outlet, the brand is the main focus. lt is the 'star' of the outlet and a lot of money is invested in the marketing for it. You could say: "lf a brand is not represented in an outlet, then it is not a brand."
The stronger a brand is, the more popular it is with outlet operators. On the other hand, the outlet operators are also setting high standards for a brand that it needs to comply with. Since it is not desirable that a brand worsens the average turnover performance.
Therefore, the aim of an outlet has to be to continuously work with the brands so that with their popularity its appeal is increased and thereby the frequencies and, ultimately, the turnover is increased sustainably. The leasing strategy of each outlet centre is ultimately characterised by always dealing with its brands, recognising trends and knowing which sectors and brands will be the market leaders of the future.
About the author Michael Haslinger
In 2013, Michael Haslinger founded HASLINGER RETAIL REAL ESTATE CONSULTING. The company is an owner-managed consulting enterprise that concentrates on the strategic development, leasing and management of outlets and shopping centres of all kinds in Europe. Currently more than 14 projects are supervised or developed by HASLINGER RETAIL REAL ESTATE CONSULTING. Due to the longstanding and international experience and excellent references, recently with the two market leaders McArthurGlen and ECE, an individual solution can be developed for every outlet-and-shoppingcentre concept. The goal thereby is always to develop sustainable strategies that focus on the interests of the customers, tenants and consumers.
1 Outlet Centres in Europe, Market Survey covering all operating and planned Outlet Centres in the European Countries, June 2017, page
2 i.F. Oliver Errichiello, Arnd Zschiesche, Brand strength in medium sized businesses, What managers can learn from Schwarzenegger and the Pope, 2. Edition, 2008, page 16ff.
3 Handels-Monitor Spezial, Verticalisation- the industry as distributor, 2006