Retail centres and factory outlets: on the eve of their first battle?

Factory outlets in Western Europe are successful, because their brand goods sell at prices 30% lower than anywhere else. Will such an opportunity cause Polish retailers to lose customers? We will know the answer to this question at the end of this year, when Factory Outlet in Ursus, Warsaw,
is opened by the Spanish company Neinver.

At the time of the West's factory outlet boom in the mid-1990s, the first modern retail centres were just starting up in Poland. Whilst Poland's first factory outlet will only open  this year, there are already as many as  77 in the rest of Europe.

They are not competition
The history of  factory outlets dates back to the beginning of the 20th century. They first appeared in 1915 in the USA as "factory stores" and there are now over 600 such developments in the USA.
The English, (then later the Germans and the French), imported the concept to Europe and it is here where the business is most well-developed.
"Outlets are usually located outside the city", says Corina Grandia of the Spanish company Neinver, which specialises in  the construction and management of factory outlets. "They do not try to compete with traditional retail centres. They were originally based near factories and borrow much spatially, from the typical layout of a manufacturing plant".

Limited Incomes
In rich countries retail centres and factory outlets  function side by side. Will   Warsaw be the same?  The majority of customers wanting to buy brand clothes have limited incomes and they are likely to shop where they can buy them at low prices.
 According  to Corina  Grandia,   companies do exist who would   never  trade in an outlet, because they are keen to protect the   exclusivity of their brand's image. Other companies act in quite the opposite way - they actually begin expansion in a given market from this type of  outlet.

Clothes get second wind
 Factory outlets sell all their goods at a minimum 30-percent discount,   starting with  clothes, shoes and accessories. At the outlets, manufacturers sell the last items from a collection, or the collection from the previous season and production surpluses. In this way they ,extend the life" of their products in their own brand stores.
"If they sell those goods to wholesalers, they lose control of their own brand", says Corina Grandia, adding that a number of nationally-specific factors have to be considered before opening an outlet: retailers already operating on the market,   profiles of customers and their motives for shopping: "We target those on average and below average incomes", she states.

Poland: starting from the autumn
The first Factory Outlet in Warsaw will open in November. It will have an area of 15,000 sqm. We already know that Adidas, Reebok, Nike, Puma, Deni Cler, Simple, Tatuum, Sunset Suits, Solar, Apart, Salamander, Ecco Shoes, Jackpot, Springfield and Witchen will be represented there, among others. Construction of the Ursus centre will cost over USD 10 million  and tenants will invest another USD 4 million.
The architects  Pracownia Autorska AB and Archicon  designed the new premises,   the general contractor is Hochtief Polska, and the exclusive agent which is leasing space is Jones Lang LaSalle.
"Eventually we will expand our site", says Corina Grandia. "As with   the majority of outlets,  entertainment facilities will also be added".
 

Renata Kusznierska, Senior Negotiator of DTZ Zadelhoff Tie Leung:

In my opinion, there is scope for one more Factory Outlet  in Warsaw, apart from the one in Ursus. A good location would be Targówek. Profitable hypermarkets need to have  around 200 thousand inhabitants within reach, but   outlets ought to have about 500 thousand within a 3-hour drive. For customers, this means one big weekly or monthly excursion, with extra cash in their wallets. They will willingly spend more time driving to the outlet, knowing that they can buy brand goods at discounts of at least 30 percent. Poles look out for price bargains and that is why I am convinced that Factory Outlets can be very successful in the Polish market. The outlet boom in Europe since 1996, especially in Great Britain, Germany, France, Switzerland and Italy, is a very positive omen.
An outlet is a typical weekend business and so its profits  can never be precisely estimated. Rents at such centres are  30, even  50%, lower than average, but an additional rent - from 6 to 12 percent of the tenant's turnover - is charged.
Locating a hypermarket or a supermarket at an outlet is a bad idea. Food discount stores, are better, though they do not  attract that many customers and special spectator events are often organised at weekends to do this. Still, I do not think entertainment complexes are wise innovations on these sites.
It is difficult to decide on the right locations for outlets.  They are built in very strange places abroad, in fashionable holiday towns for example. I think Poznań, Wrocław and Kraków would be good locations in Poland.
Factory outlets do not  compete directly with retail centres. In fact, they supplement what the latter offer. More demanding and wealthier customers will remain loyal to the centres.