COMMERCE, Calif. -- At Citadel Outlets, the sounds of jackhammering and the whir of electric drills are as common these days as a can't-miss deal.
The City of Commerce shopping center has been in expansion mode, building a wing last fall that brought 36 stores and an additional 152,000 square feet to the mall. Construction workers are currently putting the finishing touches on half a dozen more stores, including Coach Factory Store and Not Your Daughter's Jeans, and getting ready to build another wing that is slated to open by the holiday season next year.
At a time when the rest of the retail landscape is still in recovery mode, a rising star has emerged: the outlet mall.
Budget-minded shoppers are flocking to outlet centers in search of name brands at reduced prices. Retailers, which are struggling to persuade discount-trained shoppers to pay full price at their regular locations, are increasingly looking to open outlet stores.
Apparel sales at factory outlets rose 17.8 percent for the 12 months that ended in April, according to estimates by market research firm NPD Group. Meanwhile, apparel sales industrywide rose a meager 1.4 percent.
"What outlets have been able to do is touch the core of the American consumer," said Marshal Cohen, chief industry analyst at NPD. "There's no question that what we're witnessing is the transformation of how and where consumers are shopping. The recession really kicked it into high gear for outlet centers."
Outlets have become top of mind for many shoppers because of their strong focus on value -- but that doesn't necessarily mean the lowest price, Cohen said.
Outlet shops typically offer 30 percent to 70 percent off retail prices for popular, high-quality brands that usually resist heavy markdowns. Although the prices still aren't cheap, it's considered a bargain when shoppers can score a Coach handbag for less than $100 or a J. Crew cotton cardigan for $19.99.
At Citadel recently, Nicole Foster, 34, emerged from Two Lips, a shoe shop, with a pair of black chunky heels and a pair of red peep-toe platforms. She bought them for $5 each.
"I have three kids to raise, so I'm going to go where my dollar lasts," the lawyer from Whittier said. "Sure, I'm not getting the brand-new styles, but I'm still getting the name brands for half off, sometimes even more than that."
Her friend Rhonda Rivera of Montebello lost her job in sales at a manufacturing plant during the recession and had to scale back her spending.
"I don't go to Macy's and pay $80 for a pair of shoes anymore; I'll come to the outlets and look around," said Rivera, 31, now a stay-at-home mom. "To me, it's better than going to the mall."
That change in perception has been a welcome one for outlet mall executives, who say their centers used to face undeserved stigma in highbrow shoppers' eyes.
"Ten years ago if I said, 'Come shop at an outlet,' they'd say, 'Oh, no, I shop at Neiman Marcus,"' said Steve Craig, chief executive of Craig Realty Group, which owns Citadel. "I don't get any nose cringes anymore. Clearly the times have changed."
Citadel's multiple expansions seem to be paying off. Sales per square foot were $530.50 for the year through May, up 12.5 percent from the same period a year earlier, Craig said. May sales totaled $16.5 million.
Craig Realty Group is also constructing a new outlet shopping center called Plaza San Clemente. The 650,000-square-foot mall, which will feature retail shops, fine dining and casual restaurants, a boutique-style hotel and ocean views, is scheduled to open next year.
Camarillo Premium Outlets has also been growing, building a new section called the Promenade in 2009. The wing, lined with palm trees and featuring restaurants, grassy areas and water fountains, increased the number of stores at the mall to 160 from 120. The center has continued to sign new outlet retailers, recently adding 7 for All Mankind and Tumi stores.
Ontario Mills, a so-called hybrid mall that features full-price and outlet stores, is opening several new outlet shops in the coming months as part of a mall renovation. Upcoming stores include Puma Outlet, DKNY Company Store and an O'Neill outlet. In the last year, it opened a Lacoste Outlet and a Coach Men's Factory location.
"I tell everybody the economic downturn for us was kind of a blessing," general manager Marc Smith said.
The trend is even showing up online, with eBay Inc. announcing that it would launch the eBay Fashion Outlet -- a virtual outlet mall featuring brands such as Brooks Brothers, Neiman Marcus Last Call and William Rast -- in September.
For retailers, outlets provide a way to offer lower prices and clear excess inventory.
To properly stock the growing number of factory stores, companies are increasingly ordering outlet-only merchandise, with analysts estimating that 85 percent of the products at outlets were never carried in full-price locations. Other merchandise might be damaged or returned items.
"In today's world, the outlet business is a business upon itself. The average consumer cannot tell the difference between a golf shirt made for an outlet center compared to one made for a full-line retail store," Cohen said. "The difference mainly is cosmetic -- you'd see a little less embroidering or a little less detail."
Because so many products are unique to the outlets, there isn't much overlap between those locations and their full-price counterparts. Without the fear of sales cannibalization, and because outlets serve as destination centers that reach a broader geographic customer base than traditional malls, retailers have focused on opening more outlet stores.
Nordstrom Rack has been steadily increasing its number of locations after opening just one new store in 2007. Since then, it has opened six in 2008, 13 in 2009 and 17 in 2010, and it plans to open 18 this year. Two of them are slated to open in Southern California in September, in West Covina and Redondo Beach.
Although luxury spending has surged back since the recession, most shoppers can't afford the sky-high prices at full-line stores -- but they still covet the designer goods.
The success of outlet stores at the luxury level -- Neiman Marcus, Nordstrom, Barneys New York and Saks Fifth Avenue all operate outlets -- caught the attention of executives at Bloomingdale's, which for years had held off on entering the market.
Last year the upscale department store chain introduced Bloomingdale's Outlet by launching four stores around the country. The company plans to open three new outlet stores in the fall and is scouting sites for additional locations.
"The idea is to serve a customer that has a Bloomingdale's sensibility but with a heightened value proposition," spokesman Jim Sluzewski said. "Customers don't shop in neat categories -- they go where the merchandise and value is right."
Industry experts say retailers, too, save money at the outlets: It typically costs less to open a factory location because rents are cheaper, and many companies that pay salespeople commissions at traditional stores don't do so at outlets.
Many retailers are using those savings to renovate and remodel their outlet locations by updating the fitting rooms and installing more attractive fixtures and lighting, said Michele Rothstein, senior vice president of marketing for Premium Outlets, the outlet division of mall owner Simon.
Retailers "now recognize that the outlets can be the very first experience a consumer has with their brand, so the experience has to be a true extension of the brand and the company's image," she said.
Outlet centers are thinking beyond simply adding new stores. Many are taking a page from traditional malls by offering special coupons for tourists, concerts and valet services; they're also turning to social media sites such as Facebook and Twitter to promote deals and events.
This summer, Citadel announced that it was expanding its shopping hours to 9 p.m. every day, from 8 p.m. previously, and launched a round-trip shuttle service from hotels in the Anaheim area. The shuttle has been popular among tourists, with several busloads of out-of-towners arriving at the mall every day.
Often considered tourist draws in far-flung areas, outlet shops are also becoming more prevalent in urban areas.
Nearly all of the new leases signed at the Block at Orange, a hybrid mall, in the last couple of years have been for outlet concepts from brands such as Tommy Hilfiger, Levi's and Calvin Klein.
The shopping center is even considering changing its name to incorporate its heavy outlet slant, general manager Blake Windal said.
"We're definitely moving more toward outlet because that's our strength," he said. "After the economy tanked, people flocked to the outlets and now I think they know better, like, why would I not outlet shop? I don't think you can put that genie back in the bottle."
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