Malling of Factory Outlets : California Emerges as a New Frontier for Clusters of Huge Discount Stores

<i> Times Staff Writer</i>

Bert and Libby Smith didn’t drive all the way from their home in Laguna Hills to San Ysidro last month simply to buy new shoes. But the Smiths, who were on their way back from a Mexican vacation, did leave the Bass Shoe factory outlet store in San Ysidro with two pairs of shoes that were marked down 25% from the suggested retail price.

“The prices were fair, the service was excellent and so was the selection,” said Bert Smith, who expects to return to the Bass outlet in the newly opened San Diego Factory Outlet Center.

During 1988, brand-conscious consumers spent an estimated $4 billion at factory outlet stores that offer everything from clothing and kitchen utensils to power tools and perfume, said Terry Dunham, publisher of Value Retail News, which tracks the growing factory outlet industry.

More than 200 factory outlet centers--some with 50 or more stores--have opened during the past 15 years.


But until last year, California had no factory outlet malls, largely because the East Coast manufacturers that have dominated the field have been hesitant to extend distribution to isolated stores in the West. At the same time, West Coast manufacturers have adopted a “wait and see” attitude about the concept, Dunham said.

Dunham and others predict that the California market will “mushroom during 1989 and 1990.”

In the past 10 months, three factory outlet centers have opened in California: the center in San Ysidro, built by Irvine-based developer Greg Wohl, which has 17 outlets and hopes to expand to as many as 30; Factory Stores at the Nut Tree in Vacaville, which opened late last year and which eventually will house 53 outlets, and the American Tin Cannery, which became California’s first factory outlet center when it opened last May. The 145,000-square-foot center, housed in an old sardine canning factory, near the Monterey Aquarium, has space for 50 stores.

Meanwhile, interest in outlet centers is spreading. Developers have proposed putting them up in Riverside, Folsom, Petaluma, Rancho California and Barstow. One East Coast developer has proposed a vast shopping center in Ontario with a mix of 250 factory outlet stores, along with specialty, one-of-a-kind and off-price retailers.


Factory outlet stores, where manufacturers sell directly to consumers, have advanced considerably from the days when excess merchandise, seconds and irregulars were unloaded through occasional sales in storefronts attached to the factory.

Among the more than 100 manufacturers operating factory outlet stores are Liz Claiborne, Maidenform, Fanny Farmer, Dansk, Dexter Shoes, Gitano, Gucci, Sergio Valente, Royal Doulton, Van Heusen, Waterford Crystal, Mattel Toys, Adolfo, American Tourister, Harve Benard and Nike.

These days, Dunham said, manufacturers offer mainly first-quality goods at an average discount of 40%, compared to 32.5% at off-price retailers.

Factory outlet centers have opened in a number of out-of-the-way locations, including tiny Boaz, Ala.--population 7,200--which sits midway between Huntsville and Birmingham.

Changing Face of Town

Sales at Boaz’ four outlet centers drove receipts from the town’s 2% sales tax from a pre-outlet center high of $657,217 in 1981 to nearly $3 million in 1988, according to Boaz Mayor Bruce Sanford. The 130-store center expects sales to jump by 20% during 1989.

The town is struggling to cope with the retailing boom: Two 40-room hotels are planned and the town has spent $1.5 million to widen streets that are clogged with cars and tour buses. Some residents complain about increased traffic, but Sanford maintained that the retail business “is great . . . people drive into town, spend their money and leave. What more could you ask?”

Out-of-towners are expected to account for a hefty portion of sales at the San Ysidro mall, which opened in November. The 125,000-square-foot center is within walking distance of a U.S. Immigration and Naturalization facility that reported 53.3 million border crossings during 1988.


“We might have found a better deal (at home), but it’s fun to shop on vacation,” said Bostonian Ed O’Connor, whose family shopped in Tijuana as well as the nearby San Ysidro center during a recent trip.

Tourists--who increasingly are arriving by tour bus--play an equally important role at the American Tin Cannery Outlet Center. Tourist destinations that lack the population base needed to support a big regional mall sometimes attract plenty of business for factory outlet centers, where rents and other expenses often are lower.

The centers are serious business for manufacturers that view outlet stores as an effective--and profitable--way to move excess inventory, discontinued lines and rebuilt products.

Manufacturers say “seconds” make up only a small part of the merchandise. A spokesman for one manufacturer said it “can’t afford to have second-rate merchandise out there with our name on it.”

Black & Decker opened the first of its seven factory outlets 12 years ago, according to retail sales division manager Michael McGuire. Increasingly, Black & Decker uses its retail stores to move products that are returned by retail distributors.

“They don’t want dead inventory sitting on their shelves . . . and if we don’t turn it over, it just sits on our shelves,” McGuire said. “That’s the way the world works today.”

Beaverton, Ore.-based Nike established nine outlet stores because “we want to sell our overstocks in an orderly way rather than simply discounting them to other people’s stores,” said Nike spokeswoman Liz Dolan.

Cincinnati-based United States Shoe Corp.'s Bannister Shoes subsidiary has taken the factory store concept even further. Bannister operates more than 100 factory outlet centers in the United States that sell U.S. Shoe’s two dozen lines--including Calvin Klein, Capezio and Pappagallo. But Bannister also retails other brands--including Florsheim, Sperry Topsider and Reebok--that it purchases wholesale from other manufacturers.


For many manufacturers, outlet malls pose a dilemma: They like getting extra revenue from the stores, but they don’t want to anger their best customers--big retailers--by going into competition with them.

“It would be great to get a lot of press to increase traffic in our stores. But it’s not our intent to antagonize our existing wholesale business, which is by far our main business,” said Robert Hamburg, vice president of Mikasa, which sells dinnerware in the San Ysidro mall.

Will Use Stores

Manufacturers thus far have demanded that outlet centers be located at least a half hour’s drive away from major population centers. Some of the more prestigious names in retailing demand that centers be at least an hour away from existing retail centers.

But given manufacturers’ shrinking profit margins, an increasing number will turn to outlet stores to “sell their goods wherever the people are going to be,” said Rancho Santa Fe Developer David Green, the co-owner of the factory outlet center in Boaz.

And manufacturers acknowledge that “down the road there’s a good possibility that (outlet stores) will alienate retailers,” said Steven Schwartz, a spokesman for Los Angeles-based Cal Mart, which is a co-developer of the American Tin Cannery center. “Anytime you dilute the market by adding more stores someone is going to suffer.”