He Took a Big Idea to a Little Desert Town : Marketing: Developer Steven Craig’s firm built a $14-million mall of 55 factory outlet stores in Cabazon, close to Palm Springs and within 75 miles of 9 million people.
This is kind of an odd place to find a guy who builds factory outlet shopping centers.
For one thing, there isn’t a factory outlet within a 45-minute drive or so. That’s because retailers won’t allow manufacturers to put an outlet store nearby because they don’t want the competition. And because there are so many malls in Orange County, that pretty much rules out outlet stores.
Besides, Orange County is too pricey for outlet malls, which depend on the kind of cheap rents and cheap land prices that are seldom found in prime metropolitan areas.
That’s why Ginsburg-Craig Associates’ nearest outlet shopping center is in Cabazon, a few minutes from Palm Springs and a two-hour drive from the company’s offices in a small, nondescript office building near John Wayne Airport.
Developer Steven L. Craig, 35, one-half of the partnership, runs the business from here in golf shirts, casual trousers and loafers; Barry M. Ginsburg, a retired executive from kitchenwares manufacturer Dansk International Designs Ltd., works out of an office in New York.
At a time when the recession is stinging retail sales nationwide, outlet mall stores are doing pretty well: Sales increased by $1 billion last year, to $7 billion, according to Value Retail News, a magazine that is also the trade association for the outlet mall industry.
Not all the shoppers at the Cabazon center are people on their way to or from the Palm Springs area. Everyone, it seems, loves a bargain and will drive out of the way to buy clothing, shoes, housewares and other items priced at up to 60% off retail.
For his part, Craig says discount retailing is an idea whose time has come during what he believes will be a leaner decade for Americans in the 1990s.
“I believe our standard of living is dropping,” he says, “and will probably continue.
“So these kinds of stores will become increasingly important.”
Convinced that factory outlets were the wave of the future, Craig spent several years researching the stores in the mid-1980s and came up with what he thought was a great location: The little desert town of Cabazon, on the way to Palm Springs on Interstate 10.
The attractions: Palm Springs draws tens of thousands of people annually, not counting the 9 million people who already live in a 75-mile radius.
A little naively, perhaps, Craig proposed the Cabazon site in a three-page letter he sent to most of the manufacturers who operate outlet stores.
Unfamiliar with Craig, some manufacturers sent his letter to the developers they had been used to doing business with.
“Pretty soon I had five competitors up and down the freeway,” says Craig, all of them planning outlet centers.
Craig, then in his early 30s, decided he needed some help, somebody whom the outlet people knew and trusted. One of his competitors in Cabazon was Ginsburg, whose former company, Dansk, had run its own outlet stores for years. When Ginsburg retired as president in 1985, he started developing his own outlet shopping centers, and was one of Craig’s competitors in Cabazon.
“I called him on a lark and he happened to be on his way to LAX from Palm Springs,” Craig said. “I went up to see him and we met in an airport lounge. He knew the tenants and I knew site selection and how to get entitlements from local governments. We decided to do this one project.”
One other shopping center had already signed up all its tenants and had all the permits to begin construction, as Craig tells it. But then the new partnership signed up a big retailer, home textiles manufacturer WestPoint Pepperell, and several others. The competing project soon collapsed.
The Desert Hills Factory Stores, built at a cost of $14 million, has 55 stores covering more than 200,000 square feet and claims to be the largest such shopping center west of the Rockies. The place is fully leased since opening about a year ago, with major tenants such as Esprit, Guess?, Gant, Nike, Joan and David Shoes, and Gorham Silver.
The stores are a little snazzier than one might expect--a new trend among factory outlets, which have just started breaking into the California market. (Most of the manufacturers, after all, are based on the East Coast, where outlet malls have been a fixture.)
Cabazon went so well the partners decided to build another project. They recently opened Columbia Gorge Factory Stores near Portland, Ore. The first phase of the mall has 33 stores.
Their next site is Lebec, a roadside town just north of the Los Angeles County line in Kern County, about 65 miles from downtown Los Angeles. The proposed mall would have about 50 stores. But there’s a problem here. Another developer is planning an even bigger outlet center in Quail Lake, a few miles away. As with other good ideas in real estate, there’s a rush to this one that could eventually leave the market overcrowded.
The company also operates a center in Mammoth Lakes and plans others in Santa Fe, N.M.; Ellsworth, Me.; Ashland, Ore., and Page, Ariz.
That’s quite a menu for a tiny outfit with only 10 employees--especially in these times of tight bank credit for the real estate industry.
But the banks seem to like outlet malls, which, like other types of retail real estate, usually have much space leased before construction begins.
At Desert Hills, Craig went to his bankers--First Interstate and Security Pacific--with 70% of the leases signed. The company is just too small to sit around with a lot of unleased space on its hands, Craig says.
“We have to make a return in the first year,” he says.
A graduate of USC, the boot camp for many Southern California developers, Craig is different from many of his developer colleagues. Besides the fact that he has picked the outlet business, Craig grew up in St. Joseph, Mo., not far from Mark Twain country, and he still has a trace of the Midwesterner’s disdain for California, even though he has been here 15 years.
He makes a point of mentioning that the company owns all its own unprepossessing office furniture as opposed to leasing it--as many companies do--and doesn’t even lease the plants in the place. And that all the money the company makes goes back into the business. And that he still uses the same Datsun 280Z he drove in college instead of the usual developer’s Porsche or Jaguar.
“This is the only business we’re in and we’re as focused as a rifle shot,” Craig says. “We’re fortunate from that point of view, because it makes us easy for the lenders to understand. We don’t build offices or high-rises. Just outlet stores.”
