Alexander McQueen, the late British designer and high fashion’s enfant terrible, wasn’t the type to hang around a discount mall alongside a freeway.
But that’s where his eponymous label opened its first U.S. outlet store recently.
In addition to McQueen — the label responsible for Kate Middleton’s royal wedding dress — powerhouse brands Helmut Lang and Belstaff launched their first North American outlets in the same mall, Desert Hills Premium Outlets near Cabazon, Calif. CH Carolina Herrera, Dolce & Gabbana and a host of other red-carpet regulars opened stores there as well.
The discounts may be relative; McQueen was featuring an orange snakeskin clutch with ornate skull detailing — marked down 20 percent, to $1,839. But the outlet malls that retailers have long used to unload excess or out-of-season merchandise are going way upscale, welcoming haute-couture brands and challenging full-price shopping centers in the process.
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The outlet debut of McQueen, celebrated with a splash of Champagne amid wafting aromas from Wetzel’s Pretzels, was part of a $100 million, 50-store expansion at Desert Hills.
Since 2006, 40 outlet centers have opened in the U.S. while only one new regional mall has emerged, according to Value Retail News, a publication of the International Council of Shopping Centers. In the last year, the number of retail chains with discount outlets rose to 368 from 322, and some are close enough to their regular stores to almost be neighbors.
“The outlet centers are getting a lot closer to full-price retail malls,” said Robert Cohen, a real-estate broker with RKF. “It used to be that they wanted to stay as far away as possible so they didn’t compete.”
The rise of the discounter coincided with the tough economy. Hard times helped erase the stigma that once led fashion snobs to recoil at the idea of outlets.
Also, many upscale brands see value in moving their sale-priced merchandise out of their full-priced showcase stores. Hiding such inventory in an outlet may be a safer strategy that, as a bonus, helps connect the brand to a new consumer base of bargainistas.
As accessible luxury brands such as Michael Kors use relatively affordable prices to challenge higher-end rivals, more of those elite labels are dropping to the outlet tier to battle for customers’ loyalty.
“High-fashion brands sense it’s profitable, but they like to know their peers are here,” said John Klein, president of Premium Outlets, the outlets division at Desert Hills owner Simon Property Group. “They talk, and that feeds on itself.”
The center draws 10 million visitors a year and has seen record sales since the recession. Tenants bring in an average of $1,300 in sales per square foot — making it the best-performing outlet in the state and among the top five nationally.
In recent years, Desert Hills has seen an influx of customers driving BMWs and Mercedes-Benzes. To attract even more, Simon gave the property a face-lift.
The formula is working for Diana Marin, 27, who regularly drops thousands of dollars buying full-priced products from the Beverly Center and other ritzy retail meccas in Los Angeles, 100 miles away.
In a father-financed spree at Desert Hills recently, the Long Beach, Calif., student spent $3,000 on scarves, belts and purses from Prada, Fendi and Gucci.
“They’re bringing in better designers, which means I’m getting more to choose from,” Marin said. “If they have more good deals, I’ll definitely make a trip once a month instead of paying full price.”
Outlet malls are in a prime position to cut in on full-priced shopping centers. Mall developer Rick Caruso said recently that the traditional enclosed mall is destined to become a “historical anachronism.”
About 1,500 of these old-style malls operate nationwide, compared with nearly 400 of the open-air “lifestyle centers.”
The so-called off-price sector was the only mall segment to grow steadily in the past four years, said Paul Morgan, a managing director at investment bank MLV & Co. High unemployment and minimal wage growth have conditioned shoppers to hunt for deals.
“You may have several hundred fewer malls in the U.S., but the top properties are only getting stronger and more productive.”