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City & Country: Cover Story - ‘Outlet shopping is leisure shopping’

RESIDENTS in Melaka and nearby areas who love shopping but don’t want to pay the full price for luxury goods will be eagerly looking forward to the opening of Freeport A’Famosa Outlet Village in Alor Gajah. The RM190 million outlet centre, which will open its doors in April next year, will offer luxury and premium brands of past seasons at discounts of 30% to 70%.

The project is a joint venture between A’Famosa Group and UK-based Freeport Retail, one of Europe’s leading outlet centre brands and the seventh largest in the world. Established in 1992, it has financed and developed numerous outlet centres in the UK, Europe and China. The A’Famosa Group was set up in 1990 and besides hospitality, is also involved in agriculture, import/export, and film and media.

Freeport A’Famosa Outlet Village will sit on 20 acres within A’Famosa Resort and offer 310,000 sq ft of net lettable area. It will offer more than 220 retail lots, with built-ups of 400 to 7,000 sq ft. To capitalise on the resort’s proximity to Melaka, a Unesco heritage site, the outlet centre will have a Dutch colonial theme.

Phase One and Two of the retail outlet are now under construction following the official groundbreaking ceremony in February.

“We will be opening Phase Two at the same time as Phase One due to the strong demand from the brands,” says Freeport Retail’s commercial director Chris Milliken.

By next year, there will be close to 120 retail units. However, he declines to reveal who has signed up because of the competition. Even the rental rates are top secret — Milliken only reveals that the rates are in the “teens”.

Several other retail outlets are in the pipeline. In Greater KL, there are Genting Premium Outlets by Genting Malaysia Bhd; Mitsui Outlet Park KLIA by Japan-based Mitsui Fudasan and Malaysia Airports Holdings Bhd, and KL International Outlets by Mainstay Holdings Sdn Bhd and US-based Horizon Group. Up north in Seberang Perai, PE Land Sdn Bhd will be developing Penang Designer Village.

Milliken believes Freeport A’Famosa will have “first-mover advantage”, with brands signing on ahead of the competition.

He also anticipates robust consumer support from the two million visitors that A’Famosa Resort attracts a year and the 14 million that visit Melaka. There is also the 9.3 million catchment population in the Klang Valley, Negeri Sembilan and Melaka, which he believes will find a leisurely one-hour drive to A’ Famosa Resort a breeze.

The outlet centre is a 10-minute drive from the Simpang Ampat toll via the New Klang Valley Expressway (NKVE). A total of 1,200 parking bays will be available at this single-level, village-style development designed for an enjoyable experience.

“What outlet shopping is all about is that it is leisure shopping,” Milliken explains. “It is destination shopping so the design has to be a bit of fun. That is why a lot of outlet centres are open air because we want to be different from a full-price shopping centre. The single-level design is because people tend to behave like water — they go along the line of least resistance. You need nice clear lines so people flow naturally.

“About 95% of the stock comprises manufacturing overruns, unsold stock from full priced stores and increasingly made-for-outlet product lines … the brands have gotten very sophisticated in what they are selling.”

Besides selling unsold items, brands place their stocks in outlet centres so that they can maintain control of them.

“What used to happen in the old days is [for example] a brand would have 20,000 pieces of unsold shirts. They would put it in a big box and sell it to agents who bought it by the kilo. All this would be put into a container and shipped to another country like Ukraine or Greece to be sold there.

“But sometimes, the stock bounces back and ends up back on the streets of London or Paris on some street market. That ruins your brand. So, maintaining control of the stock is really important. Brands spend millions and millions on creating brand image and brand equity. The last thing they want is their shirts being sold in a market store.”

A third reason for brands to sell their wares at outlet centres is so that they are able to attract new customers. Milliken says when he was younger, he bought a Burberry raincoat from an outlet centre. He then decided that he wanted to get a Burberry shirt and went to the Burberry store on Regent Street. And so, he says, he is now in the Burberry customer mix. Thus, outlet centres allow customers to be exposed to a brand and possibly become loyal patrons.

Partnership for success

Freeport Retail is looking to Asia to expand its operations due to the region’s booming economies. To tap this market, Freeport Retail is looking for local partners but Milliken cautions that such partnerships are never taken lightly.

“You need a partner to understand that an outlet is not just a real estate development; it is a business,” he says. “For outlet centres, you have to be very much involved on a daily basis with the shops. You need very heavy marketing programmes. If you look around the world, some of the best operated shopping centres are outlet centres. This is because they are a long way out of town and have to market themselves.

“Investors or partners need to know this is a long-term commitment, maybe a 5 to 10-year commitment. You don’t just build it, sell it and walk away. And the brands understand this as well. They are looking for people to live and breathe these centres because the brands are making a commitment of 3, 5 or 10 years.”

As a result, outlet centre management is crucial to a centre’s success. To ensure Freeport A’Famosa is managed well, procedures will be set in place.

“We have a programme in Freeport called Tenant Relationship Management or TRM,” Milliken says. “Normally, there is someone in each centre who meets with the tenants on a regular basis, and talk about the store package, their promotions, shop windows and so on.”

This is to ensure quality in presentation and also in terms of service. A lot of staff training and mystery shopping is done to ensure that customers get a good overall experience and come back to shop some more.

The “soft” features are given attention too, such as the landscaping and ensuring the cleanliness of toilets and public spaces. Once Freeport A’Famosa Outlet Village is fully operational, it will create between 600 and 800 jobs.

From the outside, it may seem like operating an outlet centre is easy. However, the reality is very different.

“What differentiates the successful outlet centres from the struggling ones are several things,” Milliken shares. “Location is important. Brand mix is very important. You need some luxury brands, which attract people even if they can’t buy the product but they might buy another, more affordable brand. Also, good operating standards and lastly, marketing.”

While Milliken is bullish about the prospects, Tan Hai Hsin, managing director of Henry Butcher Retail, cautions that there are several challenges ahead for outlet centres.

“We have always needed at least one outlet centre for the Klang Valley. It has been due for many years. The problem now is that everyone wants to do it. We cannot have so many at one time. We cannot expect Polo Ralph Lauren, Levi’s, Nike, Armani and so on to open in all of them. At the end, some may fail or may only be able to offer mid-range brands,” he says.

“For outlet centres to be successful, brand recognition is very important among the population. If Malaysian shoppers do not appreciate some international brands, they will not travel 45 minutes to one hour to get there, even though the prices are affordable.”

Milliken says Freeport A’Famosa will benefit from the 15 million tourists visiting Melaka and A’Famosa Resort, and a location near the expressway.

“There are two other potential outlets very close to each other to the south-west of Kuala Lumpur and they seem to be competing directly for the same shopping catchment but without the strong tourist opportunity,” he says.

“As for the outlet stock, there will indeed be brands that have requirement for only one outlet store over the next few years and we have been pleased but not surprised to see many of them deciding to come to Freeport A’Famosa, which they see as providing strong additional tourist trade, rather than any of the competing schemes.”

According to Tan, another main challenge is the rapid growth of Internet shopping in Malaysia. “There are currently many local and regional shopping sites offering international branded fashion and fashion accessories at very attractive prices.”

But Milliken believes otherwise. “People say online shopping is going to be the death of brick-and-mortar retailing. In some markets, structurally there has been a change. My view on fashion is that people want to go in and try the product and get views from people. You have got to be a pretty busy woman to buy five dresses online, get them delivered, try them on and send four back. You can’t do that. The return cost is huge.”

Besides Malaysia, Freeport Retail is opening another outlet centre in Chengdu, China, and exploring markets such as Indonesia and India. To service the growing Asian markets and look into developing more outlet centres, a regional office may be set up in Hong Kong by April next year, Milliken says.

“You can’t operate remotely. You have to be in communication with the management, with the tenants and all those involved in making the outlet centre run smoothly. Retail is detail.”

Whether the market is ready for so many outlet centres remains to be seen, but it seems that those able to secure long tenancies from reputable brands may outrun the competition. For the average Malaysian looking for a bargain, what’s not to like about having more choices to spend one’s hard-earned cash?


This article first appeared in The Edge Malaysia Weekly, on June 02 - June 09, 2014.

 

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