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IT IS common knowledge that Malaysians love to shop. That’s evident from the crowds that pack shopping malls in the Klang Valley every weekend, and pretty much every day at major shopping centres such as Mid Valley Megamall and Suria KLCC.
One retail concept that recently emerged in the country is the outlet shopping centre. Malaysia’s first and currently only outlet centre is Johor Premium Outlets (JPO) in Johor. A 50:50 joint venture between Genting Plantations Bhd and Premium Outlets, the retail outlet division of Simon Property Group Inc, JPO was opened in 2011 and has seen much success.
Since then, several more have been announced, including the 400,000 sq ft KL International Outlets (KLIO). To be jointly developed by property and construction firm Mainstay Holdings Sdn Bhd and US-based Horizon Group Properties, KLIO is part of Sime Darby Property Bhd’s new 2,350-acre township near Putrajaya. Horizon and Mainstay will buy the 40-acre site from Sime Darby.
“A lot of people have asked me what I’m doing here. I tell them I’m trying to experience this exciting and vibrant city and its culture, while trying to build what would be one of the best outlet centres in the world,” Greg Clarke, Horizon director of international leasing, says over lunch during a recent trip to KL.
Horizon, he says, is the second largest outlet centre developer in the US and has been in the business for over 20 years. “We are a heritage company and our executive team has over 150 years’ combined experience. We develop one new centre per year in the US. That’s good steady growth but we are looking to enhance that by exploring international markets. We are looking at markets where outlet centres are still a new concept and there’s a lot of growth potential.”
In the US, Horizon handles everything in developing a shopping or outlet centre, but overseas, its model is to develop via joint ventures.
“We have a joint-venture partner in China where we are building a platform to roll out outlet centres there, but KLIO is our first overseas development and our crown jewel,” says Clarke.
He says Horizon had several joint-venture partners to choose from but decided on Mainstay as it is a developer as well as a contractor for Sime Darby.
It picked Malaysia out of the other potential markets in Asia because “KL has fantastic market conditions”.
“The market came to us as an opportunity and the more we looked at it, the more excited we got. It has world class retail, tremendous retail sales, huge tourism retail sales and world-class malls. In fact, Malaysia has three of the biggest malls in the world. Malaysia also has no outlet presence except for Johor.
“Going into emerging markets, such as Vietnam, comes with too much risk. We have no desire to go compete in a saturated or matured market where there are already the presence of outlet centres and local players, such as Japan and Korea.” Clarke doesn’t consider KL an emerging market.
“This market is unique and ultimately, the test will be in the sales. We always look at how well a centre does by the sales per square metre. All of our projections for this market are off the charts, and we find that an extremely exciting opportunity and challenge, which we have to rise to.”
From factory outlet to a legitimate retail platform
Outlet centres were originally called factory outlets and discounted products sold there were not necessarily those that would make it to the full-price stores, says Clarke.
“Some products would go to the full-price stores and some straight to the factory outlets, but it’s not that concept any more. It has really matured as a legitimate secondary retail platform. Retailers put their off-season merchandise and sales merchandise into a separate channel because it is profitable.
“Their operating cost in the secondary channel is lower — lower rent, fewer staff, less expensive fit-outs. So they can offer the merchandise at a substantial discount, usually about 40% to 70% off the price in a full-price store. And with this discount, it becomes very attractive for shoppers who are able to experience the brand,” he explains.
Moving off-season merchandise also creates space in the primary channel and allows retailers to focus on the current season of full-price merchandise.
According to Allan Soo of CB Richard Ellis (CBRE) Malaysia, the outlet centre concept is still relatively new in Malaysia because it took a while for the retail industry here to mature. “The volume wasn’t there to give retailers a reason to sell downstream outside of their stores, where they sell full price. Most manufacturers and brand owners are international, and retailers here are the middlemen. Therefore, there is little chance for them to play on margins as the margins are quite fixed and not deep enough for them to operate another store where goods are sold at a discount.”
It was only quite recently that volume began to increase to the point that retailers had to find a different channel to sell their off-season merchandise, says Soo, who is managing director of CBRE Malaysia.
“In the old days, stock might take a year to clear. As consumerism and affluence grew, the pace of replenishing stock grew to an extent that some retailers would restock every few days instead of weeks or months. As a result, retailers have to keep clearing stock so new merchandise can come in. The best form of doing this is to push the stock to another channel,” he explains.
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| KLIO will have 150 retailers and is targeted to open on July 1, 2016 |
Building in Malaysia
Based on interviews with shoppers and retailers, Clarke says the number one retail demand in the Malaysian market now is for outlet centres. “There is high demand for luxury goods, more than in the US where luxury retailers are less prominent. Here, we have to bring not just international brands but luxury brands. Greater KL has a population of about seven million and you have really sophisticated shoppers with really sophisticated retail mall delivery.
“The management of malls here is first class, which is very important because you have sophisticated customers who understand how brands fit into their lifestyle. You also have annual tourist numbers of about nine million, and KL is rated as the fourth highest tourism retail destination, with higher tourism retail spend than cities like Rome or Paris.”
While shoppers don’t spend more money per product in an outlet centre, Clarke notes that they do spend more time and more money per trip.
KLIO, to be constructed at a cost of more than RM400 million, will offer shoppers 400,000 sq ft of luxury-oriented retail outlets in an upscale setting. KLIO is located about 24 miles south of KL and six miles north of Kuala Lumpur International Airport (KLIA).
Horizon and Mainstay chose to build in Ampar Tenang for a few reasons. “It’s a fantastic site. It’s about half an hour drive from the city centre and sits at the intersection of two highways — North-South Expressway Central Link and Dengkil Bypass (B15). The site is very visible; it sits above the road. Sime Darby will build a full interchange and access road to the township,” says Clarke.
He says retailers want to have some distance between their full-price and outlet stores “so they won’t confuse customers in terms of brand and price offerings”. The site, he adds, provides that separation, is very visible on busy highways, and has good access.
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“Sime Darby came to us with the opportunity and it doesn’t hurt to have Sime Darby as your partner as it is very trustworthy and capable. When it says it will build the infrastructure, we have a great deal of faith, and so do the retailers, that it will do just that. That’s why we have such great enthusiasm and confidence. Sime Darby has the land and township, so being able to provide the shopping outlet for the township is a pretty special opportunity,” Clarke says.
KLIO will have about 150 retailers, including food and beverage outlets and will not just offer luxury brands but also a luxury environment. “We call it luxury plus value — the construction, materials we use, the management, marketing and operation of the centre,” says Clarke.
KLIO will have an outdoor environment with 100% covered walkways, upscale design and materials consistent with the image of luxury retail brands.
However, building in Malaysia comes with its own set of challenges. “The weather is one challenge — it can be very hot and humid, and it can rain. That’s why you see so many enclosed air-conditioned shopping malls. We are committed to have an outdoor centre as our research with customers in the US has shown that it enhances the value proposition. Also, in Asia and certainly in Malaysia, you have to provide high quality F&B (food and beverage) — and lots of it,” says Clarke.
He believes the design of KLIO will address these challenges.
The car park, which will have 2,000 bays, will be built beneath the centre. Some 15% to 20%, or 60,000 to 80,000 sq ft will be allocated for F&B, with a food court of at least 20,000 sq ft and full-service restaurants, among others.
“I think this is how we will exceed customers’ expectations,” says Clarke.
As for the retailers, Horizon is working with a significant number of international brands that are widely recognised in this market. He declines to reveal names as “we are in the process of concluding a good chunk of these deals”.
He expects the centre to be 30% to 40% leased by the time construction starts in September. KLIO is targeted to open on July 1, 2016.
“We will open with 90% to 95% or higher [of the centre] leased. That’s our standard in the US,” he says.
He expects sales to come from local shoppers (70%) as well as tourists (30%). “I think it’s safe to say tourism sales will contribute significantly to our overall sales but they will not be a majority. We need to first satisfy the local population.”
According to a feasibility study commissioned by Horizon, tourists who spend the most in Malaysia come from China and the Middle East. Horizon plans to work with selected tour operators to include KLIO in the tourism agenda.
“We do this all the time in the US, where we have marketing programmes directed at tourists. A stop at KLIO will be part of the tourists’ agenda before they even leave their countries. We view tourism as a key component of our sales and marketing strategy,” says Clarke.
A point to note is that since the disappearance of flight MH370, the number of Chinese arrivals has dwindled significantly.
However, Clarke is not worried. “While MH370 is a tragic incident that has affected us all, it is an isolated one. We do not expect this unusual event to affect international tourism to Malaysia in the longer term.
“We are commited to capturing the tremendous tourism KL has. We will have specific programmes in place to attract them to our centre and services to ensure that their time spent at KLIO is exceptional.
“KLIO is a long-term, multi-year project and Horizon has its long-term viability in mind. Retail in Malaysia is a growing industry that will only become ever more discerning and sophisticated to meet shopper and tourist tastes and needs. As such, luxury-oriented retail outlets such as KLIO will fit this multi-year, long-term trend,” he says.
Horizon is also looking to cater to the township population. The township will have various components — residential, office, retail, hotels, amusement and light industrial. It will also boast a university — the Malaysia campus of Xiamen University. The university, which was founded by the late tycoon and philanthropist Tan Kah Kee in 1921, is among the top 20 in China.
“The university is sited adjacent to our parcel and will have about 10,000 students. It will open in fall 2015. With this number of students and the township population, it presents a good opportunity for us,” Clarke says.
“We have to be sensitive to and satisfy their needs. What brands do they expect? What food offerings do they want? Over the longer term, the area will grow into a new residential township, and will substantiate and support our centre as it continues to grow.”
One too many outlet centres?
The success of JPO has spawned plans for other outlet centres.
Apart from KLIO, four other that have been announced are Genting Premium Outlets by Genting Malaysia Bhd in Resorts World Genting; Mitsui Outlet Park KLIA by Japan-based Mitsui Fudasan and Malaysia Airport Holdings Bhd; Penang Designer Village (PDV) in mainland Penang by PE Land Sdn Bhd; and Freeport A’Famosa Outlet Village in Alor Gajah, Melaka, by A’Famosa Group and UK-based Freeport Retail.
Of the four, two will be in Greater KL. “The question is, can Greater KL support this number of outlet stores?” asks CBRE’s Soo. CBRE Malaysia is the principal consultant for PDV. “JPO serves the south and PDV will serve the north of Peninsular Malaysia. In Greater KL, you will have four outlets including Freeport A’Famosa Outlet Village in Melaka as it is closer to the central region,” he notes.
“This is not a trend that you can just duplicate. You can do that with shopping centres as every segment of the market will have a certain population that will need and support retail. Outlets are different as it is not about the catchment but the retailers and how they channel their off-season merchandise,” he says.
Much, he notes, will depend on the amount of off-season merchandise retailers can push out.
“Practically speaking, if Greater KL is to have an outlet mall, it should be one. Then all the retailers can channel their products there and be successful. If retailers don’t have enough off-season merchandise, it doesn’t matter how good the outlet mall is,” he says.
He believes the first outlet mall to get all the major tenants will be the most successful. “It will depend on who gets the retailers first. You can’t miss some of the anchor brands. As for local brands, some are not keen as they are not used to this concept. It took a while for JPO to convince the local brands to set up a store there.”
Clarke, however, is confident. He says it is not certain that all the outlet centres that have been announced will be built. He agrees with Soo that retailers have to have the capacity to supply their outlet stores with off-season merchandise.
He believes KLIO is unique and has the best positioning in that it is luxury-oriented and will be the closest to KL compared to the rest.
“This aspect cannot be overstated because our location, combined with being part of a Sime Darby township, gives us the opportunity to develop one of the best performing outlet centres in the world. KLIO will stand out in terms of its superior design, including European influenced architecture, covered parking and walkways and Horizon’s over 20 years’ experience developing and managing successful outlet centres.
He sees KLIO as complementary to the Genting outlet, rather than a direct competitor as Genting attracts a different type of tourist.
“Genting may serve a captive audience of hotel guests who choose to go there to gamble, but KLIO offers an elegant setting for value- and luxury-oriented shopping that will attract KL residents and tourists on a daily basis.
“KLIO is also designed as an entire retail experience, not just as a corollary to the mall concept. Families, fashionistas and tourists alike will all find what they are looking for. With a proven track record in attracting the highest-quality retailers, Horizon has undertaken the market research necessary to deliver what local consumers want in a luxury-oriented outlet,” says Clarke.
He agrees with Soo that there won’t be three successful outlet centres in Greater KL. “It is unlikely that most retailers will have the supply of previous seasons’ merchandise to stock three outlets in KL. They will select the centres that have the best location, offer the best design and management, and have the highest opportunity for success.”
He is confident that the partnership between Horizon, Mainstay and Sime Darby will bring credibility and a proven track record of operating world-class centres to ensure the success of KLIO.
This article first appeared in The Edge Malaysia Weekly, on May 12 - 18, 2014.
