Is tourism essential for the development and operation of successful outlet destinations?

Outlet shopping and tourism have shared a symbiotic relationship for more than forty years.  Early examples such as Clarks Village (1993) quickly gained notoriety with domestic tourists, while Foxtown Mendrisio (1995), Bicester Village (1995) and Roermond Designer Outlet (2001) pioneered cross border shopping and have grown into iconic destinations for global travellers.

The beach at Gunwharf Quays with premium outlet shopping, Grosvenor Casino, Holiday Inn and the Spinnaker Tower attraction in the background

Today, outlet performance is regularly reported over holiday periods or described in terms of VAT refunds.   Outlet operators mimic the hospitality sector by treating shoppers as valued guests, dedicated shuttle buses are a common sight on major routes, there is an increasing number of hotels opening at or close to outlet centre sites, tax refund facilities are present at leading international sites and local tourist guides are always present at guest receptions.

And in 2014, the hybrid operating approach, part retail business, part tourism adopted by Value Retail plc, operator of ten Chic Outlet destinations, including Bicester Village, featured as a case study in the World Tourism Organization’s (UNWTO) Global Report on Shopping Tourism.

Visitors from beyond regional catchments typically account for between 20% and 50% of turnover, with Bicester Village reporting up to 60% of sales from outside Europe prior to the Pandemic and becoming the second most popular destination in the UK for Chinese tourists after Buckingham Palace in 2016.

While there is a raft of anecdotal evidence (and a certain amount of operator ‘hype’), it is also apparent that many successful outlet centres eg Ashford DO, Getafe The Style Outlets or Hede Fashion Outlet are not located in traditional tourist hotspots.  So is the importance of tourism exaggerated or does the evidence disguise something more important?

Unlike census based data, international tourism measures are often inconsistent in definition and not available at the detailed postal sector level necessary to build specific catchment estimates.  This has resulted in a lack of transparency which prevents claims for success being compared or verified.

However, over thirty years of appraising development feasibility, Ken Gunn Consulting has devised an approach which disaggregates national and regional estimates from UNWTO and Eurostat using the local (postal sector) distributions of appropriate accommodation and attractions from Open Street Map.  These can then be aggregated to produce drive time or guest catchment estimates for every outlet  centre in Europe.

At Tier level, tourism appears to correlate with outlet centre performance

Performance Tier	Count of sites	Overnight Tourists within 90 minutes
		Average per site (m)		% Inbound
1	18	18.1	39%
2	21	17.2	32%
3	51	14.6	33%
4	79	13.7	37%
5	28	8.1	34%
All	197	13.9	36%

The table shows the average number of Overnight Tourists within 90 minutes of nearly 200, European outlet sites and compares this with Tier level performance (Tier 1: €10,000+/sqm, Tier 2: €6,000+/sqm. Tier 3: €4,000/sqm, Tier 4: €2,000+/sqm, Tier 5 <€2,000/sqm).  While this shows that sales density rises with the increased presence of tourists within 90 minutes, it is important to remember that competition and accessibility (particularly in urban environments) can lead to fixed drive time statistics proving unreliable as performance indicators.  Tourist demand can also correlate with resident populations in major city regions.

To illustrate this, the table below compares tier performance for the twenty outlet centres with the greatest number of overnight tourists within 90 minutes.  Three Tier 4 sites (with average sales densities of less than €4,000/sqm) in Île-de-France have the greatest number of tourists within 90 minutes and only four Tier 1 sites make the top twenty list.  Clearly, sites with the greatest tourism potential within 90 minutes drive are not always the best performers.

Sites with the greatest overnight tourism within 90 minutes not always the strongest performers

Name	Country	Tier	Overnight Visitors (m)	% Inbound	Uplift Ratio
L'Usine Velizy	FR	4	46.8	37%	3.2
MA - L'Ile St Denis	FR	4	46.1	38%	3.2
UC Paris Nord 2	FR	4	46.1	38%	3.1
MA - Paris Sud	FR	3	45.9	38%	3.3
La Vallee Village	FR	1	45.3	38%	3.3
MA - A13	FR	4	45.1	38%	3.3
QdM A15	FR	4	45.1	38%	3.2
One Nation Paris	FR	3	44.9	38%	3.3
Paris-Giverny DO	FR	3	44.9	37%	2.9
La Roca Village	ES	1	33.3	38%	4.5
Roosendaal DO	NL	4	32.5	46%	1.5
The Galleria	GB	4	32.5	26%	1.6
Barcelona - TSO	ES	3	30.3	37%	4.1
Parsdorf CO	DE	4	29.5	33%	3.1
Roermond DO	NL	1	29.1	27%	1.6
London DO	GB	3	28.8	26%	1.6
O2 Outlet	GB	4	28.6	26%	1.6
Bicester Village	GB	1	28.4	26%	1.8
Affinity - Talke	GB	4	27.6	27%	1.6
Dockside OC	GB	5	27.4	26%	1.5

Not all outlet centres target or benefit from tourism to the same degree.  Competition, brand demand and competitive positioning are important considerations, with environmental quality, site adjacencies, design, location recognition and ease of access (using private and public transport) playing key roles in shaping opportunities. 

So when looking for examples of how tourism shapes the development of outlet centres, it is perhaps easier to look at catchments where tourism makes a substantial, if not essential contribution to the trading opportunity.  It is arguably unrealistic to expect tourists to travel much more than 60 minutes from their place of stay, so the table below ranks 60 minute outlet catchment potential in terms of the uplift or contribution made by overnight tourists to residential demand.  DO Algarve leads the list with 11 million overnight tourists augmenting  520,000 residents within 60 minutes, an uplift ratio of 21.3. 

And sites where tourism makes the greatest contribution to market potential are also not always the strongest performers

Name	Country	Tier	Overnight Visitors (m)	% Inbound	Uplift Ratio
DO Algarve	PT	3	11.0	68%	21.3
Galeon Outlet	ES	4	5.4	71%	16.0
Mallorca FO	ES	2	14.3	72%	16.0
Las Terrazas	ES	4	10.9	68%	12.6
Gran Jonquera	ES	3	7.0	32%	7.8
Brenner Outlet	IT	4	2.2	82%	6.8
Hanse Outlets	DE	4	4.6	2%	5.9
The Mall Sanremo	IT	1	4.8	35%	5.7
DO Salzburg	AT	3	6.4	52%	5.6
Affinity - Devon	GB	4	1.4	34%	5.4
Ringsted Outlet	DK	3	13.1	50%	5.4
Malaga DO	ES	2	8.2	30%	5.3
OS Alicante	ES	4	11.6	29%	5.3
Caledonia Pk	GB	3	1.9	34%	5.0
PO Prague	CZ	4	12.6	73%	4.9
Prague FA	CZ	3	12.7	73%	4.8
Copenhagen DO	DK	5	14.0	51%	4.7
Provence DO	FR	2	12.2	18%	4.7
Bordeaux Village	FR	4	7.4	13%	4.7
Helsinki OV	FI	3	7.8	22%	4.7

Typically, outlet centres in Europe average 2.2 million residents and 7.9 million overnight tourists within 60 minutes (an Uplift Ratio of 2.37), so island sites with relatively small resident populations such as Galeon Outlet (Tenerife), Mallorca FO (Mallorca) and Las Terrazas Outlet (Gran Caneria) must depend on their seasonal (and increasingly non seasonal) visitors.  Given the success of Mallorca FO in particular, this illustrated potential for other islands such as Corsica, Crete, Cyprus, Malta and potentially Ibiza to establish carefully designed  (in terms of scale, environment and proposition) tourist-centric outlet centres.   However, there are only four Tier 1 and Tier 2 sites in the table, so once again the analysis suggests inconclusive support for the theory that tourism is a universal benefit to outlet centres.

Tourists can be challenging to define, difficult to measure, seasonally driven, unpredictable, highly discerning, hard to reach and relatively time poor.  They can also shift dramatically in distribution and intensity over time, as a result of local or international events.  Examples on the table such as Copenhagen DO or PO Prague, indicate that great tourism potential does not always translate into leading footfall and sales performance.  It is therefore essential to look beyond the provision of simple real estate spaces, in order to curate an ideal destination and guest experience in minute detail.  

Often in a positive and relaxed frame of mind, tourists offer an opportunity for brands to elevate their relationships through strengthened associations with happy times.  For resident guests, the presence of tourists makes a visit more exotic, reinforces the value of the destination and encourages longer dwell times and higher spend.  And for investors, tourists bring better brands, higher spend per visit and greater income.

This is perhaps best summed up in the quotation from Scott Malkin, Group Chairman of Value Retail Plc, published in Libensmittel Zeitung in 2010;

“Everything we do, our entire corporate being, is directed towards creating an experience in a special, hopefully unique environment for tourists and people who are prepared to travel, think and behave like tourists, even if they live down the road.”

It very clear from this that that in addition to being a specific category of guest or activity, tourism is a ‘state of mind’.  Its definition extends far beyond wealthy visitors from China, USA or The Gulf and clear that management focus is on successfully curating a relaxed mentality which enhances the performance of guests, brands and assets.  Many consumers echo this sentiment, likening a trip to an outlet centre to, ‘shopping on holiday’. 

The most suitable locations for outlet development are therefore not just large resident and tourist populations.  They are sites which incorporate design, adjacency and physical characteristics which allow suitably inspired teams to create memorable destinations which encourage guests to enjoy their presence and behave like tourists.

Perhaps the most successful example of how this idea has been exploited to the maximum is Gunwharf Quays in the UK.  Prior to construction, Portsmouth had a relatively poor reputation and was not considered to be a destination for families or affluent tourists.  However, the development team used the waterfront setting to create a vibrant mixed use destination which incorporates premium brands, traditional leisure, tourist attractions, hospitality and a residential community.  Gunwharf Quays has many more reasons to visit than just shopping thanks to these ‘visit multipliers’ which extend dwell times, increase visit frequency and extend reasons for visiting from an individual shopping trip to a family day out.

The site opened in 2001 and now attracts more than 9 million visitors per annum.  Compared to Bicester Village, there are relatively few overnight visitors amongst these guests however, the disarming combination of experience, environment, activities and operational approach encourages locals and day visitors to behave ‘like tourists’.  Gunwharf Quays today produces an average sales density of circa £1,000/sqft or €13,000/sqm and Landsec has invested £45m (€52m) in modernising and enhancing the guest experience.

Other examples of outlet centres exploiting mixed use visit multipliers include La Torre Zaragoza (cinema, escape rooms, adjacent retail park), Springfields DO (show gardens and family attractions), Puglia Village (skateboard park and cinema), London DO (cinema, hotels, restaurants, national stadium, events venue), Mallorca FO (bowling alley, kids play area, cinema) and Getafe TSO (part of the Nassica Retail and Leisure Park).  In each of these cases, the scale and mix of adjacent activities is appropriate for the target market and the different elements are carefully integrated to maximise their cross-use, with F&B providing a common hub for guest.

Conversely, extensive ‘functional’ sites, where complimentary activities are at diametrically opposed positions are much less likely to receive any benefit from visit multipliers.   

It is impossible to consider development capacity or estimate future trading performance without considering the potential of overnight tourists or the power of convincing residents and excursionists to behave like tourists.  But there is also a danger in double counting residents, unless strict definitions are maintained.  So the map above, for simplicity, compares the distribution of overnight visitors across Europe at postal sector level with the distribution of established outlet centres (excluding those in Turkey). 

Leading outlet centres are closely linked with cultural tourism and cross border shopping

The map highlights Europe’s classic tourist regions, including the Algarve (PT), the Alps (AT, CH, FR, IT), Balearic Islands  (ES), Costa del Sol (ES), Côte d'Azur (FR), Dalmatia (HR), Baltic Coast (DE), Ionian Islands (GR), Lake Districts (DE, GB and IT), Puglia (IT), Pyrenees (AD, ES and FR), Turquoise Coast (TK) and Tuscany (IT). 

Most Tier 1 and Tier 2 sites tend to be associated with major city destinations which combine cultural attractions or cross border shopping hops but also large resident populations.  Tier 3 and Tier 4 sites tend to have more diverse locations where a strong and broad approach to market activation is needed to optimise site potential and growth.  However, it is obvious using the Tier categorisation, that many outlet centres are not exploiting tourism potential in their catchments to the fullest.  This requires sustained investment over time, something that VIA Outlets will have planned carefully before its recent purchase of OS Alicante on Spain’s Costa Blanca. 

There are also territorial gaps on the map where an appropriate tourism focus could unlock potential for the development of new outlet centres.  Examples include Apulia (IT), the Croatian coast (HR), Corsica (FR), Crete (GR), Jutland (DK), German Lake District (DE), Nouvelle Aquitaine (FR), Rhone Alpes (FR), Kosovo / Northern Albania (XK/AL).  Many of these are ‘smaller markets, so replicating Bicester Village will not bring success.  However, the addition of mixed use activities within an integrated, appropriately designed (not functional) destination will encourage greater patronage, higher spend per visit and limit the impact of seasonal lulls.  In this respect, the approach taken at Gunwharf Quays is more indicative of the best approach in smaller markets. 

Returning to the question is tourism is essential for successful outlet development?  The answer is an unequivocal yes.  However, the analysis demonstrates that it is not simply about becoming iconic global tourist destinations as practiced by Value Retail or creating tourist attractions which exploit large or captive seasonal markets.  Amongst Europe’s outlet centres, such destinations in reality are relatively few and far between.

Ultimately, all outlet centres benefit from creating a tourist 'condition' which promotes, guest relaxation and happiness, leading to more visits, greater spend and higher income.  This mentality arises through curating an ‘ideal day out’ for friends and family, which is anchored by relevant guest experiences and supported by outstanding hospitality and exceptional operational management.  Brands are still an essential part of this attraction but guests choose to visit to spend time at these outlet destinations, as well as their money.