Is Urbanization the Future of Outlet Malls?

August 1, 2013 at 12:32 pm CDT

Outlet malls have been a symbol of sprawl and perhaps even a cause. Typically, they are located on the far fringes of populated areas where undeveloped- or farmland is cheap and plentiful.

So the news that a new outlet mall is opening today near Chicago’s O’Hare International Airport in near suburban Rosemont should be enough to make mall developers – and shoppers – raise an eyebrow. It’s the first enclosed mall built in Chicago’s suburbs in more than 20 years, and its development comes at a time when thousands of traditional malls are failing across the country.

The line outside Gucci on opening day of The Fashion Outlets of Chicago. Photo: Pam Morin

But times are changing. As populations converge on downtowns, retailers have taken notice. Brands like Target, Wal-mart and Walgreens have opened smaller-footprint and grocery-oriented outlets in downtowns. Partially that’s a smart reaction to demographic change. Partially it’s just economics.

“The ability to create cookie-cutter growth in the suburbs is diminishing just because they’ve penetrated those markets,” says Neil Stern, senior partner at Chicago’s retail consultancy McMillanDoolittle. “It leaves the urban market as the last bastion of opportunity,” he says.

Why wouldn’t malls follow suit and move closer to the urban action?

One reason is cost. In this case, its one borne in part by the taxpayers of Rosemont. The city reportedly issued bonds to contribute as much as $300 million to help develop parking, infrastructure and other amenities for the mall, including an entertainment complex across the street with restaurants, a movie theater and more. The town’s mayor, Brad Stephens defends the investment in the Daily Herald, but his quote doesn’t sound promising. “Hopefully, someday down the road, the people in this community will not have to worry about that investment debt we have out there.”

That cost and the scarcity of land in most urban areas might keep this concept from spreading to other areas says Mr. Stern. He says that Rosemont was “particularly aggressive in getting deals done” to develop the mall and surrounding entertainment . If it succeeds, other cities could follow suit.

One reason for both the public investment and development is the particular retail trend it’s taking advantage of: the move toward more upscale retail. In our bifurcated economy, with the upper ranges recovering from the recession more quickly than the lower income brackets, focusing on high-end is a movement many retailers are embracing. But even luxury shoppers are increasingly looking for bargains, hence a high-end outlet mall like this. Hence the 150-person-long line outside Gucci on opening day.

The mall is ignoring another big urban trend: The decline in driving. While its website lists a convenient 10-15 minute walk from the nearest subway station, it’s not a very pleasant walk along a fast-moving road and under freeway overpasses. Never mind the joys of walking back with any packages you might acquire. No, the emphasis is still very much on driving to get here as evidenced by the city’s significant investment in a parking deck and even footing the $50,000 bill to make the nearby toll road free for opening weekend.

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