Consumers turning to outlet malls for back-to-school shopping savings

Summer is hitting its peak and parents have back-to-school shopping on the mind. Tanger Factory Outlet Centers (SKT) reported a 97.2 percent increase in store occupancies since June as consumers are flocking to outlet malls to find the best retail savings.

"It's a great opportunity for people who have a budget or people who are being hit by the economic headwinds we're seeing right now, [such as] gas prices rising, etc." Tanger Outlets CEO Stephen Yalof tells Yahoo Finance Live. "They can get to one of our shopping centers and get name-brand value products for their entire family."

Yalof outlines the retail trends driving athleisure purchases higher, department stores pivoting to outlet mall locations, and the new-found approachability of luxury brands.

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Video Transcript

- Shopping demands have shifted as consumers grapple with economic uncertainty. Tanger Outlets is capitalizing, growing its occupancy to over 97% in June as shoppers scour for deals and they look for more stores to buy them at. Stephen Yalof is Tanger Outlets CEO and he's joining us now. It's good to see you again.

STEPHEN YALOF: Thank you.

- Especially after we got that retail sales number this morning that I'm sure you saw they came in better than estimated. What are you guys seeing in your business that maybe reflects that big number that we got overall?

STEPHEN YALOF: Outlet centers are value shopping experiences for people that are looking to buy brands at the best possible price. And in this environment right now, that's what the customer is looking for. How do they get the brands that they want, named brands, International, national, designer, fashion, footwear, cosmetics, how did they get those products at the best price? Outlet centers are on sale every day and the customer, they've discovered that and they're coming back to shop there.

- Even if on sale every day, are the discounts deeper right now to try and woo those customers?

STEPHEN YALOF: Well, yeah. What we're seeing and particularly in our portfolio is that the retailers that are discounting a little bit more are the ones that are seeing a lot more foot traffic into their stores.

- And are you also seeing certain trends among types of stores? One of the things that stood out to me in that retail sales number was an increase in sales at apparel in particular, which hadn't been seeing a huge amount of demand.

STEPHEN YALOF: Right. I think trends change. I think as people are going back to work, events, things like that over the last, I would say 18 to 24 months, we've definitely seen apparel be a great recipient of a lot of foot traffic into stores. But still, the athletic fitness brands, they're running the show right now and brands like Nike and Adidas and Puma, that's what the customer's really looking for.

Also, the athleisure brands like Athleta and Lululemon are still holding their own, particularly, in our portfolio and are doing extremely well. On top of that, there are also big draws for the customer that's coming to shop with us so when they know that they can get those brands at value, they stay for the other brands.

- I don't think I even knew there were Athleta and Lululemon outlets.

- Yeah.

- Now I know.

STEPHEN YALOF: New to the business and that's our job. We want to constantly flow newness into our portfolio so we're out there looking at the next great lineup of customers. We want to bring in a younger consumer. That younger consumer is looking for the brands that they seek so we're going after younger brands.

- Those Lululemon outlets are like the we made too much Mecca that I've come to be excited to go into. When we think of back to school shopping, this is kind of kicked off somewhere maybe mid to late July, it goes all the way through August and even September in some cases too. What have we seen there in terms of some of the trends about how consumers are shopping? How is that showing up in your data?

STEPHEN YALOF: Yeah, well, July was better than June. We just saw the sales numbers and we're seeing that come through in our data as well. And I think it's a great opportunity for people who have a budget or people who are being hit by the economic headwinds that we're all seeing right now.

Gas prices rising, et cetera, that they can get to one of our shopping centers and actually get name brand value product for their entire family. Children's footwear, that's a program that's doing well. Brands like Gap, Old Navy that are staples in our portfolio seem to be doing extremely well as well.

- And then Additionally here, we think about the way that consumers are spending too. And even if you are doing your back to school shopping, you might be putting out less cash and tapping the credit card or swiping to pay.

I don't know what we're doing these days. If people are pulling out their Apple Pay, whatever the case is, where they're tapping into credit more so than just deploying cash on some of these purchases right now. Have you seen a significant shift there even in this kind of back to school season?

STEPHEN YALOF: Well, I think that credit is still king and I think people are definitely using their credit cards. It's interesting, a lot of brands don't take cash anymore, particularly some of the quick serve food vendors or the grab and go food vendors, they're cash free.

So a lot of people, I guess, are going back to either their Apple Pay, paying with their phone, or using credit cards to regardless of what credit card they link it to facilitate their transactions and that's everywhere.

- I want to talk about location for you guys, geography because I think of outlets as being a little bit further out, right? They're not in the center of suburbs. There's been some reporting recently that the suburban strip malls are doing well right now because people are not commuting as much to the office, they can maybe run errands during the day, do some shopping. Are you guys still sort of pursuing that not quite in the suburban centers but out a little bit? What's your geographic strategy right now?

STEPHEN YALOF: Well, look, the old narrative for the outlet center and let's go back 25 or 30 years when they were first a thing was to be as far away from the full priced businesses as possible and that's sort of changed a little bit.

A lot of those department stores that were the most sensitive to a lot of these direct to consumer brands, they were calling those shots but now you see a lot of these department stores are actually in the outlets like Saks OFF 5TH or Bloomingdale's.

So we'll see the department stores are actually selling their excess inventory in the outlets as well. We're actually under construction and will open in October a new shopping center in Nashville. That's only 12 miles outside of the city so it's relatively close.

It's South of the city, it will have great access to the population and the tourism but will also service that local trade as well. In other geographies that we have, the beach communities that typically saw far more shoppers come during the summer months when the beaches were more active.

We're seeing people spending more time year round in those areas. To your point, moving out to the suburbs, spending more time there, maybe fewer days in the office more days working from home and it's that day traffic that really gives us a big pop during the week.

- We mentioned your high occupancy rate at the top and I'm curious, are you guys keeping your lease rates steady? Are you offering companies promotions to get in there? What is that environment like now say a year versus, say, a year ago?

STEPHEN YALOF: Yeah. Over the last six quarters and we said this, our earnings call was a couple of weeks ago and we said that over the last six quarters, our rent spreads have continued to grow. We have positive rent spreads and what does that mean?

That means that the retailer on a renewal basis. That means the tenant whose lease is up who's renewing is voting to stay in that shopping center, stay in that store but pay us close to 10% to 12% more in rent for that space. And then in the case of a new-- we call it retenanting, retailer leaves and somebody comes in and takes that space paying us close to 25% or 30% more.

So we're filling our shopping centers the way we're supposed to. We're finding retailers that can be more productive in space. When they are more productive, obviously willing to pay a little bit more for that productivity and we keep on pushing our rents. That's why we've had the great NOI growth that we've been talking about now for almost eight straight quarters.

- Sorry, NOI.

STEPHEN YALOF: Our net operating income growth.

- Thank you. Just to make sure.

STEPHEN YALOF: Sorry.

- The same way that we say target is targee sometimes. Tanger has really become kind of a tangee, if you will, with the luxury brands that have made their way into your experiences. When you see tie ups like we did between tapestry and Capri Holdings even, what goes through your mind? Does that mean you could have a propensity of some more of those brands that might not have already been in these shopping experiences making their way to Tanger Outlets type experience?

STEPHEN YALOF: So our customer-- and we talk about this frequently, our customers are aspirational customer. And what that means is they're looking for brands and they're looking to buy into these brands that they may never had an opportunity to buy into before.

Madison Avenue, some folks just might be turned off by the price point on Madison Avenue and never walk into one of the luxury stores that show up there. But in an outlet center, I think people feel a little bit more that the stores are all a little bit more approachable.

So the approachability of those stores will get a new customer who may never interacted with a particular brand before to come in. And when they come in, it's up to that sales staff to provide to them an entry level price point that they can afford, allow them to buy into a particular brand and now that brand owns that customer.

So we see part of the outlet narrative not only providing great value to the shopper but giving the retailer great access to a whole new customer that they never saw before that they can trade up through their ecosystem and make them the customer of the future.

- Just quickly, has there been a massive shift or at least a noteworthy one among aspirational customers in the age of increased services spending right now into experiences?

STEPHEN YALOF: Well, I'm glad you brought that up because I think that the whole outlet experience is evolving. We talk frequently about the fact that we're seeing the customer shop completely differently post COVID than they did before. The outlet shopping we were talking about, the centers that were a little bit further away that people had to make sort of a dedicated trip to get there.

Now what we're finding since the outlet centers are a little bit closer and/or the people have moved closer to where the outlet centers are, It's up to us in order to get that multiple visit, get that customer to come back more frequently to provide them with more things. Better amenities, better food and beverage, which we've leaned extremely heavily into and it's paying back.

The great sit-down restaurants sort of avoided the outlets 20 or so years ago because they saw that as a weekend shopping visit but now that we're seeing a customer during the week, these restaurants are taking notice and we're capturing a lot of that business.

- Sorry, we could keep this conversation going all day. We've got to leave things there though for right now. Tanger Outlets CEO, Stephen Yalof. Thanks so much for taking the time.

STEPHEN YALOF: Thanks for the time. That's was great.

- Appreciated