Value Retail, which operates 11 luxury outlet centers in Europe and China, has seen double-digit growth in annual gross sales since the opening of its first center, Bicester Village, in 1995. Located just outside of London, Bicester Village is now a popular tourist destination, reportedly seeing 6.3 million customers a year who spend an average of four hours shopping its 160 brand boutiques, which include Gucci, Saint Laurent and Prada. It’s the second-most-visited destination in England by Chinese tourists, following Buckingham Palace.
Scott Malkin, the founder and chairman of Value Retail, discussed the secrets of Bicester Village’s popularity among both brands and shoppers, the pitfalls of America’s off-price stores, and the roadblocks to luxury brands selling on Amazon.
How would you describe the state of retail in the States?
In the U.S., they’re cutting corners and cheating, and driving everything to the lowest common denominator — in the brands themselves and in the channels of distribution: department stores, shopping centers. And it’s reached the point of no return, which means that retail in the U.S. will have to reinvent itself. It’s impossible to have a culture where no one ever pays full price and still make money in retail. You can see Gucci and Givenchy removing sale merchandise from full-price locations, because think about it: Twice a year or more, you’re inviting in shoppers who aren’t necessarily aspirational, who are driven primarily by price and who undermine access and positioning of your full price.
Why do Value Retail’s outlets make more sense for brands?
We are a steady-flow outpost for stock that should never be sold at reduced prices in full-priced locations and should never be sold online. Because if you can buy it online, the brand equity is dead on the spot. We are not the American [outlet] model, which is: Sell cheap, whatever you can sell. Neiman Marcus Last Call, Nordstrom Rack, Saks Off Fifth — they are a terrible idea for brands. They devalue brand equity. If you’re at Saks Off Fifth on 57th Street in Manhattan, game’s over. Go home. We believe in ourselves as a partner with the brands, allowing the brand to present itself in a boutique as it would in a licensed corner in a high-end department store. And we share the risk, because we’re loyalty-based; we don’t sign leases. We provide department-store services, and we exist to drive the identity and performance of brands at full price.
So luxury fashion should never be sold on Amazon?
Everything that makes Amazon brutally efficient and successful precludes their ability to work with luxury brands. Luca Solca [head of luxury goods at Exane BNP Paribas] has said that no brand can be a luxury brand and be a global brand. Another way to think about that is: How are you going to be a luxury brand if you’re [massive]? Companies built at scale are least effective with the premium customer and the premium positioning of a brand. So Amazon is forced to specialize, which is why they have yet to define the retail of the future. But they are embracing the challenge of being relevant by making meaningful moves. And there is something extraordinary about Amazon saying, “You can’t categorize what business we’re in, because we are the future.”
As you see it, what’s having the biggest impact on retail?
I call it cultural arbitrage driven by technology. With the rise of electronic point of sale (EPOS) systems, nobody can claim they don’t have surplus. And the global proliferation of people behaving consistently across platforms is leading to coherent global pricing. The next big shift is the idea of where brands go in an age of internet distribution. And then, what does acceptable experience look like in the future, when we could arguably be printing our own clothing or shoes in our own living rooms? Why people will go out of their houses will increasingly be about the quality of experience and less about the delivery of product.
What can other shopping center owners learn from Bicester Village’s popularity?
We’re in the tourism business; we’re in the business of creating experiential destinations that happen to sell merchandise, and we’ve embraced elements in our culture that have nothing to do with shopping centers or retail. We’ve brought in people from the hospitality industry, and the nightclub and events industries — our head of guest services at Bicester Village was head of VIP services at Heathrow. Plus, we’re only represented in Western Europe and China’s tier-one cities. Retail is fundamentally about fashion, and fashion is fundamentally about women who shop touristically. If you can create a fashion destination for women who shop touristically, whether they live across the street or halfway around the world, don’t assume you can just mass produce it. Don’t sell it to a real estate investor and move on; invest in it emotionally, financially and physically. Make something that’s great even more amazing, more relevant and more powerful.
How are the day-to-day operations unique?
Our business has four pillars: There’s the real estate shopping center pillar. There are the retailers; 1000 of our 1200 people are retailers who worked at Gucci, Prada, Dior, Ralph Lauren and Tommy Hilfiger, and understand how to work with the brands. The third piece is the hospitality component, or the guest-facing services people. And then there are the curators of experience. They’re all different, and what I’m very focused on is how these different styles of leadership and contribution combine to embrace human beings’ five senses, which define the experience. It relies on art as much as science, it relies on commitment and passion as much as logic, and nobody’s good at it. We’re in an omnichannel world, and it’s always a conflict between executing well today and trying to invest in the future.
You’ve seen a lot of success with this model. Why aren’t other retailers following suit?
The core roadblock is human nature. If you look at the amount of money shopping center companies and real estate companies have invested in technology, in apps and in machinery, it’s extensive, and there’s nothing to show for it. But it’s easier to invest in technology than it is to invent an uncomfortable culture. To quote Frederick Douglass, if there’s no struggle, there’s no progress. Most people don’t want the struggle, and they don’t want a balance. If you’re in real estate, in retail, in hospitality or a curator of experience, do you really want to share the steering wheel with those other groups? No. You want their input, but you’d like to drive the car on your own — with their contributions delivered in a comfortable form, thank you very much.