This past Tuesday students at Georgetown University had the opportunity to hear from Scott Malkin, director and chairman of Value Retail PLC. The event took place in the Fisher Colloquium in Georgetown University’s McDonough School of Business and was hosted by the MRLA (McDonough Retail and Luxury Association). Value Retail is a European based company that owns outlet shopping centers in both Europe and Asia. Value Retail focuses on outlet shopping with luxury brands such as Prada and Burberry. The outlet business is relatively new for luxury brands as 5 to 10 years ago many brands did not have an interest in this sector of the market. However, now their focus has shifted to potential growth in the outlet business, the internet and China.
Malkin began his discussion with a brief introduction on what an outlet store encompasses. He explained that outlet stores are based on surplus. They are typically one year behind on the season and offer discounted prices. The reason that outlet shops are so successful is because “anyone that pays hundreds or thousands of dollars is not the usual shopper or consumer,” stated Malkin. The typical shopper is looking to pay a fraction of the price for luxury goods, but that does not mean they do not want the goods. This is where the beauty of outlet shopping comes as the Value Retail outlets offer luxury goods at seemingly affordable prices. Malkin gave the example of a fashion journalist as their ideal costumer as this person knows what is fashion forward and knows the different high end and low end, but does not have the financial income to afford luxury clothing, so they shop at outlets. Additionally, 70 percent of shoppers at Value Retail outlets come from outside the European Union. Surprisingly, Malkin said, “when these tourist shoppers are in their home country, they are full priced shopper.” In many ways, Value Retail outlets are a tourist destination. Although, there are fears from many luxury brands that opening the outlet sector of the business would damage their brand. However, this has not proven to be the case. Instead, outlet shopping offers exposure to new customers, especially tourists who may not be familiar with the brand at home.
On this same note, Malkin explained that he would connect his job most closely to the hospitality business. The outlet shops are primarily located an hour or two outside of major cities, meaning that people are driving to them for an experience. As a result, Value Retail is a business based on experience. As Malkin simply stated, “If the memory is magical then the brand sells their goods and there is success.” Malkin spoke about the importance of differentiation in creating the ideal experience. For example, nothing in Italy mimics the architecture of Fidenza Village. The outlets at Suzhou Village, opening in 2014, will be based on Italian architecture since there is nothing in the area built in that style. The idea is that creating an area with unique architecture, pedestrian only streets, cafes and luxury shopping creates for a unique experience that makes driving an hour or two outside a major city all worth it.
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In terms of the business model, Value Retail operates its outlets without any leases, similar to a department store model. This allows the company flexibility in asking brands to move locations or change all together. Malkin stated that about 25 percent of all brands move locations each year. Instead of rent, Value Retail charges a royalty on all sales, creating an aligned interest with the brands. As a result, success is measured by performance.
Malkin spoke about his plans to expand the outlet business into Asia. The first location of Value Retail outlets will be with Suzhou Village, located outside of Shanghai. Malkin explained that the interest with China lies in the fact that most brands have built out in both the United States and Western Europe. Asia, specifically China, offers the opportunity for growth in the luxury goods industry.
Malkin concluded his discussion with the a few words of advice. He suggested the outlet side of retail for anyone looking for a career in retail, as it is often times slightly less competitive. Finally, to close the discussion, he said, “If you create value, things will work out,” and “It takes a good idea, but working hard is not as good as working smart.” Ultimately, it takes identifying your passions, beliefs and following your goals.