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New York City to open first outlet mall

When paying rent eats up half your paycheck, it makes sense to be on the prowl for bargains.

Snagging name-brand merchandise at a discount is about to get a whole lot easier for cash-strapped New York City residents, when Staten Island's Empire Outlets opens late next year.
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A rendering of Empire Outlets
Source: BFC Partners
A rendering of Empire Outlets

Home to stores including Nordstrom Rack and Banana Republic Factory, the $360 million outlet mall is the latest play to capture spending from thrifty shoppers living in NYC's five boroughs—despite the challenge of squeezing traditionally large-format off-price stores into tiny spaces.

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And only a 25-minute ferry ride from downtown Manhattan, Empire Outlets will offer the largest concentration of discount shops in New York City, whose consumers currently have to take a long trek outside the city to visit one of the popular outlet malls.

"Typically these outlet centers are located out in the middle of some prairie field," said Joseph Ferrara, a principal at BFC Partners, which is spearheading the project. "For us, the location is unparalleled."

As department and specialty stores struggle to achieve sales growth, off-price retailers have blown past the competition. Macy's sales in the most recent quarter fell 0.7 percent, while T.J. Maxx and Marshalls parent company TJX saw its revenue increase 6 percent.

In an attempt to replicate this sales growth, a slew of conventional retailers have jumped on the off-price bandwagon, with many stores slated to open in the New York City area.

In May, Macy's said it would test its discount "Macy's Backstage" stores in four New York locations, including one in Brooklyn and another in Queens. It expanded this pilot to six planned locations on Monday, including one in the Bronx. And this fall, the company's high-end Bloomingdale's store will open its first New York City outlet location on Manhattan's Upper West Side.

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Developers have responded to the demand. While new retail construction has ticked only slightly higher the past two years, much of the new building has occurred in the outlet space.

According to Value Retail News, part of the International Council of Shopping Centers trade organization, 14 outlet malls opened in the U.S. last year, and another three have opened in 2015. By the end of the year, eight more will have launched, part of a trend VRN director Linda Humphers predicts will lead to about 10 openings each year for the "foreseeable future."

As more of these discount centers pop up, they're also getting closer to cities. That's a big change from when outlet malls first started gaining steam in the U.S., and retailers were concerned that their lower-price stores would cannibalize sales at their full-price formats.

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When shops at these centers are done properly, however—meaning their product doesn't overlap with the merchandise at the retailer's traditional locations—that hasn't been the case.

"For a retailer to have success in outlet you really have to have a clearly defined strategy versus the mothership," said Farla Efros, president at HRC Advisory. "It's when they start to cross that you run into problems."

As for the Empire Outlets, BFC has so far leased about 40 percent of its 350,000 square feet of retail space. But playing off the idea that outlet malls double as tourist magnets, the property will offer more than just shopping. It will also include a 40,000-square-foot food and beverage deck with views of the New York City skyline.

Restaurant and bar space—all of which will be open until at least 2 a.m.—will include a branch of Las Vegas dumpling and noodle house Yong Kang Street. And for people who want to make a night of it, the property will house a to-be-announced boutique hotel.

Empire Outlets is also partnering with Bags, a TSA-compliant luggage check-in service that will transport travelers' checked bags—and new purchases—directly to their airplane.

Combined with the site's neighboring stadium for the minor league Staten Island Yankees, and a forthcoming 60-story observation wheel that's expected to attract more than 4 million visitors each year, Ferrara said the revitalized borough will give the 22 million-plus passengers who ride the Staten Island Ferry each year a reason to stick around.

He predicts the center will draw an additional 10 million new visitors to the island annually.

"Three million tourists a year use the Staten Island Ferry. The majority of those people turn around and go back," he said. "There [weren't] any offerings ... on the Staten Island side."

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Despite the rapid growth of outlet centers, some industry experts have expressed caution that as rents rise, they may not be a profitable long-term solution for retailers. HRC's Efros said that while those concerns are valid, she hasn't yet seen evidence of this.

For Empire's part, though the center is located closer to the city than some of its competitors, its rents still come in at a discount to stores in lower Manhattan, where average ground-floor asking rents are $394 a square foot, according to Cushman & Wakefield.

"That's a pretty compelling reason to have someone open their shop at our center," Ferrara said.