The hamlet of Cookstown, on the northwest shoulder of Greater Toronto, is a tiny place with a couple of antique stores, a tattoo parlour, a café and the requisite Royal Bank branch. Commercially, though, its centre of gravity is a few minutes west: a dour and unassuming outlet mall that has hugged the east side of Highway 400 since the mid-1990s. Its most distinctive feature: a rickety water tower.
The 17-year-old Cookstown mall, home to about 50 brand-name manufacturers selling deeply discounted merchandise, gets its share of cost-conscious shoppers, who may make a day of it with a stop at the Georgian Downs racetrack nearby. “I don’t go [to the mall] on the weekend because the parking lot is filled by noon,” remarks Barb Baguley, mayor of Innisfil, the local municipality.
That lot is going to need an expansion, as many more consumers will be motoring to Cookstown beginning next year. Last November, RioCan Real Estate Investment Trust spent $62 million to acquire the property in partnership with Tanger Factory Outlet Centres, the U.S. firm that invented the discount mall category. The idea was to allow apparel manufacturers to sell off what remained of the previous year’s lines and slightly damaged goods directly to the public at discounts of up to 70%. The format worked so well that hundreds of exclusive labels, in all types of consumer goods, jumped in.
The Cookstown Tanger Outlets Centre, as the mall is now known, is adding desirable new brands to its stable, including Izod, Fossil, Aldo and Tommy Hilfiger. A planned renovation will double its footprint to 320,000 square feet by the spring of 2014. This investment will finally give Cookstown the critical mass of brand-name wares it needs to thrive as a shopping destination, says John Crombie, Cushman & Wakefield’s senior managing director for national retail. An outlet mall, he says, “has got to be worth the drive.”
RioCan isn’t the only developer racing to open huge outlet malls on the fringes of Canada’s big cities. Calloway REIT, the asset management arm of Mitch Goldhar’s Smart Centres, has joined forces with Premium, a division of New Jersey–based Simon Property Group, the world’s largest shopping centre builder, to develop its own outlet malls around Toronto and Montreal. Meanwhile, Ivanhoe Cambridge is building a $178-million, 488,000-square-foot outlet centre near Niagara-on-the-Lake, in Ontario wine country. Amid this swarming of Ontario, London-based McArthurGlen Designer Outlets, Europe’s largest outlet mall chain, has opted to focus on the West Coast, planning an outlet mall next to Vancouver International Airport that will feature European brands like Prada and Hugo Boss.
The game to watch, however, is the race between Riocan and Calloway to secure and develop several outlet locations. At least four are slated to open by 2014—and there may not be tenants and shoppers enough for all of them. “Whoever gets in first will get to develop [their properties],” says retail analyst Maureen Atkinson of the JC Williams Group.
Given that Canadian shoppers and snowbirds have been flocking to U.S. outlet malls for years, and have upped their visits with the rise of the loonie, the only question about the groundswell of domestic interest in this retail segment is: What took so long?
RioCan’s worldly, gravel-voiced chief executive Edward Sonshine is aiming to give brand-conscious Canadians a reason to stay home.
He tells the story of how, a few years ago, he was in Las Vegas for the annual shopping-centre industry confab. While he and his colleagues did the trade show, his wife, Fran, and other RioCan spouses spent the day at the outsized outlet malls on the edge of Sin City. When he asked around, his kids told him that for a lot of tourists, a trip to the outlet mall is a key part of a Vegas holiday. Looking a bit closer, he also discovered that outlets were the only segment of the retail sector that showed any signs of life in the economic wreckage of post-2008 America.
Around 2010, Sonshine started making inquiries about a U.S. outlet mall developer interested in building a Canadian presence. He wanted to partner with an established player that could reel in the big brands needed to generate traffic. It so happened that Steve Tanger was thinking about a potential Canadian expansion. After an investment banker made an introduction, the duo quickly consummated a partnership arrangement and purchased Cookstown from an undisclosed vendor.
Sonshine is already the undisputed shopping-mall king of Canada. With $13 billion in assets, RioCan controls 10% of this country’s leasable commercial space. Its closest competitor is Calloway, which controls a large collection of Walmart-anchored shopping malls. While Sonshine and Tanger were negotiating a deal, Premium, Simon’s outlet division, was talking to Calloway.
Premium has been sniffing around the Canadian market for several years. “It was natural for us at the appropriate time to look to develop our own properties,” says president John Klein, adding that his company also wanted to hook up with a knowledgeable partner, in his case one that had good sites and the expertise to develop them.
With the Toronto area emerging as a battleground between Premium and Tanger, McArthurGlen decided to look elsewhere. A senior McArthurGlen executive heard that the Vancouver airport authority was asking for proposals to develop land near the tarmac, and the British company put in a bid to build one of its designer outlet malls.
With high incomes and a large population of brand-conscious Asian consumers, Vancouver has perfect demographics for McArthurGlen, which specializes in outlet malls packed with luxury Euro brands. Company officials reckon they can lease a 350,000-square-foot mall with at least 150 stores. “There is a big pent-up demand for fashion retail in Vancouver due to the limited amount of retail space available in the city,” says Adrian Nelson, McArthurGlen’s client management director. He points out that the city has only 14.1 square feet of retail space per person, compared with Toronto’s 22.4 square feet.
The race to claim the richest territories and ritziest brands seems to have already left one project in the dust. With Premium’s Halton Hills site already in development, RioCan may have lost the opportunity to build a second location in the region. Earlier this year, with the Cookstown redevelopment well underway, the company announced plans for a second Tanger Outlet mall, this one in Mississauga. RioCan hoped that a location closer to metro Toronto would outmanoeuvre Calloway. But real estate watchers now doubt that RioCan will succeed in recruiting the big brands because many—including the first Hudson’s Bay Co. outlet—have already signed on with Calloway at the Halton Hills site, set to open next year. Sonshine says the company is still working on the project, but adds, “There probably isn’t room in the west end of Toronto.”
Word on the street is that RioCan is poking around the city’s east end, as well as Ottawa, Calgary and Edmonton. Calloway’s Mawani, for his part, says his company is in the process of securing leases for a Montreal mall. Indeed, Premium’s John Klein, Calloway’s partner in Canada, makes it clear that his firm has ambitious targets for this market. “We didn’t come to Canada just to do one centre,” he says. “We have a multi-city strategy.”
The winners of the sprint for sites and tenants will be resolved within the next two or three years, playing out against a backdrop of broad change in the Canadian retail scene. Next year, after all, Target will begin opening stores in dozens of suburban malls across Canada, and more major American brands, such as J. Crew and Kohl’s, are considering adding Canadian locations. While outlet malls are expected to add only a few percentage points to RioCan’s and Calloway’s respective asset bases, they will impose new cost pressures on traditional retailers, and add a significant new element to the fast-changing mix of Canada’s retail. As Neil Downey, RBC Capital’s managing director for global equity research, observes, “I think I can pinpoint who the winner will be, and it’s the Canadian consumer.”