Despite the slowdown in retail sales at department stores and among specialty chains, business is thriving at outlet centers. Chelsea Property Group and Tanger Factory Outlet Centers, two dominant real estate investment trusts in the outlet mall sector, are riding out the recession unscathed. Last year, Chelsea's U.S. tenant sales averaged $383 per square foot, up from $379 in 2001, while Tanger maintained its record high of $294 per square foot from 2001 to 2002. The national average is about $270 a square foot.

In other words, the trends that have favored these retail venues for the past several years are still in force. Hollander, Cohen & McBride conducted a study in 2000 that revealed that the average expenditure per visit by patrons of an outlet mall is a staggering 79 percent higher than at regional malls. “All outlet stores have been outperforming the broader retail market recently,” says Brian Phillips, senior director at Fitch Ratings REIT division. “It's much harder to find discount retail at regular retail stores now, so people flock to the outlets.”

Consumers trying to stretch their dollars yielded “a very good fourth quarter last year,” says Michael Clark, CFO of Roseland, N.J.-based Chelsea Property Group. According to Clark, Chelsea locates its centers near major metro areas; its newest center just opened outside of Orlando and another is taking shape near Las Vegas.

The National Association of Real Estate Investment Trusts (NAREIT) projects FFO growth of 12.22 percent for Chelsea from 2003 to 2004 — the highest of any shopping center REIT tracked by the Washington, D.C.-based organization. Chelsea shares were trading at $37.56 as of March 20, an all-time high. Tanger shares also are making highs — as of March 20, the Greensboro, N.C.-based REIT's shares were trading at $30.34. At the close of last year, Tanger's portfolio was 98 percent leased, which represented a 2 percent increase over its year-end 2001 occupancy.

Phillips of Fitch Ratings notes that there is little problem finding merchandisers interested in the outlet concept. “They have mastered inventory control, and the remaining stock always goes to the outlets,” he says. Manufacturers protect their full-price stores by extracting non-compete agreements with the outlet chains, which explains why they tend to be in the outer reaches of the metro areas. But, clearly, consumers are in the mood to drive a long way for a bargain.