The outlet shopping industry has undergone a true metamorphosis of late. The entry of upscale brands, the wide variety of retail chains at factory outlets, the emergence of a new breed of shopper looking for deals in buying products directly from manufacturers and designers - all have combined to re-create this retail niche.

After phenomenal growth in the late 1980s and early 1990s and a free fall in the mid-1990s, the outlet industry has come roaring back.

One indication of the maturity of the industry is the growing diversity of famous-name manufacturers and designers at outlet centers; another sign is the tremendous growth in the number of outlet centers and stores across the country.

"There were 4,500 outlet stores in the country in 1989. In 1998, the number rose to 13,200 stores," says Randy Marks, president of Outlet Marketing Group, a Milford, Conn.-based firm that tracks outlet centers and publishes Outlet Bound, Guide to the Nation's Best Outlets. "There are also some new players entering into outlet industry."

Marks reports that top retailers such as Gap, Guess, Saks Fifth Avenue, Armani, Versace and Benetton are debuting outlet concepts and expanding.

"Our definition of outlet has expanded to include a new category of mainstream retailers that have opened up clearance stores at outlet centers," Marks says. "It's the only place where designers and manufacturers decide the content of their inventory, not the store buyers who often limit the selection or create added value only at sale time."

By the numbers New data from the International Council of Shopping Centers and industry organizations indicate that the number of factory outlet centers rose approximately 300 percent between 1987 and 1996 - from 108 to 329 centers.

That figure contrasts with an increase of only 40 percent in the number of all types of shopping centers -including neighborhood, community and power centers as well as regional and superregional malls - during the same period.

Factory outlet GLA also grew by an estimated 92 percent from 1988 to 1997, far outstripping the 40 percent GLA growth rate of all shopping centers, according to ICSC data.

New concepts launched In addition to providing a variety of tenant mix and shopping choices to consumers, the outlet industry has begun to find special niches in the marketplace. TRI-W Corp., a Wilmington, Del.-based real estate development firm, broke ground in July on the nation's first catalog outlet center in Wilmington.

Known as The Shipyard Catalog Outlet and slated to open in March 1999, the all-catalog center is a new concept in outlet retailing. L.L. Bean has already leased 17,000 sq. ft. in the proposed 400,000 sq. ft. center, joining other tenants including Coldwater Creek.

"It's the first outlet center anywhere in the world that is specially dedicated to catalogs," says Bill Wizner, president of TRI-W Corp. "We have been involved in the development of outlet centers for a long time, and this is the time for trying something new."

Another new concept in outlet retailing was introduced this summer by TrizecHahn Development Corp., a San Diego-based integrated real estate company, and Santa Monica, Calif.-based Gordon Group Holdings Ltd. On July 16, they opened an upscale fashion outlet shopping center and brought together the world's premier fashion retailers in one location.

The 400,000 sq. ft. Fashion Outlet of Las Vegas, located in Primm, about 35 miles from the Strip at the California-Nevada border, features designers such as Donna Karan, Calvin Klein, Versace, Jhane Barnes, Kenneth Cole, BCBG/Max Azria and St. John Knits.

"Response has been overwhelming. The community has eagerly embraced the opportunity to shop for their favorite designers in one place with unbelievable savings," says Lee Wagman, president and chief executive officer of TrizecHahn Development.

"We've given tours to groups from as far away as Japan, Germany and Australia," he continues, "as well as hosted guests from sister cities San Diego, Los Angeles and Phoenix."

Branding is all-important Developers of outlet centers have started to focus on sending a consistent, uniform message to potential tenants and shoppers by corporate-branding their names.

Chelsea GCA Realty Inc., a Roseland, N.J.-based REIT that develops and manages upscale and fashion-oriented outlet centers, last year began promoting its brand identity as Premium Outlets to generate customer awareness. All of its outlet centers carry Premium Outlets names, and corporate branding seems to be paying off.

In 1997, Chelsea GCA tenants reported average sales of $360 per sq. ft., the highest in the outlet industry. On a total portfolio basis, that figure is up from $345 per sq. ft. in 1996 and $313 in 1995. Average tenant sales for the outlet industry in 1997 were $220 per sq. ft.

"We are focusing on new properties in larger markets. We want to be in major markets that have international tourists," says Tom Davis, chief operating officer of Chelsea CGA. "We have high-end tenants, and most of our tenants have wholesale business."

Developers undaunted Industry insiders say that, despite an oversupply in the outlet sector, some outlet developers continue to build new centers and expand existing properties.

Chelsea CGA, for example, is planning in 1999 to open the first phase of the 840,000 sq. ft. Houston Premium Outlets, located 20 miles west of downtown Houston. The first phase will contain approximately 400,000 sq. ft. of high-end retail, restaurant and entertainment space with more than 100 stores.

"We are continuing our growth," says Davis, who cites another Texas development, the 650,000 sq. ft. North Dallas Premium Outlets slated to open in 2000. "We are also doing some expansions in existing malls."

Increasing numbers of new brands are entering the industry, Davis reports, and they and existing tenants are constantly adding different retail concepts.

"It's too early to judge how new brands would perform in outlet centers," Davis says. "Manufacturers are beginning to develop new concepts, and some of our most successful malls are having new formats. We are providing a village-like feeling."

The amenities factor In the 1970s, when outlet centers first began opening in commercial factory buildings or as extensions of manufacturing facilities, they lacked the amenities and innovative designs of today's centers, says Marks of Outlet Marketing Group.

"Over the years, outlets have included strip centers and mega-malls. But more frequently today they operate in a small, village-type setting," he says, "with the architecture of a village-type center uniquely reflecting the architecture of surrounding areas. They are comfortable and amicable [places] for people to shop."

Outlet centers have evolved for the whole family, equipped with entertainment facilities, theme restaurants, cafes and other amenities. "The food court has become an integral part of outlet malls," Marks says. "The average time spent in outlet malls is four hours, which is a lot longer than in conventional malls."

Because shoppers travel farther to visit, they spend more time in the outlet mall. Says Marks, "Willing to travel the extra distance to save as much as 75 percent on current season merchandise, this new breed of shoppers is looking for consistent value, selection and quality, and they are finding it at the nation's factory outlet centers."

However, the distance between outlet destinations and metropolitan areas is declining. In the early 1980s, the average distance was 45 miles outside of the metropolitan area. Today, it's close to 10 to 15 miles, Marks says.

"There are still many areas in the country that don't have outlet centers," he explains, adding that several openings are planned for Virginia, Maryland, North Carolina, Delaware, Las Vegas and Puerto Rico. "Outlet malls are also getting larger and larger. There is more expansion of existing malls than new development. More and more manufacturers want to get into the outlet retailing. The centers have expanded to make room for their growth."

Predictions and analysis Andrew Groveman, president of Belz Factory Outlets and senior vice president of Memphis, Tenn.-based Belz Enterprises, says the factory outlet sector has grown steadily over the past 18 years.

Still, he says, "It by no means will replace the existing distribution of products that traditional retailers have through their regular retail stores." Groveman's company, which has been developing all types of retail for more than 55 years, entered the outlet market 20 years ago.

Belz's high-profile outlet centers in tourist destinations - Las Vegas, Orlando, Fla., and Pigeon Forge, Tenn. - are joined by non-outlet projects, such as the 250,000 sq. ft. Peabody Place retail and entertainment center, part of a historic renovation project in downtown Memphis.

But Groveman says the factory outlet industry will continue to grow in a measured fashion. "Manufacturers want this kind of distribution in a controlled manner," he argues.

The success of an outlet mall, as is the case with other retail sectors, depends on location, demographics and the region.

"What works in one city may not be appropriate in another city," says Groveman, whose firm remains one of the few privately held national companies in the outlet industry and recently broke ground on what will be the first enclosed factory outlet mall in Puerto Rico.

The 350,000 sq. ft. first phase of the project, known as Belz Factory Outlet World Canovanas, is expected to open by fall 1999.

The mall will contain five connected buildings, each with a different mood and streetscape depicting Old San Juan, the Puerto Rican capital. The center's food court will feature a rainforest/entertainment theme with rockscapes and waterfalls.

"It does not take a lot of money to show good taste," Groveman says. "We want to offer an exciting, fun shopping experience."

Shelley Gravino Lord, senior vice president of marketing at Charter Oak Partners, a Vienna, Va.-based operator of 13 outlet centers across the country, says there is great demand for expanding existing outlet centers. Charter Oak is currently expanding two centers: Hilton Head Factory Stores in Bluffton, S.C.; and The Factory Stores at Lincoln City in Lincoln City, Ore.

"We are trying to accommodate new tenants and new retailers who are developing new concepts in our shopping centers," Lord says. "There is not too much new development going on."

Beleaguered REITs turn a corner With limited new development and the economy booming, the outlet industry is expected to do better than it has in the recent past. According to indexes maintained by National Association of Real Estate Investment Trusts (NAREIT), a Washington, D.C.-based industry organization, factory outlet REITs have been one of the worst performers among retail categories in recent years, being beaten by all categories including strip centers and regional malls.

In June of this year, however, outlet REITs gave a total return of 1.85 percent, outperforming strip centers and newly created freestanding categories. Return on regional mall REITs in June was 3.72 percent.

For the year ending Dec. 31, 1997, outlet REITs generated total returns of less than 1 percent compared with 21.44 percent for strip centers and 13.69 percent for regional malls.

A study commissioned by the International Council of Shopping Centers, and sponsored by the Outlet Retail Merchants Association and several outlet developers last year, revealed the following about factory outlet consumers:

Sixty-five percent of factory outlet shoppers are married and 74 percent are female. They are concentrated in a core baby-boomer age bracket of 35 to 54.

The majority of shoppers (61 percent) earn household incomes between $25,000 and $75,000. A significant minority (23 percent) earn incomes lower than $25,000, and 16 percent enjoy an income of more than $75,000.

Two-thirds of respondents in the national survey said they had shopped at a factory outlet during the last six months. Ninety-six percent said they had visited an outlet center at least once in their lives. Factory outlet shoppers said they shopped an average of five times at outlet centers during the preceding six months.

Forty percent of the shoppers drove between 30 minutes and one hour to reach an outlet center, 26 percent said they drove one to two hours, and 11 percent said they drove for two hours or more to reach their destination.

The average amount spent by shoppers on the day of the study was $185. Fifty-two percent of shoppers who came to the center had specific purchases in mind, and 75 percent of them found the item and purchased it.

Las Vegas has made its mark on the fashion world with the opening of a posh fashion outlet shopping center, bringing the world's premier fashion retailers together in one location.

Fashion Outlet of Las Vegas, which opened its doors to shoppers on July 16, features designers such as Donna Karan, Calvin Klein, Versace, Kenneth Cole and St. John Knits.

"We are the world's most upscale outlet shopping center," says Janene Kraft, a spokeswoman for TrizecHahn Development Corp., a San Diego-based company that co-developed the mall with Santa Monica, Calif.-based Gordon Group Holdings, Ltd.

The 400,000 sq. ft., $75 million Fashion Outlet is located in Primm, about 35 miles from the Las Vegas Strip at the California/Nevada border. Anchored by the Primm Valley Resort and Casino, and Last Call! Clearance Center from Neiman Marcus, the single-level, enclosed outlet center blends leading fashion retailers and themed restaurants with about 100 stores.

Kraft says the Fashion Outlet also has built the grandest fashion billboard exhibition outside Times Square.

"We have made an extraordinary exhibition of about 200 billboards inside and outside," Kraft says. "We plan to capture 13 million cars that pass every year on Interstate 15 from Los Angeles and San Diego."

The Fashion Outlet caters to both women and men. Stores such as Bath & Body Works, El Portal, Natori and LeSportsac feature women's products, accessories and intimate apparel. Premier men's fashion and sportswear stores include Brooks Brothers, Burberrys, Tommy Hilfiger, Eddie Bauer, Nautica, Polo/Ralph Lauren Factory Stores and Gap.

Fashions for the home can be found at Williams-Sonoma Marketplace, the first superstore of its kind in the western United States, featuring home furnishings and accessories from Williams-Sonoma, Pottery Barn, Gardener's Eden and Hold Everything.

In addition to marketing to Americans, the Fashion Outlet will aggressively focus on international tourists, especially on the brand-conscious Japanese consumers. International tourists, mainly from Germany, Japan and the United Kingdom, account for 19 percent of the 32 million people that visit Las Vegas and outlying areas each year.