Prime Retail take the outlet concept to its outer limits, with ample amenities and an eye to expand.

Abraham Rosenthal and William H. Carpenter Jr. worked together in the mid-1980s at Cordish/Embry and Associates, a Baltimore-based real estate development firm. In their final project for the firm, the two converted a specialty retail center into an outlet center. Lessons learned about the outlet industry and ideas formulated from that project never left them.

In 1988, Rosenthal and Carpenter joined Michael Reschke's Chicago-based Prime Group with the idea of founding a retail arm of the company. They used the outlet experience as inspiration, choosing to take Prime Group's retail wing in that direction as well.

"People are looking for value," stresses Carpenter. "We knew if we could assemble the best brands with at least a 30 percent discount on the price, that would be a good combination."

Prime Retail opened for business in June 1989 with offices in Baltimore. Its first project was Warehouse Row, a 100,000 sq. ft. collection of warehouses in Chattanooga, Tenn. A previous developer had planned the space as a mixed-use project, but Rosenthal and Carpenter thought outlet would prove a better fit for the property.

That was the first success. With involvement ranging from site selection to center design, Prime Retail followed with a string of successful outlet projects that numbered 28 properties by the end of 1997. Now, Prime Retail is a separate public company, having spun off from Prime Group in 1994. Reschke serves as company chairman, Rosenthal as chief executive officer and Carpenter as president.

Prime Retail is currently on the verge of even greater growth through acquisition of 20 Horizon Group properties. The deal, expected to close this spring, will give the company 48 properties and a total of 13 million sq. ft., securing a dominant position as the largest owner/manager of pure outlet centers in the industry.

As part of the transaction, Prime Retail will maintain ownership in Continuing Horizon, the new firm resulting from the remaining 17 centers in the Horizon Group portfolio. The new firm will concentrate on developing outlet projects in smaller markets.

The 20 additional properties bring Prime Retail's portfolio to almost half of all outlet space in the United States, says Rosenthal. After the Horizon acquisition closes, the company will have a market capitalization of $2.5 billion, more than double the current value.

Listen and learn Prime Retail's success was based on a five-year business plan, derived largely from conversations with manufacturers about what they need from developers to make their fledgling outlet stores more profitable. These conversations took place at a meeting first organized by Rosenthal and Carpenter and since dubbed the Manufacturers' Forum. The gathering has grown to a thrice-yearly event, the last of which attracted 125 participants. The increase, says Carpenter, reflects the tremendous growth in outlet tenants in recent years.

The first meeting in 1989 was attended by only a handful of outlet retail zealots. "We brought together about a dozen participants at the Plaza Hotel in New York," says Carpenter. "Our goal was to understand the industry and learn from the tenants."

Rosenthal and Carpenter picked the brains of these outlet tenants and began applying what they learned in their second project, built in 1990 in San Marcos, Texas. Among their findings: Tenants favored an open-mall design.

To that end, Prime Retail initiated the "village concept." Essentially a series of streets lined on both sides by tenants, the design brought the shoppers closer to the stores. "It meant less walking and more shopping," says Carpenter.

At that first Manufacturers' Forum, tenants also expressed their belief that existing outlet center environments did not reflect the profile of the outlet customer. This customer, the retailers insisted, has a higher-than-average income and education.

Prime Retail's surveys on shoppers at its centers support the tenants' assertion. The average shopper at a Prime Retail property is 46 years old and earns approximately $53,000 annually, reports Carpenter. These figures point to a customer who, while attracted by value, expects more than sawdust floors. As a result, designs were themed and fashioned to include more architectural elements. Plentiful signage and extensive landscaping were added to augment the look and feel of the centers.

"We found that providing amenities was important," explains Rosenthal. Prime Retail is generally credited with making food courts, banking machines, tourist information kiosks and concierge services, as well as larger and more bathrooms, staples of the outlet shopping experience.

Plan to expand Prime Retail's success stems from a healthy mix of boldness and caution. While Rosenthal and Carpenter believed in what their research relayed about the best design for outlet centers, they were patient enough to let success come to them.

Prime Retail was opening 225,000 sq. ft. centers when many others in the industry were still opening with only 75,000 sq. ft. "The centers needed to have a lot of critical mass," explains Rosenthal.

Not only did the company develop large centers in the initial phase, but it was willing to let demand drive any expansions. Of course, the centers' usual early success frequently meant quick expansions -- to the tune of 100,000 sq. ft. at a time. Facilitating expansion was the village concept, which was practical from a construction standpoint. "Adding 100,000 sq. ft. was relatively easy," says Carpenter. "We just added a new street."

In fact, future expansion is considered in the early planning stages of centers. "We want to be able to quickly expand the center from 200,000 sq. ft. to 500,000 sq. ft. if the demand exists," says Rosenthal.

But the best design will fail if it is built in the wrong location. Thus, the company employs a list of five site-selection criteria:

* There must be 2 million people living within a one-hour drive of the center; * There must be 3 million annual visitors within a one-hour drive; * The site must be between two major cities, or between a major city and a tourist location; * The site must be on an interstate highway at an intersection passed by a minimum of 30,000 cars per day; and * The site must be at least 20 miles from the nearest regional market.

The 20-mile barrier is not set in stone, Rosenthal says, pointing to numerous successful outlet centers in the middle of major markets. But, he says, the 20-mile distance has been the unwritten law in recent years, since manufacturers are sensitive to the concerns of full-price retailers.

Carpenter and Rosenthal say the days of locating 40 or 50 miles from a major market are over; those projects are too risky to finance. However, their research indicates that distance traveled is not a key issue with outlet shoppers.

"The most important considerations of the shoppers are still value, tenant mix and the amenities the centers offer," says Rosenthal. "They are willing to travel, as long as they are satisfied in these areas."

So, too, can the outlet concept travel. The company will open its first international location in Puerto Rico later this year, with further global expansion under consideration. Western Europe and the Pacific Basin hold great potential for the outlet industry, notes Rosenthal, who expects Prime Retail to have properties there within a few years.

He points out that the United States has 270 million people and 55 million sq. ft. of outlet retail GLA. By comparison, he says, Western Europe has approximately the same number of people but only 1.5 million sq. ft. of outlet GLA.

"Within the next two to five years, we will be in Europe, the Far East, or both," Rosenthal predicts. "The mind set of people in these areas of the world is no different from people in the United States. They are looking for value."