Simon Property Group, a top U.S. developer of shopping centers, and digital commerce pioneer Rue Gilt Groupe, the owner of Rue La La and Gilt, are jointly building up an e-commerce marketplace that will cater to outlet mall shoppers, the companies said on Wednesday. In addition, Simon is taking a 50% stake in a new entity encompassing Rue Gilt and that website for $280 million.
The joint venture will propel e-commerce outlet shopping to a new level.
The site, ShopPremiumOutlets.com, had a soft launch in March as a way for Simon, whose outlet malls include the New York area’s Woodbury Common, to test the e-commerce waters and offer its tenants another avenue for selling their discounted wares.
Six months later, Simon is officially launching the Rue Gilt-powered site, which has 26 vendors so far, including 7 For All Mankind, Aéropostale, Vince, and Cole Haan, with more brands coming on line soon.
On top of being a vehicle for Simon to collect a bit of extra revenue in the form of commissions on every sale on the marketplace, the site is an acknowledgement that outlet shopping, long the province of malls full of factory stores far from densely populated areas, is going online just as full-price retail has before it.
“We know our outlets are going to continue to thrive, but the reality is that some element of that will go online,” Simon Property Group CEO David Simon tells Fortune.
Simon and Michael Rubin, an e-commerce entrepreneur who is executive chairman of Rue Gilt Groupe, Fanatics, and ShopRunner, estimate the online market for off-price retail to be in the tens of billions.
And there is a lot of land to grab. Many brands and retailers have long resisted putting outlet items on the web, fearing that would hurt the “treasure hunt” aspect of outlet shopping, and daunted by unpredictable inventory. Indeed, TJX Cos.’ T.J. Maxx does little business online, its Marshalls chain has only recently launched a site, and even Nordstrom waited for years before launching a website for its Rack division.
But Simon wants a piece of the online outlet market as it starts to boom, keenly aware of what ignoring e-commerce has done to many full-price retailers, including many that are tenants in his malls. (As of July, the occupancy rate at Simon’s U.S. malls, both outlet centers and traditional malls, was 94.4%, illustrating how well the company has reinvented itself in recent years.)
Last year, the company had the idea of starting a marketplace on its own, and unbeknownst to Simon, Rubin had also been considering an outlet marketplace for a couple of years. But Rue Gilt’s e-commerce muscle, with sales of nearly $1 billion and 20 million customers, persuaded Simon it would be better to team up with a company that had digital sales in its DNA.
Conversely, Rubin felt that Simon, with its relationships with retailers and vendors and millions of visitors to its outlets, would make the venture reach more people and brands faster.
Since shoppremiumoutlets.com is a marketplace, and as such doesn’t take possession of inventory or deliver it, that’s on the vendors, not Simon.
What will be on Simon and Rue Gilt is providing these brands, mostly fashion, an attractive website for selling their wares. Marketplaces like Amazon and eBay “don’t create the experience vendors want to be in,” Rubin says. And few brands have the tech firepower to build their own sites. Ergo the market opportunity he sees.
Simon plans to deploy its formidable marketing machine to promote its site to visitors to its 107 malls and 69 outlets in the U.S., hoping to attract legions of shoppers a year. The two companies have a combined 40 million people in their customer databases they say, giving them a big potential target for their marketing.
For Rue Gilt, the venture represents a diversification from the flash sales the two brands are well known for. While Rue has been profitable since 2015, Gilt has had a bumpier ride.
Rue La La bought Gilt from HBC in 2018 for a pittance, a fraction of its peak billion-dollar valuation in 2011 after it continued to severely deteriorate under HBC. (HBC had wanted Gilt to serve as a complement to its off-price Saks Off Fifth business, which now paradoxically is selling wares on the new marketplace.) Rubin says Gilt is growing again and the combined Rue Gilt is homing in on the $1 billion annual sales mark.
For Simon, the investment is a continuation of its recent efforts to diversify away from merely opening and running malls (most of which are among the highest grossing properties in terms of sales per square foot). In July, Simon announced a deal with Allied Esports to build venues for e-sports competitions in its malls. It also recently announced a partnership with Green Growth Brands to open shops selling products infused with CBD.
For David Simon, whose father was a co-founder of the company decades ago, it’s just a matter of reinventing the mall business. “It’s more resilient than you think,” Simon says. “On the other hand, you’ve got to change what that means to the customer each and every year.”
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