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Gallery's new vision reflects retail divide

The plan for revitalizing a long-neglected stretch of Center City's shopping district relies on last season's fashions and budget-friendly labels from the likes of Gucci and Prada.

The Fashion Outlets of Philadelphia would have a new glass-and-steel facade and entry at Ninth and Market Streets. (PREIT)
The Fashion Outlets of Philadelphia would have a new glass-and-steel facade and entry at Ninth and Market Streets. (PREIT)Read more

The plan for revitalizing a long-neglected stretch of Center City's shopping district relies on last season's fashions and budget-friendly labels from the likes of Gucci and Prada.

Under the proposal unveiled Tuesday by the Pennsylvania Real Estate Investment Trust in partnership with California-based mall developer Macerich Co., the Gallery at Market East would be transformed into an indoor shopping plaza packed with discount outlets of upscale brands.

That vision for the new Fashion Outlets of Philadelphia would put an outlet mall - typically found among far-flung communities or in exurban locales - closer than ever to the heart of an American city. It also illustrates the bifurcation of American retail, as high-end brands seek to court cash-strapped yet fashion-conscious consumers alongside the well-heeled ones who frequent their flagship stores.

"The demand for mid-market stores is pretty weak," said Richard Green, director of the University of Southern California's Lusk Center for Real Estate. "So what we're seeing is that retail's going either to the very high end or the other end, where the outlet has become very popular."

Executives with PREIT said Tuesday that they plan to feature discount outlet shops from high-end brands such as Burberry, as well as fast-fashion retailers such as H&M.

Messages left Wednesday with PREIT and Macerich seeking comment did not bring responses.

Macerich completed a project with a similar mix of shops at its Fashion Outlets of Chicago, which opened in August 2013 about 14 miles northwest of the city, near O'Hare International Airport.

Maryland-based Federal Realty Investment Trust crept even closer to a city center with Assembly Row, which opened last year in Somerville, Mass., about three miles from central Boston.

PREIT's proposed project, which would be housed in a new glass-and-steel facade, brings the outlet mall deep within Center City, within sight of City Hall.

The project also brings Macerich closer to its recently spurned corporate suitor, Simon Property Group, whose Philadelphia Mills in the Far Northeast offers a middle-market range of outlet shops.

Traditionally, retail brands have sold overstock pieces and other marked-down items at outlets intentionally located away from their full-price outposts, said Barbara Kahn, a marketing professor at the University of Pennsylvania's Wharton School.

But that strategy - forged to keep brands from undercutting themselves - has been changing, as retailers create lower-end labels specially for sale to less affluent consumers at outlet locations, Kahn said.

"If the goods are different, you can have different prices, even if they're close geographically," she said.

Alexander Goldfarb, an analyst with Sandler O'Neill in New York, said PREIT and Macerich are counting on foot traffic to deliver customers to the proposed Fashion Outlets, which will sit atop a station serving commuter rail lines.

Retailers could find the Market East location attractive for lower-end shopping to complement full-price stores in places such as Simon's King of Prussia mall, Goldfarb said.

"The Gallery is obviously a hugely trafficked asset. A lot of commuters are going through there daily, and it's in the heart of Philadelphia, one of the key cities in the Northeast," he said. "The way you look at it is, you have an asset that already exists, so what's the best use for it?"