Gas prices may cancel outlet savings

By Ilaina Jonas

NEW YORK (Reuters) - Retail outlet centers -- long a hit with consumers, retailers and property owners -- could stumble as consumers see their discretionary dollars sucked up by higher gasoline prices forcing them to rethink the cost of every mile they need to drive to get to the stores.

Largely tucked outside densely populated suburban centers and away from more expensive real estate, retailers loved the outlets as a way to sell their wares, and consumers thought little about driving an hour or so for a good deal.

Over the past four years, outlet malls have been a top performer among commercial retail real estate and have fattened the profits of their owners -- such as Simon Property GroupSPG.N and Tanger Factory Outlet Centers Inc SKT.N.

The outlet centers -- spread throughout the country in places like Ellenton, Florida; Huntley, Illinois; and Hagerstown, Maryland -- feature clothing and home goods companies that offer lower prices on last year's styles and cheaper merchandise made especially for outlet sales. In order not to compete with the department and mall-based stores, outlet centers are often located about an hour away.

Traditionally, outlet centers do better in economic downturns because of their discounts. But some economists warn that with cost of fuel being the source of many of the economy's problems, that may not happen this time, as the cost of getting there consumes the savings.

"It's going to be a challenging environment for the outlets," said Sam Chandan, chief economist of real estate research firm Reis. "It's not going to follow the same logic in terms of them being more competitively priced. The transportation cost is greater."

As of April, there were about 217 U.S. outlet centers totaling 57 million square feet of space, where about 305 outlet chains operate 11,546 stores, according to Value Retail News, published by the International Council of Shopping Centers.

Thirty-five more outlet centers totaling 11.8 million square feet are planned to be open by 2010.