By Marcus Leach

A number of big retailers are reported to be in talks to become tenants of London's first designer outlet set to open in 2013.

Discount outlets are usually developed in out-of-town areas in order to protect retailers' full-price stores, but by locating the London Designer Outlet near the city's iconic Wembley Stadium, developer Quintain Estates is signaling a change in retailers' perception of the format say analysts at Verdict Research.

Major retailers such as Nike, Superdry, Reiss, Guess, Skechers, Armani, LK Bennett, Gap, and Marks & Spencer have all been linked with the Wembley project. The discount outlet store will have 85 shops, 15 restaurants and cafes, and a cinema, facilities which are considered intrinsic to increasing customer "dwell" times.

“The locations of discount outlets in Europe are governed by five key requirements: high population densities, high purchasing power, the close proximity of transport links, the volume of tourists that the region attracts annually, and the proximity to other competitors,” says Charlotte Woods, Analyst at Verdict Research.

“City centers fulfill these requirements in abundance; however, concerns that discount outlets undermine full-priced retail operations have resulted in outlet centers being located predominantly in out-of-town destinations.”

In mature Western European markets such as the UK (which hosts a third of all European discount outlets) many out-of-town locations are already saturated with retail developments.

“Coupled with consumers' increasing desire for convenience, developers are disregarding retailers' initial concerns about cannibalization to build in closer proximity to towns and cities,” adds Woods.

“Meanwhile the success of discount outlets means that they are now willing to take the risk of locating discount stores in city centers."

Retailers that sign up to the Wembley project risk undermining their full-priced operations (due to their proximity to London's West End and the Westfield shopping center, which are situated eight and five miles away respectively); damaging their brand perception through poor merchandising which discount stores typically display; and reduced margins due to combining the heightened staffing and rental costs in London with the lower price points of discount outlets.

“To be successful, retailers will need to focus on maintaining the standard of merchandising present in their full-priced stores; ensure that outlet stock is differentiated from their full-priced operations; and proactively target consumer segments outside of their usual customer base so as to convert new customers to the brand, who in the long term may trade up to full-price products,” explained Woods.

“These strategies may be the same as those employed by retailers in out-of-town discount outlets, but in city centers they will need to be applied much more rigorously to succeed.”

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