3200 Northline Avenue, Suite 360
"Our goal is to increase shareholder value by creating superior shopping environments where consumers can purchase quality merchandise directly from brand name manufacturers at a true value.
Our success begins and ends with our core principles: Understand customer needs and satisfy them; Hire good people and empower them; Focus on solutions--not problems; Do what we say we are going to do; Have fun; Above all--play to win."--Stanley K. Tanger, chairman
For more than 20 years, Tanger Factory Outlet Centers, Inc. has been developing shopping centers catering to bargain-hunting consumers. The company acquires, develops, owns and operates multi-unit shopping centers, leasing the individual stores to tenant companies who wish to offer factory overruns or imperfect merchandise directly to consumers at a substantial discount over retail prices. Tanger has 29 outlet centers in 20 states, most of them located either in a resort area or on a thoroughfare between two major cities. With occupancy rates close to 95 percent, the centers generally contain about 70 stores run by manufacturers of upscale clothing and household items. Prominent tenants include Liz Claiborne, Polo Ralph Lauren, and Banana Republic. The company went public as a Real Estate Investment Trust (REIT) in 1993, becoming the first outlet-only REIT to do so. Tanger expanded rapidly in the early 1990s, developed a more conservative growth pattern later in the decade, and has been shoring up its bottom line with a campaign to replace lower-volume tenants with high-profile brand names. Company founder Stanley K. Tanger acts as chairman and chief executive officer, while his son Steven B. Tanger is president and chief operating officer. The Tanger family owns about 30 percent of the company.
Introducing the Outlet Center Concept: 1981-93
Before he pioneered the development of outlet centers, Stanley K. Tanger spent many years at the head of a shirt manufacturing company. Creighton, Inc., located in Reidsville, North Carolina, was founded by Stanley's father Moe Tanger in 1920. The company made private-label shirts for department stores as well as uniform shirts for sale to the military. Stanley became head of management at Creighton in 1948. Under his leadership, the factory opened five small outlet stores to sell shirts directly to customers. The stores were successful, suggesting that a factory outlet enterprise on a larger scale could be viable. But Tanger was occupied with running the factory and lacked the time to pursue large-scale development of outlet centers. In 1979, however, tired of dealing with department stores and banks, he sold the shirt manufacturer to its employees. The outlet center idea resurfaced as he found himself retired with plenty of time on his hands.
Having spent three decades in the shirt manufacturing business, Tanger had firsthand experience of how much excess merchandise was generated by returns and factory overruns. The potential for factory outlet centers was apparent. Accordingly, in 1981 he formed Stanley K. Tanger & Co. with the purpose of developing shopping centers. Four banks turned him down before he obtained a loan to launch the business. The first outlet center opened in North Carolina in 1981: a 50,000-square-foot project at the Burlington Manufacturer's Outlet Center. Five years later Stanley Tanger's son Steven B. Tanger joined the growing company.
The outlet business did well from the start, laying the ground for expansion. Stores in the early centers were only about 2,500 feet in size, but by the late 1980s Tanger was building complexes with stores of 10,000 to 15,000 square feet each. The tenant mix tended toward upscale manufacturers of men's and women's clothing, with early tenants including Anne Klein, Liz Claiborne, OshKosh B'Gosh, and Van Heusen. Tanger sought to avoid upsetting regular-price clothing retailers by keeping its centers at least 25 miles away from traditional malls. As a result, outlet centers sprang up along interstates between major metro areas. The Casa Grande, Arizona center, for example, which opened in November 1991, was about halfway between Phoenix and Tucson. Other centers were constructed near popular vacation destinations, such as the Pigeon Forge, Tennessee center in the Smoky Mountains.
Each site was carefully chosen to maximize the center's chances for success. Eventually, specific guidelines were developed to evaluate a potential location: a viable project had to be near a resort area with an annual minimum of five million visitors, or on an interstate frequented by at least 50,000 cars a day. Each center also had to be less than an hour's drive away from a minimum population of five million. The small communities that were chosen to host a Tanger outlet center often reaped significant economic benefits from the development. The city of Stroud, Oklahoma, for example, with a population of slightly more than 3,000, saw its sales tax revenue nearly triple after a Tanger mall opened there in 1992. The Tulsa World reported that the city was able to buy four new police cars and a new computer system for the city with the added revenue, and that a host of new businesses revived the city's downtown.
IPO and Expansion: 1993-95
By 1993, there were 17 Tanger outlet centers in 15 states. The company had added 50 percent to its base square footage in 1992 alone, reaching a total of about 1.5 million square feet of real estate. Stanley Tanger explained the centers' appeal to Brenda Lloyd of the Daily News Record in 1993: "The consumer loves this type of buying. And buying at bargain prices is contagious. And at the same time we're entertaining people. They're beating the system and they love it." Value-minded shoppers were now able to visit Tanger outlets in Boaz, Alabama; Casa Grande, Arizona; Commerce, Georgia; Williamsburg, Iowa; North Branch, Minnesota; North Conway, New Hampshire; Stroud, Oklahoma; Pigeon Forge, Tennessee; Martinsburg, West Virginia; and three centers in Kittery, Maine. In addition, new centers had just opened at Gonzales, Louisiana, between New Orleans and Baton Rouge, and at San Marcos, Texas, on a major thoroughfare from San Antonio to Austin.
But Tanger found itself facing a formidable amount of debt after such rapid expansion. Hitherto owned 100 percent by the Tanger family, in June 1993 the company turned to outside investors for financing with an initial public offering (IPO) on the New York Stock Exchange. The IPO raised about $104 million, enough to pay off $75 million in bank financing and support further expansion. Tanger changed its name to Tanger Factory Outlet Centers, Inc. and became the first outlet-only Real Estate Investment Trust (REIT) to be listed on the New York Stock Exchange. The Tanger family was left with a 44 percent stake in the company. Later in 1993 outlet centers opened in Lawrence, Kansas, and McMinnville, Oregon, and five existing centers were expanded. Net revenue for the year was $30.4 million, with net income at $1.9 million. Sales volume at the outlet stores was close to half a billion dollars.
Expansion continued into 1994, when Tanger added six new centers to its portfolio. The Riverhead, New York center was built on Long Island to attract vacationers as well as New York City residents. The center eventually became one of Tanger's largest. The first tenant to open its doors at Riverhead was Liz Claiborne, a company that also had been a pioneering tenant at many of Tanger's earlier centers. Claiborne was one of a core group of retailers, including Brooks Brothers, Reebok, London Fog, and Bugle Boy, that followed along with Tanger's expansion, opening a new store at almost every new location. Aside from the Riverhead site, two other resort-area centers opened in 1994: the Lancaster, Pennsylvania center drew shoppers from the Amish Country tourist area, and the center in Branson, Missouri, was close to the Music City vacation area. Also in 1994, the Terrel, Texas center, located on the interstate 30 miles from Dallas, became the second Tanger center in that state, and the Locust Grove center was the second to be built in Georgia. Another new center was built at Seymour, Indiana, on the way from Indianapolis to Louisville. Net revenues for 1994 grew to $46 million. Funds from operations--an earnings measure used by REITs--rose 59 percent to $23.4 million.
At the start of 1995 Steven Tanger took over as president of Tanger, while his father Stanley continued in the positions of chairman and CEO. By this time, several competing outlet centers were attracting bargain hunters, and Tanger felt the need to demonstrate that its centers offered unmatched value. In the second half of 1995, the company introduced its "Relax, It's Guaranteed" program, offering a cash refund equal to the difference in price if a customer found the same name brand product for less anywhere else. The guarantee was remarkable because Tanger was only the site developer and had no control over the prices set by its tenants. Nevertheless, the company invited customers to come to company offices at the outlet centers for refunds. The strategy proved successful, as Tanger was able to reinforce its reputation for bargains and never refunded more than $1,000 a year. Funds from operations in 1995 grew close to 30 percent over the previous year, reaching $29.6 million as the previous year's expansions were integrated into the company portfolio.
Prudent Strategies for Reliable Growth: 1996-2002
During a time when other outlet center developers were building rapidly, Tanger moderated its growth after the rapid expansions of 1993 and 1994. The company increased its square footage by only 181,000 square feet in 1996, compared with a 1.2 million-square-foot expansion in 1994. Revenues increased modestly that year, with funds from operations standing at $32.3 million and net revenue at $74.7 million. The company's conservative approach was vindicated when outlet mall stocks entered a difficult period. In the summer of 1997, Tanger was one of only two outlet companies, out of six that were booming in 1994, that was trading above its IPO price.
After taking a break from building, the company was once again ready for prudent expansion. A stock offering in the fall of 1997 raised $29 million, financing the acquisition of outlet centers in Sevierville, Tennessee; Blowing Rock, North Carolina; and Nags Head, North Carolina. A new center in Commerce, Georgia, became the third in that state, opening its doors across the interstate from an already existing center that was one of Tanger's most popular sites. In addition, a phase two expansion was completed at the Riverhead location on Long Island, which had the company's second highest sales per square foot after the Pigeon Forge, Tennessee center. The Riverhead expansion marked a turn toward high-volume, trendier tenants, including such stores as DKNY, Calvin Klein, and Saks Fifth Avenue. The Tanger family was able to monitor the Riverhead location from its vacation home in the Hamptons resort area.
Expansions in 1997 totaled more than 705,000 square feet, and funds from operations that year rose 11 percent to $35.8 million. The second generation of tenants at the Riverhead location was typical of Tanger's newly adopted re-merchandising strategy. The company now embarked on a long-term effort to replace low-volume tenants with higher-volume stores calculated to appeal to consumers based on the market demographics outlet center visitors. By 1999, Tanger had retenanted more than 9 percent of its portfolio, with brand names such as The Gap, Banana Republic, Polo Ralph Lauren, Tommy Hilfiger, and Old Navy replacing older tenants. Same-space sales grew over the same period. The strategy kept the company's revenues growing at a steady rate even as REIT stock prices fell in 1998. That year the company added 569,000 square feet to its portfolio with the purchase of Dalton Factory Stores in Dalton, Georgia, and Sanibel Factory Stores in Fort Myers, Florida. Funds from operations for the year grew 11 percent to $39.7 million.
In April 1999 the REIT stock sector was boosted when investor Warren Buffett bought a 5 percent stake in Tanger. The company's stock went up 14 percent to $23.625 as a result, slightly higher than its IPO price of $22.50, but still well down from peak periods when it had been trading at more than $30. A natural disaster hit one of the company's sites later that spring, when a tornado destroyed the outlet mall in Stroud, Oklahoma. Tanger at first expressed its intention to rebuild the mall, but soon decided to sell the site, saying that too few tenants were interested in reopening their stores. The company sold the property for $723,500 in December 2000, taking a loss of more than $1 million.
Ever vigilant in maintaining a steady path of profitability, Tanger took some steps to cut costs as the turn of the millennium approached. The company took over its own property management duties in 1999. In June 2000 Tanger sold two poorly performing properties in Lawrence, Kansas, and McMinnville, Oregon. Square-foot sales at the two centers were low, and Tanger planned to use the $7.1 million generated by the sale for expansion of more successful sites, as well as for debt reduction. The company completed 216,000 square feet in expansions in 2000. That summer it also set up a joint venture, Tanger-Warren Development, with C. Randy Warren, Jr. Warren had been the senior vice-president of Leasing for Tanger since 1997; now he would leave the company to devote his time exclusively to identifying, acquiring, and developing new outlet sites.
Later in the year a proposed site in Dania Beach, Florida, fell through. Tanger had bought a property just off Interstate 95 in November 1999 and leased a building there to Bass Pro Outdoor World. At the time of the initial purchase, Tanger also agreed to buy an adjacent parcel and build a mall there. The company dropped the deal in November, however, alleging that certain conditions for purchase had not been met. Bass Pro contested Tanger's explanation and sued the company for breach of contract.
Other development projects were more successful. In the fall of 2001 Tanger began construction of a resort-area site at Myrtle Beach, South Carolina, in a 50-50 joint venture with Rosen-Warren Myrtle Beach LLC. The terrorist attacks of September 2001 had little negative effect on Tanger's bottom line. In fact, traffic at the company's Long Island site went up as New Yorkers were vacationing closer to home and preferred the outlet center's design to an enclosed mall. Traffic at all stores was up 4.5 percent in 2001. Funds from operations were up slightly to $38.2 million, net revenue continued a gradual climb to $111.1 million, and net income improved over 2000 to reach $7.2 million. Tanger reported continued growth for the first quarter of 2002. After two decades in business, the company had shown an ability to maintain profits through the ups and downs of the outlet mall industry. Nevertheless, Tanger faced the challenge of continually renewing the leases on its properties. Skillful management would be necessary to maintain the company's high occupancy rates and continue to attract consumers to the outlet malls.
Principal Competitors: Prime Retail; Chelsea Property Group.