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Tanger Outlets CEO: "The Business Model Is Simple and Elegant"

By Motley Fool Staff and Tom Gardner – Mar 3, 2014 at 5:30PM

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Steven Tanger explains the outlet center business model and why it works so well.

Steven Tanger joined Tanger Factory Outlet Centers (SKT 0.96%), founded by his father in 1981, as the company's fourth employee. The company had grown to 13 outlet centers by 1992, and the following year it became the first outlet center developer to be listed on the New York Stock Exchange as a publicly traded real estate investment trust. Tanger has been president and CEO since 2009, and the company's steadily growing portfolio now includes more than 40 outlet centers across the U.S. and in Canada.

Enabling manufacturers and designers to sell directly to the public inherently saves a lot of money, Tanger explains. The model still works -- attracting a projected 180 million to 190 million shopping visits this year to Tanger locations -- even as online sales, discount stores, and supercenters continue to grow.

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Tom Gardner: Now Tanger has more than 40 outlet malls, spread out in more than 20 states around the country, its market cap $3 billion. Can you talk a little bit about the dynamics of how the business works? You've given us a little lay of the land, but what brings the brands together? What brings the properties together? What are the competitive advantages of the business?

Steve Tanger: Actually, we have 43 shopping centers in 26 states and Canada, and we're opening our 44th tomorrow, in our 27th state. I leave from here, I go to Washington, D.C., and we open tomorrow in National Harbor, which is in Prince George's County, Md.

Gardner: Which is about five minutes from our corporate headquarters.

Tanger: Is that right?

Gardner: Yes, so there will be some Motley Fool Tanger shoppers.

Tanger: Please, wear the Fool hats and come say hi! That will be our 44th, and we're very excited about that.

The business model that we started is simple and elegant. It's brand names, selling directly to the consumer. You cut out the middleman. By cutting out the middleman's profit, inherently you save a lot of money. The manufacturers and the designers, by cutting out the middleman and selling direct to you as the consumer, are able to offer you 30% to 50% off, every day.

That business model has worked, all these many years, in the face of the growth of Internet sales, in the face of the growth of Wal-Mart and other discounters. We are distinct, in that it's brand names and designer names, selling directly to you.

Gardner: When you bring those brand names together, for example, who's bearing the marketing costs to bring the customers in? Is that Tanger, who's out there, getting out and getting word spread out about the different brands that are in each location, or are the brands themselves helping to allay some of those costs?

Tanger: We have a very active, well-seasoned marketing group, led by our chief marketing officer, named Carrie Geldner, who is wonderful and has been with us about 20 years. We actually market a retail destination without mentioning the names of the tenants that are there, so we have to build a mystique about the value and the fun of shopping and buying in an outlet store.

The tenants put money into a marketing fund, and then we use that marketing fund, paid by the tenants, to market the site. Now, in some centers around the country, we may supplement to be able to get a bigger market share.

This year, we'll have somewhere between 180 and 190 million shopping visits to Tanger outlets around the country.

Tom Gardner has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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