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Mitchell Goldhar, majority shareholder of Calloway REIT

Fred Lum/The Globe and Mail

Two of Canada's top shopping centre developers are squaring off over plans to bring U.S.-style premium outlet malls to Canada.

The showdown is coming to one of Canada's fastest growing communities - Halton Hills, west of Toronto - where both RioCan Real Estate Investment Trust and rival Calloway Real Estate Investment Trust are preparing to introduce their first factory outlet centres.

The outlet malls feature high-end U.S. retailers, many of them not yet in Canada. Department store retailer Saks Fifth Avenue is among the U.S. players considering launching its first off-price outlet stores in the new centres.

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Mitchell Goldhar, majority shareholder of Calloway and sole owner of SmartCentres, is in talks to team with a major U.S. factory outlet player to help hasten the invasion of the outlet centres in this country. Earlier this year, RioCan announced it had signed a deal with Tanger Outlet Centers Inc. of Greensboro, N.C., to bring the malls to Canada.

The race to build factory outlet centres underscores the growing appetite among U.S. retailers and developers to operate in the Canadian market. At stake for Canadian developers is getting a piece of a potentially lucrative business as growth in traditional malls and open-air, big-box power centres reaches a saturation point.

The first two sites for the factory outlet malls are strategically located along Highway 401, just one interchange apart, to attract people from locations as far as an hour away, said Tony Grossi, senior managing director of RioCan's joint venture.

"We are trying to draw in a much more expansive area," Mr. Grossi said.

The arrival of the U.S.-style retailing to Canada will be yet another squeeze on domestic retailers. U.S. players are being lured by Canadian consumers, who are showing a stronger willingness to open their wallets than their American counterparts. In January, U.S. discount giant Target Corp. unveiled a $1.8-billion agreement to buy most Zellers stores and convert them to Target's banner by 2013.

Other U.S. merchants are set to open their first stores in Canada this year, such as action sports specialist Zumiez and fashion chain Express Inc.; while existing players, among them Wal-Mart, are expanding their Canadian footprint.

Tanger, a pioneer in taking upscale retailers and manufacturers to outlet malls, has ties to a wide range of merchants, including Saks and its Saks Off 5th discount division. Tanger's U.S. tenants include the off-price arms of such high-end players as Nieman Marcus, Barneys, Polo Ralph Lauren, Coach, Lacoste and Michael Kors.

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Mr. Goldhar said he envisions 10 to 15 factory outlet malls in Canada over the next several years. Callaway and RioCan each expect their first centre to open by 2013.

The Calloway property is zoned for factory outlet stores, but the RioCan team has to iron out details of getting final zoning approvals for the outlet mall at its Halton Hills site. RioCan is "working through it" in meetings with the municipality, said Rags Davloor, senior vice-president at RioCan. "There are no issues, as we see it."

The rapid rise of factory outlet malls comes as development of other shopping centre formats has virtually come to a halt amid a weak economy and over-development of traditional and power centres. In the U.S. retail segment, "everybody is interested in Canada," Mr. Grossi said. "Nobody says 'no' to Canada. Everybody is putting in the effort, at least, doing a preliminary review."

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