468 Retail and Channel Management Blog

Friday, February 13, 2015

Outlet Value: A quick buck at what cost?

Outlet stores give us the brand name items for low prices, but at what cost? Lower quality and lower prices is what. The origin of the factory outlet store was an attempt to display the manufacturing process. This was also a place to obtain slightly defective or overstocked items for a lower price. A way to eliminate the middle man and buy directly from the manufacturer. Nowadays, there is a whole new idea for these types of stores. Luxury and affordable are words that come to mind. There are even outlet malls that work together to capture the price sensitive consumer.

“The industry says it’s responding to customer demand for merchandise that’s similar to what’s sold in the regular retail stores, but at a lower price point.” - Colleen Tressler, Consumer Education Specialist

Outlets are growing at a fast pace in the US. Customers value style and fashion but are more conscious of price points ever since the economic recession. Nowadays in the US, 86% of merchandise is specifically produced for outlet stores. This even includes brand luxury goods like Coach, traditionally known as a high value and style brand. But ever since their outlets were added, Coach's sales per square foot have fallen 27% from 2012 to 2014.
A luxury brand outlet store.

Even online shopping is is starting to cater to the price sensitive customer. Some websites like American Eagle Outfitters have a direct link to their factory line of products. These products on their site are priced lower than their in-store counterparts. Stores are deliberately confusing consumers and their intrinsic value judgments, and they exploit the ambiguous nature of differences in actual value, the perceived value, and production costs.

Some legal issues have risen with the items for sale. There seems to be an attempt at manipulation of MSRP to give a higher perceived value for items in outlet stores. Lying to the customer and claiming its product origin has gotten lawsuits filed against GAP, Banana Republic and Saks Fifth Avenue LLC for “false advertising, unfair competition and violation of state consumer laws”. This claim is due to the items being previously sold at normal retail stores, but with no indication that the stores had ever carried the item before being transferred into place.

Is the selling of this excess inventory worth the cost of damaging the brand? In my opinion, no. Outlet malls are focused too much on price. They fall shy of any entertainment value as would be seen in traditional malls. This puts their value lower as it doesn't have proper engagement. In the short term, like an economic recession, getting goods to fly off shelves in necessary to make sales, even with lower margins in order to preserve market share. But in the long run, the brand image is seen as cheap and unreliable. So now we have lower quality, rebranded, look alike goods. Sounds familiar doesn’t it? It is almost like buying a counterfeit knock off of your favorite brand, at your favorite store.



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