April 16, 2009
Luxury Sector Shifts Focus to Outlet Malls
By Tom Ryan
With their palatial boutiques struggling
at regional malls, luxury chains and many of their vendors are plowing
money into their outlet mall locations that are seeing better traffic.
According to the Los Angeles Times, upgrades by many "are
creating an aura of prestige" at outlet malls.
According to the Times, outlet malls
bear little resemblance to the stripped-down clearance centers that first
arrived in the eighties far from the outskirts of cities. Today, outlet
stores operate more like a discount retailer and designers no longer cut
out the labels in selling to them. More high-end stores and brands have
gone to outlets after renovations or new centers opened in tourist markets
with more services and a cozier shopping experience. Rather than solely
clearance goods, much of the merchandise is specifically made for the outlet
and features lesser quality than those heading to regional malls, although
overstocks and canceled orders are included in the offerings.
The Times noted that Kate Spade, Lucky
Brand Jeans, Juicy Couture and True Religion are among the many high-end
brands expanding their presence at outlet stores. Coach is seen as the
poster child of success in outlets.
Among high-end chains, Nordstrom is opening
up 10 Rack locations in 2009. In the fourth quarter, comps slid 1.5 percent
at its Rack stores versus a 16 percent drop at its full-line stores. Neiman
Marcus is adding three Last Call clearance center stores this year.
Cole Haan, a division
of Nike Inc., introduced a revamped outlet store format last fall to reach
luxury customers and its redesigned outlets have generated, on average,
25 percent more in sales than older outlet stores.
Saks is rolling out an Off 5th outlet prototype featuring a cleaner, brighter and
uncluttered environment. Fixtures on casters allow for quick and inexpensive
makeovers as merchandise changes. It opened four such prototype stores
so far and plans another four this year.
"These days, customers are saying they
want a brand, customer service and a deal," Robert Wallstrom, president of Off 5th, Saks Inc.’s outlet division,
told the L.A. Times.
Discussion Questions: Are outlet malls becoming
bigger opportunities for luxury selling? What do you like or dislike
about how they’ve evolved over the years?
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I think the answer to the question is based on the definition of luxury goods. As the article points out, these malls used to sell overruns, last season’s merchandise, etc. Today many of the items being sold carry the same name, but are not the same quality as those being sold in department or specialty stores.
The “new” outlet malls are a place where consumers can access the brand for a lower price point, but the consumer should not be fooled into thinking that they are buying the same goods. They also offer the luxury seller a chance to expand their reach and provide an entry level into their line. If everyone is happy with the value position then its an opportunity. I for one prefer the value proposition of the brand going on sale in the department or specialty store.
Consumers are being selective with regard to which stores they shop at Outlet Malls:
a) Not all stores offer a broad enough selection of sizes.
b) Not all stores offer truly discounted merchandise.
c) Many consumers live too far away from the closest outlet.
That said, outlet malls were gaining popularity far in advance of the recession, and many outlet malls will continue to thrive, but in particular the ones that have the right variety of stores, brand-names, and the right upkeep and maintenance.
Living in a tourist destination for the last 7 years, I have seen the big change in the outlets that prompted this discussion. Local department stores and specialty stores have to compete with these stores and prices at these shops are much closer to a “true” price. Additionally the quality of merchandise has improved at the outlets dramatically. Savvy shoppers are flocking to our 3 outlet malls and they are spending at the high-end shops like Coach, Brooks Brothers etc. I see this segment as a real opportunity for retailers to sell better merchandise to a wider demographic.
When people write about the death of various luxury brands in the coming years, surely the path to that hell was paved by executives interested in pushing the stuff out there while abandoning the cache of the brand. What does it say that Coach stores sells more at their outlet stores than their struggling full-price shops? They have taught smart women, like my niece in Los Angeles, that it is stupid to shop their stores. Wait a month and it will be in the Coach outlet.
Is that smart retailing? I don’t think so. You can’t serve two markets equally. Yes, cheap people have always been around. And people have always looked for bargains. Remember when Filene’s and Loehmann’s were unusual?
But this wholehearted embrace of, “No one will ever pay full price again” mentality is killing retailers. And brands. You want to succeed? Look in the mirror – your emperor has no clothes.
Here’s where personal experience and emotion cloud objectivity.
My name is Joan and I’ve been an outlet shopper for more years than I’m willing to say. I’ve always been prone to follow my bargain instincts and I brag about my “buys”. Therein lies the linchpin of continued success in the outlet space.
Buying Cartier knock offs on the street is often for people who want to pretend their watch is authentic and purchased at retail. However, the future success of high-end outlets is the willingness of shoppers to tell their friends they bought a brand at a bargain price. With the inescapable transparency of today’s marketplace, there are many shoppers who know top brands manufacture a separate line for the outlets…and don’t care.
So there is an extraordinary opportunity for high end brands to nurture their success in outlets. They are helped by the outlet owners who construct and maintain a customer experience that is satisfying and encouraging.
However, the brands must never lose sight of their need to maintain and enhance their unique equities. There’s never been great satisfaction in bragging about Brand X.
I just happened to see a perfect answer to this question last weekend. I was at the Woodbury Common Outlet shops in Harriman New York, about an hour and a half outside New York City.
This is not exactly the most convenient place in the world to get to, but what I saw were busloads of tourists–American, European and Asian–crowding into the stores practicaly begging for clerks to take their money.
The interesting aspect of this is that this is a very high-end grouping of stores. This is the first time I’ve ever seen an outlet store for Balenciaga. They were lined up to get in Coach and Kate Spade, Burberry, Dolce & Gabbana, Jimmy Choo, Prada, Armani and others. Put these same stores in traditional malls and you can hear a pin drop.
Certainly a lot of the business came from foreigners since currency exchange is still favorable. But there were tons of local shoppers just as fervent. And as the article pointed out, these weren’t barebones, junky locations. They were regular stores thast looked just as good as their mall counterparts. I’m not sure their prices were all that good but everyone loves to think they are getting a bargain.
The opportunity for luxury brands with an outlet mall strategy is found in striking the right balance of good product mix, clean/inviting store environments and pricing that convinces the consumer they’re getting a great deal. The most successful brands (i.e. Coach, Polo, Bath & Body Works) have invested in attractive store build-outs, merchandising and displays.
In many instances, prices on the majority of items is much closer to full retail than consumers realize; it is simply that they’ve convinced themselves, since it’s an outlet location, they’re getting considerable savings.
Outlet stores are a great way to keep the full priced, full service stores stocked with the most current fashions by giving the luxury retailer a place to move items that don’t sell at full price. The problem comes when the difference between the outlet store and the full priced store becomes blurred. If a retailer is beefing up their outlet stores now because that’s where the traffic is, they better offer an even better product and experience at their full price stores. If not, when the economy turns around, they will find their brand no longer something the consumer aspires to buy.
What I’m observing is that most brands are focused on maintaining price integrity at their upscale mall locations as best they can, and are being very careful with assortments and inventory levels to maintain currency and urgency and not allow goods to back up. They are using their outlets as a means of moving off excess goods, as they are not as concerned about markdowns and pricing integrity in those locations. The strategy is having the consequence of placing greater visibility on their outlets, but the primary consideration is maintaining brand integrity in their full-priced stores.
Outlets may just be the lifeboat needed by some of the brands to get through the current downturn, with the mix of the “real steal” deals to get the footfalls and the “just a little off the top” to get the margin. The current outlet stores are good enough to avoid severe damage to the brand. However, a critical question does remain unanswered: once the consumer becomes used to shopping at a certain price level, might some brands struggle to move back up the curve?
The opportunity here is for luxury brands to think carefully about shopper segmentation and execute very well. The “new” outlet malls are targeted for the occasional shopper, who is looking for a lower price.
The brand has huge selling power, and moving significant product volume in second tier outlets to out-of-town shoppers may work. Having large markdowns on out of season goods works against the higher end specialty shops and lowers prestige.
Those who purchase current season, better quality goods at the specialty shops know the difference and will likely pay for it. Having a lower quality tier at the outlet mall makes more selection available, attracting the bargain shopper. Most shoppers recognize the differences, and value purchases accordingly.
I don’t know what the long term implications will be – don’t have enough information. It appears a simple case of fish where the fish are. If the consumer is searching for luxury items at outlet malls, then it’s wise to be there.
Bargain hunting at outlet malls has become an event; a destination.
We are commerical property developers and have a large project underway in San Antonio. We are seeing a hybrid form of shopping center development starting to be the normal with maybe half the center being a large power center (Target, Old Navy, Best Buy, etc) and the other half transitioning into Premium Outlets.
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I think the answer to the question is based on the definition of luxury goods. As the article points out, these malls used to sell overruns, last season’s merchandise, etc. Today many of the items being sold carry the same name, but are not the same quality as those being sold in department or specialty stores.
The “new” outlet malls are a place where consumers can access the brand for a lower price point, but the consumer should not be fooled into thinking that they are buying the same goods. They also offer the luxury seller a chance to expand their reach and provide an entry level into their line. If everyone is happy with the value position then its an opportunity. I for one prefer the value proposition of the brand going on sale in the department or specialty store.
Consumers are being selective with regard to which stores they shop at Outlet Malls:
a) Not all stores offer a broad enough selection of sizes.
b) Not all stores offer truly discounted merchandise.
c) Many consumers live too far away from the closest outlet.
That said, outlet malls were gaining popularity far in advance of the recession, and many outlet malls will continue to thrive, but in particular the ones that have the right variety of stores, brand-names, and the right upkeep and maintenance.
Living in a tourist destination for the last 7 years, I have seen the big change in the outlets that prompted this discussion. Local department stores and specialty stores have to compete with these stores and prices at these shops are much closer to a “true” price. Additionally the quality of merchandise has improved at the outlets dramatically. Savvy shoppers are flocking to our 3 outlet malls and they are spending at the high-end shops like Coach, Brooks Brothers etc. I see this segment as a real opportunity for retailers to sell better merchandise to a wider demographic.
When people write about the death of various luxury brands in the coming years, surely the path to that hell was paved by executives interested in pushing the stuff out there while abandoning the cache of the brand. What does it say that Coach stores sells more at their outlet stores than their struggling full-price shops? They have taught smart women, like my niece in Los Angeles, that it is stupid to shop their stores. Wait a month and it will be in the Coach outlet.
Is that smart retailing? I don’t think so. You can’t serve two markets equally. Yes, cheap people have always been around. And people have always looked for bargains. Remember when Filene’s and Loehmann’s were unusual?
But this wholehearted embrace of, “No one will ever pay full price again” mentality is killing retailers. And brands. You want to succeed? Look in the mirror – your emperor has no clothes.
Here’s where personal experience and emotion cloud objectivity.
My name is Joan and I’ve been an outlet shopper for more years than I’m willing to say. I’ve always been prone to follow my bargain instincts and I brag about my “buys”. Therein lies the linchpin of continued success in the outlet space.
Buying Cartier knock offs on the street is often for people who want to pretend their watch is authentic and purchased at retail. However, the future success of high-end outlets is the willingness of shoppers to tell their friends they bought a brand at a bargain price. With the inescapable transparency of today’s marketplace, there are many shoppers who know top brands manufacture a separate line for the outlets…and don’t care.
So there is an extraordinary opportunity for high end brands to nurture their success in outlets. They are helped by the outlet owners who construct and maintain a customer experience that is satisfying and encouraging.
However, the brands must never lose sight of their need to maintain and enhance their unique equities. There’s never been great satisfaction in bragging about Brand X.
I just happened to see a perfect answer to this question last weekend. I was at the Woodbury Common Outlet shops in Harriman New York, about an hour and a half outside New York City.
This is not exactly the most convenient place in the world to get to, but what I saw were busloads of tourists–American, European and Asian–crowding into the stores practicaly begging for clerks to take their money.
The interesting aspect of this is that this is a very high-end grouping of stores. This is the first time I’ve ever seen an outlet store for Balenciaga. They were lined up to get in Coach and Kate Spade, Burberry, Dolce & Gabbana, Jimmy Choo, Prada, Armani and others. Put these same stores in traditional malls and you can hear a pin drop.
Certainly a lot of the business came from foreigners since currency exchange is still favorable. But there were tons of local shoppers just as fervent. And as the article pointed out, these weren’t barebones, junky locations. They were regular stores thast looked just as good as their mall counterparts. I’m not sure their prices were all that good but everyone loves to think they are getting a bargain.
The opportunity for luxury brands with an outlet mall strategy is found in striking the right balance of good product mix, clean/inviting store environments and pricing that convinces the consumer they’re getting a great deal. The most successful brands (i.e. Coach, Polo, Bath & Body Works) have invested in attractive store build-outs, merchandising and displays.
In many instances, prices on the majority of items is much closer to full retail than consumers realize; it is simply that they’ve convinced themselves, since it’s an outlet location, they’re getting considerable savings.
Outlet stores are a great way to keep the full priced, full service stores stocked with the most current fashions by giving the luxury retailer a place to move items that don’t sell at full price. The problem comes when the difference between the outlet store and the full priced store becomes blurred. If a retailer is beefing up their outlet stores now because that’s where the traffic is, they better offer an even better product and experience at their full price stores. If not, when the economy turns around, they will find their brand no longer something the consumer aspires to buy.
What I’m observing is that most brands are focused on maintaining price integrity at their upscale mall locations as best they can, and are being very careful with assortments and inventory levels to maintain currency and urgency and not allow goods to back up. They are using their outlets as a means of moving off excess goods, as they are not as concerned about markdowns and pricing integrity in those locations. The strategy is having the consequence of placing greater visibility on their outlets, but the primary consideration is maintaining brand integrity in their full-priced stores.
Outlets may just be the lifeboat needed by some of the brands to get through the current downturn, with the mix of the “real steal” deals to get the footfalls and the “just a little off the top” to get the margin. The current outlet stores are good enough to avoid severe damage to the brand. However, a critical question does remain unanswered: once the consumer becomes used to shopping at a certain price level, might some brands struggle to move back up the curve?
The opportunity here is for luxury brands to think carefully about shopper segmentation and execute very well. The “new” outlet malls are targeted for the occasional shopper, who is looking for a lower price.
The brand has huge selling power, and moving significant product volume in second tier outlets to out-of-town shoppers may work. Having large markdowns on out of season goods works against the higher end specialty shops and lowers prestige.
Those who purchase current season, better quality goods at the specialty shops know the difference and will likely pay for it. Having a lower quality tier at the outlet mall makes more selection available, attracting the bargain shopper. Most shoppers recognize the differences, and value purchases accordingly.
I don’t know what the long term implications will be – don’t have enough information. It appears a simple case of fish where the fish are. If the consumer is searching for luxury items at outlet malls, then it’s wise to be there.
Bargain hunting at outlet malls has become an event; a destination.
We are commerical property developers and have a large project underway in San Antonio. We are seeing a hybrid form of shopping center development starting to be the normal with maybe half the center being a large power center (Target, Old Navy, Best Buy, etc) and the other half transitioning into Premium Outlets.