Do You Really Save at Outlet Stores?

When 36-year-old marketing executive Mark Scott is ready to spend a lot of money on clothes, he drives past the two major malls just minutes away from his house, gasses up the car and travels 25 miles out of Atlanta to Lawrenceville, Ga., home of the Discover Mills outlets.

"I wouldn't go all the way out there if I need to buy jeans or a pair of socks," says Scott. "But there's a definite thrill about finding an Armani suit or Donna Karan shirt at a steep discount."

For many shoppers like Scott, the prospect of bargains at outlets are attractive, especially in light of today's economic downturn and the troubles facing other discounters, like the newly bankrupt Kmart. But although deals exist, experts warn that some expectations are overly high — or even downright impossible to fulfill.

When outlet shoppers see a reduced price tag, they assume they're getting a break, but most times there's a very good reason for the discount, explains marketing expert Arun K. Jain.

"Many times [the stores] are carrying out-of-season items, irregulars with minor or no visible flaws, seconds, or items that didn't sell at the retail store," adds Jain, professor and chairman at Buffalo University's department of marketing in Buffalo, NY.

Richard Laermer, author of the forthcoming book trendSpotting, argues that when it comes to lower prices, "Nobody's ever doing you a favor, least of all designers." In fact, outlet stores are his "favorite consumer scam. Outlets are just a big way for stores to get rid of old merchandise, and it's rarely a bargain at that."

Humble Beginnings to Trendy Destinations

The factory and outlet store phenomena started out as a place for department stores to sell their excess inventories, says George McGoldrick, former vice president for marketing at Levi Strauss and now head of Something Beautiful, a New York-based apparel start-up.

But as retail stores evolved, they passed the end-of-season inventory problem to designers and manufacturers who saw outlets as a way to patch up their bottom lines, he adds.

Several designers — like Ralph Lauren, Cole-Haan and Liz Claiborne — have found outlets so effective at moving merchandise that they now design lines exclusively for that market.

How can apparel companies afford to create unique items for outlets? The overhead and fixed costs are much lower, explains Dan Miele, a partner at the customer consulting arm of Deloitte & Touche in New York. "The rents are cheaper because these stores tend not to be in major cities. The infrastructure for buying is more streamlined and there may not be as much quality control as at the mall."

Often, irregular items will never make it to the retail store because designers can't afford to have flaws in their retail products, Miele adds. Yet, "to the naked eye, most irregularities are invisible or don't look bad," says Anne Lipscomb, senior vice president of marketing at The Mills, an Arlington Va.-based outlet store chain, which logged $3.7 billion in sales in 2000.

Shoppers also tend to look past imperfections if the outlet experience is all-inclusive. "Outlet malls are the new family pastime," says Jennifer Chang, assistant professor of marketing at Pennsylvania State University's Smeal College of Business. "They're relatively new, clean and bright — a great place to stretch out the legs (and wallets), grab a bite to eat and let the kids run around."

Pleasing the Customer

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