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

But as they grow in popularity and acceptance, many outlets have lost their true bargain quality, laments New Yorker Rosa Chang. It was the deals that kept driving Chang and her husband upstate or to neighboring Massachusetts in search of deals.

"With more people going to the outlet and brand-name merchants opening outlet stores, merchants and mall owners have improved the quality of the stores," she observes, "hence driving up the price of the items to make up for renovation and operations costs."

Another obstacle to success is competition from the retail stores. "The consumer has really taken control of retail," asserts Miele. Prices at the mall have not only been more reasonable of late due to the recession, they sometimes beat offerings at the outlets, he notes.

New Jersey resident Lisa Concepcion concurs. "I went to Ann Taylor Loft outlet and … suit Jackets were about $160, pants $70, basically the same as the regular Loft store. I found incredible deals at the regular Banana Republic mall store and it was much cleaner than the outlet where clothes were thrown all over the place."

Laermer also cites selection as a pronounced drawback. "Who wants to buy what was in the stores two years ago?" he asks.

Purchasing last year's merchandise doesn't bother Scott, who saved about $700 on a Donna Karan suit just by waiting three months and heading up to the outlet. "Buying a gray suit is buying a gray suit. You're still getting the quality and it doesn't matter how old the clothes are."

Adds Chang, "I don't go to the outlets to get the latest funky outfit, but for work my wardrobe is a lot more classical and consistent."

The bottom line is: Regardless of venue, shoppers need to be smart to find the true bargains. And, "make sure the cut, color and design fit and flatter you," urges Jain. "Ask yourself if you really need it and if you're going to wear or use the item. If not, no matter how good the deal, it's still a waste of money."