Outlet Malls Aren’t What They Used to Be

When you buy something at an outlet mall, do you know what you’re getting?

If you think it’s a top-quality, brand-name product at a deep discount, think again.

Ten years ago, that may have been true. But most brands now sell lesser-quality merchandise made just for their outlets.

Whether you’re still getting a good deal depends on whom you ask.

Some consumer advocates liken it to a bait-and-switch.

“It’s an abuse of the brand. Most consumers don’t realize what they’re getting,” said Jamie Court, president of Consumer Watchdog.

But outlet-mall owners argue that the stores are only giving the public what it wants – brand-name goods at bargain-basement prices.

“Sometimes (retailers) tweak production of the items so they’re slightly different in terms of quality, but it’s acceptable. I don’t think this is a dirty little secret of the outlet industry,” said Coleen Conklin, senior vice president of marketing at Premium Outlets, a division of Simon Property Group.

Premium Outlets is by far the largest player in the industry, with 65 locations in 29 states.

Upscale fashion icons, including Coach and Juicy Couture, maintain a separate product line for their outlet stores, representatives for the brands said. Clothing retailer Gap Inc., which owns Banana Republic, also manufactures products exclusively for its outlets or “factory stores.”

“There’s no cross-pollination. Retail stuff never ends up here,” said Daryl Higgins, manager of the Gap Outlet store in Folsom, Calif.

Several outlet-store managers said the difference between outlet and retail products can be so subtle that they are rarely discernible to the everyday shopper.

Hagen Thompson, manager of the Loft Outlet in Folsom, explained that a sweater in a regular retail store with a 12-bow embroidery might have just seven bows in the outlet version, along with a cheaper fabric. Loft Outlet is a subsidiary of Ann Taylor.

“It’s a way to cut cost, but you lose some of the details,” she said.

To be sure, outlets are big business. Since 2006, 39 outlet centers have opened, compared with only one regional mall, according to Value Retail News, the outlet industry’s trade publication.

When outlet malls first appeared nearly 40 years ago, they didn’t make much money, serving mostly as a channel to get rid of goods no one wanted.

But their popularity has exploded; there are now more than 300 of them in the United States.

“The retailers have made it into a pretty profitable business. Outlet space at current levels is fully occupied. It’s an appealing business for others to get into,” said D.J. Busch, a mall analyst at Green Street Advisors of Newport Beach, Calif.

Spending at outlet malls is expected to top $25 billion this year, up from $19.9 billion in 2009.

But as the industry grew, the concept evolved and outlets became a distribution channel in their own right. The tough economic times in the past five years accelerated the process.

“People started watching their budgets because of the recession, but weren’t necessarily ready to give up their favorite brands,” said Linda Humphers, editor-in-chief of Value Retail News.

Separate product lines allow brands to appeal to shoppers with different priorities.

“Some consumers want the latest and greatest, but then you have shoppers who only seek out bargains,” said Anthony Dukes, associate professor of marketing at the University of Southern California Marshall School of Business. “Manufacturers recognize they must have different price points.”

On a recent weekday afternoon at Folsom Premium Outlets, most shoppers interviewed were under the impression that outlet merchandise once was offered at the regular retail store.

When told of the separate product lines, Joan Houx described a purchase from an outlet luggage store she quickly regretted. “It was second-rate,” she said of the suitcase. “It was cheaper, but still a couple hundred bucks.”

Others, however, didn’t seem to mind that they were getting products of a little lower quality, as long as the price was right.

“It’s a matter of finding something that works,” said Typhanie Larson, 29, who couldn’t stop gushing about the numerous coupons offered at the Coach Factory Store.

Outlets often tout prices of 25 percent to 65 percent less than full retail. But the discounts are not an apples-to-apples comparison, since outlet goods are different both in quality and style from their regular retail counterparts.

“Given consumer psychology, retailers have an incentive to make the price look high at one point and reduce it to make the deal look big,” said Dukes, who specializes in retail and pricing strategies. “I wouldn’t be surprised if this plays out in outlets.”

The reputation of outlets as treasure hunts for brand-name goods fuels the sport of outlet shopping. And because outlets often are miles from urban centers, shoppers feel pressure to make the trip worthwhile.

“We don’t get the browsers; we get the shoppers,” said Maura Eggan, western region marketing vice president for Premium Outlets. “You expect them to leave with a lot of shopping bags.”

Among those confirmed to be selling made-for-outlet products are: Ann Taylor, Banana Republic, Coach, Gap, Juicy Couture, Loft and Polo Ralph Lauren, representatives for the brands said. Many more brands did not respond to inquiries about their outlet business.

Department store outlet Saks Fifth Avenue Off Fifth said only 12 percent of its merchandise comes from its namesake Saks Fifth Avenue stores. The rest is sourced directly from vendors and was never sold at regular retail stores.

Even with a lower price point, outlets, like other brick-and-mortar operations, face the threat of e-commerce.

“The outlets always had this notion that they represented lower prices,” said Tamara Gaffney, principle analyst at Adobe Digital Index, which tracks online sales. “With people walking in with their mobile devices, they have to either be that or the outlets will lose sales.”

Tommy Bahama, the Seattle manufacturer famous for its Hawaiian shirts, is one company bucking the trend. It continues to use outlets to liquidate unsold merchandise from its flagship stores.

“You can’t trick the guest,” said Doug Wood, president and chief operating officer of Tommy Bahama, in an interview. “If you’re going to put your name on it, the product shouldn’t be of lesser quality.”