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Are outlets killing full price stores?

2 Jan 2015

Many retailers have embraced the rise of outlets, whether these are in the form of online sites such as Brand Alley and Secret Sales, or out of town shopping centres.

But, while these sales and discounted outlets often provide exciting options for customers, they may not be great news for full-price stores.

Outlets
Lower price bracket clothing was the initial focus of this movement, however, many mid-to-upper price level brands have also begun to offer outlet retailing, whether from their own centres or within high end agents.

There are many advantages and disadvantages of outlets when compared to full price stores - let's take a closer look at to the relationship between these two formats.

Disadvantages of outlets to full price stores 
Outlets can get a bad reputation in retail, as they are commonly perceived to be better value to shoppers. They also often have a wide range of products all sold at discounted prices, all of which may not help the profit margin of brands.

Richard Dodd, spokesman for the British Retail Consortium, claims that "there is a mass of promoting and discounting going on at all time in stores in all locations because customer's spending power is under enormous pressure".

This means "retailers are having to offer those sort of reasons to spend to customers".
By using outlet stores, customers need incentives such as large discounts, as well as a wide range of choice at a premium quality.

This obviously could threaten to dissuade consumers from purchasing items from full price stores, as they instead choose to wait for outlets to offer them at a reduced price.
Advertising and marketing is required to highlight brand outlets, where the discounts might be high, but a large volume of stock should be sold, thus helping to reduce wastage.

Alternatively, external outlets such as third party sites can buy up designer items only to sell them on at a cheaper price. While this may help to promote the product to a new market, there is a risk that this practice may isolate the brand from its primary full-price audience.

Regonati Corrado, Head of Retail and Franchising of Adidas Italy and Eastern Europe, claims that it's about "different strokes for different folks".

While he explained that concept stores will have new arrivals "amazing customer service with creative and exciting windows", stock is traditionally sold at full price.

"Whereas, in the factory outlet, there is more self-service, the visual merchandising is different because the quantities are different. The price points are clearly underlined and the consumers are not so focused on the latest products," Corrado explained.

Advantages of online outlets to full price stores 
Online outlet stores can afford to bring larger discounts, as the prices are lower due to direct shipments with a lack of third party costs, such as staff, overheads and store rent.

Alex Pescott, CEO of executive search firm Fusion Associates states ‘online outlets can send goods straight to the customer, missing out the store and reducing transport and logistics costs. With the convenience of these cheaper prices and delivery, this can encourage people to buy more items, safe in the knowledge that a large stock will mean that every size and style is catered for’.

Marks & Spencer is one retailer which has launched its first outlet facility online in early 2012. Now it features over 1,300 items across womenswear, lingerie, menswear and kidswear, offering 40 per cent off the recommended retail price.

Despite launching ‘bricks & mortar’ outlet stores in 2000, Richard Fox, head of M&S Outlet, claims that with the significant demand for online shopping, an internet arm was vital.

He explained the importance of the new site, claiming "the internet is often the first port of call for shoppers in search of a bargain, as it offers a quick and convenient way to compare the deals available", which has led them to follow customers' suggestions "by extending our popular outlet offer on our website".

A mutually beneficial relationship?
While outlets are becoming increasingly common in retail, they are not forecasted to damage full-price stores. Dodd claims: "It is always wrong to talk about one type of retail killing another. Retailers use a number of channels and sometimes use a number of different formats to suit different groups of customers, or different locations, or to meet different expectations of customers, or to sell ranges of products."

This signifies that outlets are perhaps just another sales format for multichannel retailers, who are having to diversify both their markets and their customers.
Alex Pescott at Fusion Associates adds “Listening to the demands of consumers and market trends can help to assess whether outlets are the best option for your business, there is no right or wrong way to sell products, so long as it meets the needs and expectations of your consumers”.

This could include using outlets to drive full-price store sales and reputation or focusing on bricks-and-mortar own-brand shops, while concentrating on remaining in-tune with the preferences of loyal customers.

Emphasising this point, Corrado admits that there was no such problem two years ago. However, as the environment has changed, "we are in crisis mode and now the consumers are focused on price and special offers".

However, he added: "I'm fully convinced that we need both of them [bricks-and-mortar stores and outlets]… Slowly but surely, the game has changed and we need to change the way to play."
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