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  April 2014
 

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The Factory Outlet - Reinvented!
Dwight D. Hill, The Retail Advisory LLC


We all love a good bargain. Think about it - any time you take a short drive outside most major cities you will likely pass the local outlet mall mecca - an oasis of retail that offers all willing shoppers a heaping of bargains and near traffic gridlock each weekend or holiday. Alas, I too have visited these shopping centers, most recently on a mission to replace a set of tired carry-on luggage on which I had logged nearly 2 million airline miles.

With retailers struggling to rethink their store footprints and drive comp store sales, the factory outlet is rapidly becoming the growth engine for many retailers. Once dingy, poorly lit warehouse stores, outlet centers have blossomed into a shopping alternative for customers looking for value as well as an affordable way to enter a brand that otherwise may not align with their budget. Gone are the days when outlet stores were heaped with last season's merchandise, sometimes shopworn after hanging unsold in the store, then packed and shipped to the outlet. Now, retail outlet stores are run as separate "factory outlet" divisions with merchandise offerings including a blend of high quality fashions carried over from the prior season as well as options that are made and sourced exclusively for the outlet, thus limiting cannibalization of the parent brand. In fact, for some retailers, the cannibalization is minimal as the outlet customer is very different from the mainline brand customer.

 

Some interesting statistics are available through a 2012 State of the Outlet Industry Report by Value Retail News1:

  • The industry is global with outlet centers currently in place from Moscow to Malaysia
  • There are nearly 15,000 outlet stores in the U.S. alone
  • Approximately 70% of these stores operate in the shoes and apparel merchandise category
  • Sales per square foot averages $357
  • 147 chains operate over 10,000 stores and some 70 of these chains planned to open over 600 stores in 2013

Clearly retailers are capitalizing on this business as a way to shore up sluggish sales in their regular channels and the growth will only continue.

Change is in the air, however, and the factory outlet as we once knew it is undergoing a metamorphosis. Two trends are developing in this industry that will forever change how we think of an outlet center: a) the expansion of luxury brands and b) developers are changing the format; the city of Rosemont, IL may now be home to the most innovative outlet concept in the industry.

Luxury Brand Expansion

NM Last Call Studio, Photo by the Dallas Morning NewsLuxury brands are taking expansion into the space to a new level as they see the outlet business as a way to engage new customers in the brand. A great example is from Neiman Marcus. They have taken their "Last Call" concept and created a more upscale sibling called Last Call "Studio," offering a more refined shopping experience (including NM-level customer service) than the traditional Last Call store. It remains to be seen how successful this concept will be for NM as they do not report separate results on this division. My guess is there are traffic pressures.

Nordstrom Rack, Photo by TheFashionSpot.comNordstrom is another retailer that has capitalized on the outlet trend. Their store experience and design are pretty basic and no frills, but the customer doesn't seem to care. According to Nordstrom's Q4 2012 financial release, Nordstrom Rack stores posted a growth rate of 23%. In addition, the company plans to open just one new regular department store in 2013, but 16 Rack stores.

Format Innovation

We all know the traditional retail brands that exist in outlet centers, including Tommy Hilfiger, Philips Van Heusen, Gap Outlet, Dress Barn, and Ralph Lauren, just to name a few. However now luxury brands are appearing in outlet centers that until recently would not have located a store there in their wildest nightmares. Who knew any of us would see the following luxury brands in an outlet center: Bruno Cucinelli, Armani, Gucci, Burberry, Ermenegildo Zegna, and Michael Kors? Those are just a few of the brands now appearing in the recently opened Fashion Outlets of Chicago. This may well be the most innovative outlet mall now in the US - if not the world. The mall is located in Rosemont, IL across the freeway from Chicago's O'Hare International airport. Shoppers not only have access to an entirely new list of luxury retailers, they also are greeted with custom artwork and a menu of concierge services typically reserved for the most exclusive shopper including:

  • Airline baggage check in and boarding pass issuance
  • VIP baggage services
  • Currency exchange
  • Translation services
  • Shuttle service to and from the airport



The video above from Euromonitor International offers a peek into this innovative concept.

What does all this mean? Luxury brands are entering outlet centers now as a new and less expensive store channel to supplement sluggish mainline store growth and to provide an affordable alternative allowing new customers entry into the brand - still with a high level of service. New formats like the Fashion Outlets of Chicago positioned near major airports provide a captive clientele of travelers a better way to spend long delays and layovers. As long as the dollar continues to be weak, the global travelers/shoppers have the ability to stretch their spending even further. As shoppers continue their cautious spending, these trends are a win for both the retailer and the customer.

See you at the outlets!


[1] http://www.valueretailnews.com/pdfs/2012stateoftheoutletindustry.pdf

Image 1: NM Last Call Studio, Photo by the Dallas Morning News
Image 2: Nordstrom Rack, Photo by TheFashionSpot.com
Video: Fashion Outlets of Chicago; Video by Euromonitor International


Dwight D. Hill, whose background includes leadership roles with Neiman Marcus and Deloitte LLP, is Founder and Retailer Strategist, The Retail Advisory LLC. Dwight can be reached at dhill@theretailadvisory.com.

 
 
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