“Faux Clearance”: Do Outlet Store Customers Care?

One of the hottest retail segments right now is the outlet or off-price market.  Nordstrom, Saks and Neiman Marcus are opening more “clearance” stores than full-line stores.  Bloomingdale’s and Lord & Taylor have recently announced plans to open their own off-price formats.  Hundreds of manufacturers’ outlet stores from Ralph Lauren to Coach to Nike can be found throughout the country.

As I have learned in recent conversations with everyone from neighbors to business reporters to industry analysts, very few customers realize that the vast majority of product in most of these stores is NOT manufacturers’ overstocks or unsold merchandise from the full-price retail stores, but is in fact produced specifically for these stores.  I call this “faux clearance.”

Certainly these stores benefit from the impression that the reason you are getting such a great deal is that they had too much merchandise and had to mark it down to move it.   Their promotional material trumpets 30%, 40% (up to 70%!!!!)  off to reinforce that notion, when in fact in most cases that identical product has never been available anywhere at the “manufacturer’s suggested retail” or “compare at” price.  Deceptive? You decide.

With the retail outlet segment exploding–and the dramatic growth of “flash-sales” sites like Gilt and Rue La La–the reality is that the percentage of directly made for the channel product will only continue to rise.

So if you buy my premise that most customers of these store and sites do not understand the origin of the product in these channels–and btw if anyone has seen good data on this send it my way–would knowing actually change their behavior?

My guess is no, and here’s why.   The players that have been really successful in this market–one great example is Nordstrom Rack–understand that the core customer for these formats is a different customer than their full-line stores and have built the business model accordingly.  This is why Nordstrom can build a Rack store across the street or down the way from their full-line store and still thrive.  This is why we decided to accelerate the growth of our Last Call stores at Neiman Marcus and began work on a new concept.

The challenge going forward will be to consistently execute a compelling value proposition–and that means delivering an experience that complements the parent brand without diluting it and reliably offering great value in the product assortment.  This latter factor is not so easy, particularly as the demands of this channel increase dramatically.

But ultimately if these formats offer compelling price value in their assortments and a great customer experience, why should the customer care exactly why the product is being offered for sale?

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5 thoughts on ““Faux Clearance”: Do Outlet Store Customers Care?

  1. I’ll admit that I was mistakenly under the impression that these were overstock items! But knowing doesn’t change anything for me: a great deal on a quality product is still a great deal on a quality product, regardless of the reason why it’s a great deal. I don’t question sales — I just shop them! 🙂

  2. Steven,

    Great blog, and a very nice post. I am going to add my 0.3 cents, from the customer perspective (well, I am a customer and I have a perspective — but I meant from the CRM, theoretical business world perspective) if I can.

    While I agree with the so what part of your statement, I am concerned that the customer is bring misled as to the value of the deal they are getting. I shopped those stores, and I shopped the real stores, and there is no comparison possible in the quality and detail of the products offered. Customers are being misled as to the origin, and even to the potential quality of the product offered — they believe these products were offered in the brand store — and that is the reputation the products carry (frankly, I could never see 99% of the stuff that you find at Rack in the brand name store), and that is why the vendors are misleading.

    Funny thing about that, they can do it for some time, but eventually they are going to face the reality of what they are doing — then again, when did that happen, right? It is after all Caveat Emptor out there — right?

  3. Saks, NM, and Nordy outlets are so guilty of this. It just makes me sick to see people who think they are getting a deal when they could find the same things at Target for 50% less. I only buy high end designer and/or contemporary items I’ve actually seen in stores while shopping outlets. Very deceptive for the uninformed buyer!!

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