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Thursday, September 16, 2010

America's Discount Culture and the Future of Brands

We Americans love to shop and we love to buy things on the cheap. In recent years this has become an integral part of the fabric of life in the United States. Back in 1956, only about 6% of merchandise was purchased on sale. A lot has changed since then.

To look at our discount culture clearly, a good angle to view it from may be by taking a careful look at outlet malls. These out of the way entities are growing globally; you see them popping up in Europe, Japan, even Hong Kong. But, it is in the United States where the approximately 300 outlet malls are having the biggest impact.

You might be surprised to learn that they are not a fairly recent phenomenon. The earliest outlet location that I could find goes back to 1936 which was right in the middle of the Great Depression. In my home region of Southern New England, Anderson-Little, a mid-ranged purveyor of men’s suits opened the first outlet store. It was located a long distance from existing stores and they sold “seconds” which were items that were slightly defective in some way. Back in 1936, there were no interstate highways and not nearly as many people drove so there was little danger that their outlet location would cannibalize sales from their mainstream stores.

Today, outlet malls are a destination venue for 55 million + Americans each year. What they lack in convenience is a perceived big trade off in price. Most are bare bones in appearance and are full of serious shoppers. Conventional malls have issues with teenage “mall rats” who spend little money to speak of put roam around often in large groups on weekends. Seniors, too, haunt malls. It is not unusual to see them doing measured walks around malls in groups. This is especially prevalent in the South and Southwest. The outlet mall patrons, on the other hand, appear to be 100% shoppers.

Out west going to an outlet mall can be a major event. Busses often take a fair proportion of the citizens of small towns to an outlet mall 200-300 miles away. The group shops till they drop, meet for dinner in a large private room, stay in a local motel, shop the next morning and sleep on the long ride home. Most data that I have indicates that shoppers at outlet malls spend 80% more at a bare bones outlet mall than at a fully loaded regional mall.

Whenever one visits an outlet mall, you can get the vibes of a quasi Vegas mentality if you listen a bit to the shoppers. Invariably, somehow will say how she “beat the house” on a spectacular deal on some expensive brand name products. Well, you do not have to be particularly savvy to know that in Las Vegas the house always wins over time. I would say the same is true with outlet malls.

Originally, outlet stores were like the earliest example from 1936. The products were perfectly serviceable but slightly defective in some way. A great example was Coach. The owner sent his children out to Long Island to run their first outlet store. They had big problems early on as they almost always sold out 100% of the stock very quickly even though none of the outlet merchandise was perfect. As time went on they and many other players shifted gears on the nature of outlet store merchandise.

Today, many retailers sell merchandise at their outlet stores that is explicitly produced for exclusive sale at the outlet locations. The list includes Ann Taylor, Brooks Brothers, Coach, Donna Karan, The Gap, and many more. A very clever young shopper observed to me that if you look closely you can often tell the difference quickly. She commented that some items are from the actual retail store and of the highest quality but the goods are a few years out of style. Or, the colors are a bit different even zany. And, the sizes are either tiny or huge. The rest of the stuff that 85% of the people would want is of lower quality and specifically manufactured for the outlet store.

I have noticed different tags. Until recently, the outlet manufactured goods often had an “F” for factory outlet on them. Today, price tags are usually far more discreet.

Also, look out for “reference pricing”. That suit listed at $900 and now selling for $250 may have been produced exclusively for the outlet mall. It was never offered anywhere at $900 but your perception is that you are getting a world class bargain.

Even mainstream discounters are getting in to the act. Wal-Mart and Target often have electronic gear, lawnmowers, grills, etc. with brand names but a comment on the tag says made to “Wal-Mart” specifications. You are not getting a Webber you are getting a Wal-Mart grill. The brand name has really lost all meaning in cases like that.

So what is going on here? All of us have spent our careers either selling to or working with people who ferociously defend their brands against competitors. And, they bore you to tears talking about the integrity of their brands.

And, what of the customers who love going to the outlets and spend a lot there?

Here are my theories which are largely personal as it is hard to find a lot of data on this topic:

1) The outlet mall customers get a lot of pleasure from buying there. Going to the outlet mall is an event and a major event for many in the Rocky Mountain and Central time zones. Even the smartest shoppers feel that they are getting something close to major brands and the accompanying quality when they shop there.
2) The major players are not stupid and they have to study income data and demographic data as much as all of us in communications. The blue collar work force has not really received a raise in 30 years when you adjust incomes for inflation. The middle class, as we know it, is shrinking. Since 2007, it is safe to say that maybe 7-10 million have slipped out of the middle class. And poverty levels released today from the Census Bureau put us at the highest level in 40 years.

So are the retailers just facing facts? They merely sell the dream. The merchandise is not nearly as good as their conventional stores but people perceive that they are getting the original brand or something close to it. One retailer gets as much as 80% of their sales and I would assume most of its profits from its outlet store base.

Long term, this would seem to dilute the value of the brands significantly. But, if our wealth as a nation is slipping relative to the emerging eastern powers perhaps the outlet gambit is a clever way to keep the music going in people’s minds for a bit longer. If “most people truly lead lives of quiet desperation” as Thoreau put it, then the fa├žade of gentility at outlet malls could have quite a long run.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com


  1. Your post brings back fond memories of my childhood. My family drove from New Jersey to the Reading PA outlets for our back-to-school wardrobes every year.
    My ninety-one year old mother can still spot the flaws in a 'seconds' garment.

  2. I have received many comments like yours. Sadly, the seconds today are simply lower in quality.