Luxury/Designer Brands at Outlets– Brand Erosion or Market Expansion?
September 5, 2013
While luxury brand managers don’t advertise it (in fact many are reticent to acknowledge their outlet presence at all) outlets are increasingly used as a growth strategy. It’s explicit for Coach, and to a degree, Ralph Lauren, but look for even a mention of outlets at Gucci, Prada or Burberry and you’ll find nary a whisper. Yet the outlet channel, along with ecommerce/mcommerce/fcommerce, is actively expanding, while traditional retail channels (department and specialty stores) are flat or contracting.
New (and stage-2 expanding) outlet complexes are in various stages of development in the US. According to Value Retail News 2012 State of the Outlet Industry Report, 13 new centers are planned for 2013 following eight openings in 2012. These figures don’t include the vibrant outlet growth in Canada, Europe and Asia, attracting such well-known luxury brands as Ferragamo, Valentino, Celine, Etro, Tumi, Michael Kors and Hugo Boss.
Among retailers flocking to outlet locations are off-price renditions of luxury department stores including Neiman Marcus Last Call and Saks Off 5th, and more recently, Bloomingdale’s Outlets. In addition to moving aging inventory from the floor to make room for new fashion arrivals, these retailers use proprietary made-for-outlet store label product to round out the assortments. These retail brands aren’t tarnished by outlet locations, and are in fact a draw for many customers offering a treasure-hunt shopping experience. My best outlet finds were last season’s wows that somehow made it to the outlet, such as my Loro Piana fur hat found at NM Last Call at Woodbury Commons last January.
Luxury Attitude Shift
Luxury’s traditional values are being challenged and reframed, most obviously by luxury providers such as Jimmy Choo — designing for H&M — and Jil Sander at Uniqlo. Luxury and status are less meaningful to consumers around the world while value, wellness, ethics and craftsmanship are growing in importance, according to a Boston Consulting Group survey. The increased access outlets provide (not to mention the online world of myhabit, gilt, flash sales and digital outlets) isn’t in keeping with the traditional strategy of requisite luxury-brand exclusivity.
The average consumer may view that luxury fashion brands are jeopardizing their upscale positioning, and there is potential brand erosion among consumers who frequent both full-price and outlet channels. For serious shoppers, a treasure-hunt find at Neiman Marcus Last Call is an epiphany experience, as is finding last season’s Etro paisley dress at 60% off in the Etro outlet. But the latter risks creating cognitive dissonance in the consumer’s mind, with the question, ‘why bother to pay full price in town, in the first place?’
According to Linda Humphers, editor-in-chief at Value Retail News, the outlet shopper is value conscious, brand conscious, and wants to be fashionable. But fashion isn’t the top priority in her value equation, so she’s willing to be behind a season. This contrasts with the New York or Parisian shopper who wants the latest and the newest now. Coach estimates that only 15% of its customers shop both its full-price and outlet locations. Given its merchandise strategy of made-for-outlet product, little cannibalization ensues.
Luxury guru Uche Okonkwo posits in her book, Luxury Fashion Branding, ‘designer outlet shopping villages dilute luxury brand imaging, undermining the exclusivity attribute of luxury brands.’ However, she adds, ‘the outlet channel isn’t necessarily a brand killer if handled carefully,’ and she urges luxury brand managers to locate in outlet centers that offer only other luxury brands and only end-of-season goods, while providing unparalleled in-store customer service, animation and entertainment, thus maintaining brand personality and aura. Her bottom line: luxury brands want to ensure that the long-term benefits outweigh the costs to brand equity.
Tourism and Luxury
Busloads of international visitors often make a trip to the outlets one of their first stops when arriving in a fashion destination or international hub (thanks in part to ingenious travel agents and outlet marketers). Often times the outlet is a first encounter with a luxury brand; the environment is less imposing than a 5th Avenue or Via Condotti shop, and the sales help is more approachable. Managed carefully, this introduction can develop into a long-term relationship with the brand.
Value Retail’s Chic Outlet Shopping with its nine Villages in tourist destinations has made a successful business model based on travelers’ desires for premier fashion and lifestyle brands at value prices. The merchandise is typically previous season, but this April at Bicester, I saw the current season’s merchandise at more than a few leading luxury brands with savings as high as 70%. When I visited two Villages, Bicester and la Vallée (outside of Paris), I was overwhelmed with the level of service in the boutiques and the Villages where service spans babysitting and valet parking to hands-free shopping, VIP rooms, and multi-faith prayer areas.
The secret sauce is brands and service … and more service. Value Retail Chairman Scott Malkin takes the lessons of the hospitality industry seriously while delighting shoppers with great product at bargain prices. The hospitality focus is integral to Value Retail’s DNA and implies iterative and steady improvements meeting the higher expectations from its shoppers as they shop in alternative venues. At the WWD CEO Summit in January, Malkin shared his strategy, “We are not a shopping center company. We are not in the business of collecting rents; we’re in the business of driving experiences through distinctive environments.”
At Bicester, assortment price and service combine to generate among the highest sales productivity in the world, surpassing £1,000 per square foot. Since its 1995 debut with Bicester Village, the Collection of Villages has delivered double-digit sales growth every year. Like-for-like or comp store sales rose 13% in 2012. Tourism has played an integral part in the success. Since 2006, the Villages have achieved 29 consecutive quarters of double-digit growth in tax refunded sales generated by non-EU guests.
But it’s complicated. Outlets that are going upscale need a steady supply of high-end designer brands to continuously attract shoppers. Even the very wealthy can be pragmatic, and they love a bargain (have you ever been to a frenzied invitation-only sample sale?). But when luxury brands descend to the outlet level, it can be a slippery slope. The brand may not suffer and new clients can be cultivated, but there can be a residual blemish on brand positioning. In a study of contrasts, Louis Vuitton isn’t at the outlets, but Bottega Veneta is. Maybe it’s simply a question of time as more luxury marketers see outlets as a viable channel providing access to new consumers (and growth) and have the savvy not to erode their brands. Shoppers can’t wait!