Now that I have the chance, I’d like to return to the concept of retail “outlet” stores for premium brands.
I still think “outlets” are a horrible idea for name brand retailers. If your product is high-end, high-quality, and high-margin, the last thing you want to do is provide your customers with a reason to doubt your product. Selling a computer for $1,500 in your high end store and for only $300 in an outlet store demands that customers carefully analyze the value of your products. Your brand is weakened, and even the most loyal customers will make your products a conscious purchase decision rather than a habitually programmed response.
Neale Martin puts it a slightly different way in Habit:
Similarly, exclusive brands that dump excess inventory by using discount chains to move last year’s goods can see years of a product’s positioning eroded overnight. An exclusive brand that is available at a discount store is no longer exclusive. (p 127)
This brings me to one of my favorite brands: Columbia Sportswear. I have loved this brand since I was a kid. It was exclusive, incredibly high-performance, and local. I’ve never had a problem shelling out money for Columbia’s equipment … until I found their outlet store in Lincoln City. The same products I was paying full price for at REI or GI Joes were half price or less at the beach! Just recently I found Columbia has outlet stores in the Portland area as well! My fancy ski coats don’t seem quite as fancy now as they’re more price-competitive with store brands at the big box retailers.
The other day I noticed a “loyalty” program that Columbia has started in the retail stores. This program boasts additional discouts for repeat customers and, according to sales staff, is the only way the company can communicate its outlet prices and sales to customers. Apparently they aren’t allowed to advertise prices that might be substantially lower than MSRP or what the same product is selling for at the flagship store downtown.
I still buy and wear Columbia. It’s a brand I’ve grown up with, and it will take much more for the company to lose me as a customer. However, I no longer make my purchases at the flagship store. I’ll shop around, find what I want, and call the outlets to find out what their price is.
Competing with yourself on price should never be a business goal. What can Columbia do to reverse this problem?
Eric
I’m sure there are a lot of different opinions out there about using the term “outlets” for stores carrying brand names. However, I think it’s an adequate concept to describe the goods in those stores. These stores typically carry past-season styles, sub-branded merchandise, and possibly even “slightly” damaged goods not carried in the regular/flagship stores. It’s a great idea for retailers/companies who would like to get some kind of return on unsold inventory. In fact, some clothing designers/manufacturers as I mentioned previously, have developed sub-brands, of their major brands, specifically for the outlet stores. These products typically being manufacturered with less expensive materials to provide a break in the pricing. I look at it as a form of recycling or in an ROI sense, squeezing the last bit of the toothpaste (ie dollars) out of the tube. Those who want the highest quality in materials and most current styles are usually willing to pay the higher full-retail prices in the flagship stores. I think Columbia Sportwear is taking full advantage to get the most return as possible on their merchandise and inventory, so more power to them. Their brand isn’t degraded because they have an outlet store. If anything, it’s another opportunity to imprint the brand out in the marketplace.
Maggie,
Part of my objection to outlet stores is because of the distinction between outlets and flagship stores, which you touch on nicely. Columbia Sportswear specifically carries some of the same merchandise (same year, model, and quality) in both the outlets and their flagship store – but at different prices. This is the root of their new “Greater Rewards” club program, actually. It’s a member-only program that builds a contact list of Columbia customers who the company then emails about discounts in the outlets. They have the program because they are “not allowed to advertise” a price in the outlet that directly competes with the prices at the flagship store or their third-party distributors.
Situations where companies create entirely distinct sub-brands are a different issue. I agree that this is a good idea in an ROI sense, and it is good business to create separate lines for your high-end first-quality retail and your lower-end discount retail. Many companies that run outlet stores fail to make this distinction, though. They funnel inventory that doesn’t sell quickly enough at retail (or inventory they just have too much of) into their outlets to liquidate it and recoup their sunk production costs. It makes sense on paper when they have smaller losses at the end of the year, but it drives many to question the original quality (and markup!) of the goods in the first place.