Search This Blog

Monday, 14 March 2016

Factory Outlets: Are the big brands cannibalizing on their own distribution networks? At least the city councils should know better than developing yet another factory outlet centre, like the one planned in Assen...

Almost everybody in Western and Southern Europe and the United States knows them probably: the factory outlets (or fashion outlets) where eager shoppers can get their favourite brands of clothing, shoewear and other gear, against an attractive discount.

Nike, Adidas, Levi’s, Hugo Boss, Calvin Klein, O’Neill and Ralph Lauren are only a few of the brands that are presents at such factory outlets and all these brands do their best to attract customers, by selling articles that are just not up-to-date anymore at discounts of 35% or more.

It seems like a win-win situation: the brands can sell their obsolete articles and slightly outdated collections to eager customers, instead of having to take those back to the factory and destroy them. And the customers get a great bargain and have the chance to buy clothes of expensive brands for prices that fit well within their budget. There are even rumours that some of the brands and store chains at such fashion outlets put collections together of slightly lesser quality, but at a much lower price, in order to attract customers.

But not everybody is happy… especially not when one owns a fashion store in a regular shopping centre, close to such a factory (fashion) outlet.

Such factory outlets are often large shopping malls with a nearly complete assortment of fashion, shoewear, sportswear, furniture and small household appliances, for sale in more than 100 or 200 stores. They mostly include a number of food and hospitality units and they are generally situated at locations just outside the centre of nearby towns and cities: in general near highways and local auto routes, making them very easy to reach and leave again.

And where the shopping centres in the heart of normal cities are seldomly worth a special visit due to their dullness and monotony (i.e. the Blokkerization that I described in this older article), having the same few store chains over and over again, such specialized factory outlets attract visitors – both from close by and far away – like lemonade attracts wasps in the summer.

Due to their smart location, their extensive collection of famous brands all combined in one small area, their bargain prices and their general attractivity towards the customers, they draw a lot of attention away from the shops in the shopping centres in the hearts of nearby cities and towns.

And where the residents of these nearby towns and cities do regularly visit the fashion outlets in their region, instead of visiting ‘their own’ shopping centres, the opposite does hardly happen at all: tourists from outside the region who make a special trip in order to visit such a fashion outlet virtually never go to the centre of the cities close to this fashion outlet (unless such cities have some attractions of their own). The consequence is that there is absolutely no win-win situation here for the shops and store chains in the heart of the cities involved.

On top of that: the stores in the centres of the nearby cities and towns often sell the same brands and nearly the same collections, but they are not able to sell these brands at the same bargain prices as the factory outlets do. They are mostly “forced” to sell the latest collections of these brands at the normal sales prices. This means that there is a substantial difference in prices between the regular shopping centres and the fashion outlets.

This particular circumstance is hard to explain to the traditional customers of the regular shops in the common shopping malls: why is a typical Levi’s or Calvin Klein jeans for sale for over €75 in the regular shop and can almost the same jeans be bought for only €45 in the Levi’s or Calvin Klein fashion outlet store?! And why is that Lacoste polo shirt 30% cheaper in the fashion outlet store than in the regular fashion store?!  The differences in quality between the outlet fashion and the regular shop fashion – if any – are very hard to discover for Joe Sixpack when he visits the fashion outlet, so he doesn’t bother and buys his stuff for the lowest price... in the outlet store.

This proves to be a double whammy for the storeowners in the regular shopping centres and non-outlet shopping malls. These must buy the latest collections of the famous brands at much higher purchase prices, in order to not lag behind and keep attracting customers to their regular stores, situated in often dull and monotonous shopping centres. At the same time, they are under crossfire from the same famous brands, as these brands sell nearly similar gear at much lower prices in their own brand stores in the fashion outlets.

You could justifiably state that with their fashion outlet stores these famous brands are cannibalizing on their regular, independent retail sellers; these retail sellers can’t and won’t charge the same prices as the outlet stores do, except during the ever longer sales periods. On top of that they can’t offer the same shopping experience and the same collection of famous brands in a limited area as the fashion outlets can.

I really can’t tell exactly why these famous brands are cannibalizing on their existing distribution channels, but I presume that these brands are trying to integrate their total hierarchic structure, in order to save costs and earn even more money on their products. 

The fashion, shoewear and other gear of these famous brands are produced at absolute bottom prices in Eastern Europe or the Far East and these are subsequently distributed through their own network of brand stores and fashion outlets, thus minimizing the profits for third parties involved and maximizing their own profits. The independent retail distributors of these famous brands, with their unbranded stores and their collection containing other (competing) brands, feel probably like a hassle on the road to total integration of production and distribution, through brand stores, fashion outlets and flagship stores.

This makes the motives of the famous brands at least understandable, even though I don’t sympathize with them.

Many city councils and municipalities, however, had only €uro-signs in their eyes and showed no restraint at all when it came to the development of new shopping centres and shopping malls within their boundaries. Consequently, they grossly neglected the unhealthy development of their existing shopping centres and malls and focused exclusively on the new shopping centres-to-be. This led to the soaring shop vacancy, as well as the dullness and monotony of the existing shopping centres in the hearts of the cities, towns and neighbourhoods.

For many cities and municipalities nowadays, the development of a large fashion outlet feels like the holy grail of shopping, of which they hope that it puts their city finally on the map, where older and more common shopping malls failed to do so. That such fashion outlets blow the competition in the older shopping centres away in the process, does not bother them at all. 

This is the reason that there is currently a high-rising conflict between the owners of established shops in the centre of the Dutch city Assen and the council of this city, which plans to establish a new fashion outlet at the outskirts of Assen. Even though the city council of Assen reassures the regular shop owners that the Fashion Outlet Centre will “only” lead to a 5% loss of sales in the regular shopping centres, the shop owners know better and fear the worst (i.e. a loss in sales of at least 10 to 20%).

Personally, I sympathize with the regular shop owners in the city centres.
In the times that the shopping malls were developed and that they purchased their shops, they were often lured with stories about greatly developing, beautifully maintained and enduringly interesting shopping centres lying in the hearts of lively neighbourhoods, with extraordinary shops that would attract thousands of tourists from outside their cities and neighbourhoods. And with stories of enduring sales and profit growth.

Instead, they became the victims of the economic crisis, but also of flawed town planning and extremely poor shopping mall management, soaring parking fees and a soaring number of vacant shops, that drag down the shopping mall as a whole.

And as icing on the bitter cake, their customers are lured away by the tinsel and unspoken promises of the fashion outlets with their famous brand stores, their never-ending sales periods and their somewhat cheesy, but nevertheless attractive appearance.

No, it is not easy at all to be a successful, independent retailer in the 21st Century...

No comments:

Post a Comment