Economy

5 Ways Outlet Malls Aren't a Good Deal and Trick You Into Buying Crap

Retailers play head games with consumers to get them to spend.

Photo Credit: Filipe Frazao/Shutterstock.com

Outlet stores have been around since the Depression era when they were often located right next to manufacturing plants and known as “factory stores.” These stores were where consumers, often factory employees, could bypass the middle man and get deep discounts. If a product was blemished, dented or defective in any way the deal was that much better.

Eventually, factory stores morphed into outlet stores, and by the 1970s, real estate developers got the notion to create whole retail centers around these outlet stores, and thus the outlet mall was born.

Outlet malls proliferated through the 1980s and '90s and were slickly marketed as destination shopping venues, to which people would travel for hours — by car, train and sometimes even airplane — to find the best bargains. Meanwhile, consumer tastes were changing as people became more conscious of branded apparel and goods. So outlet malls became the places to go for upscale products like Coach bags, Timberland boots and Wolford hosiery on a working-class budget.

As the popularity and number of outlet malls grew, manufacturers couldn’t keep them brimming with overstock items and “seconds” (slightly defective merchandise). These manufacturers became better at forecasting consumer demand and their factories became automated and efficient, mitigating the dual problems of production overruns and product defects. It became harder for the corporations that sold their wares in outlet stores to sell their products at steep enough markdowns to beat out their twin products marketed at conventional retailers.

So, if outlet stores were no longer in the business of selling bargains, they had to create the illusion they were. And they became very good at it.

Over the past 20 years, traditional shopping malls across America have struggled and many have shut down, while outlet malls have flourished, even during the Great Recession. From 2006 through 2012, the amount of money American shoppers spent at outlet malls increased by 41%, while spending at conventional malls grew by only 9%. There are now some 500 outlet malls in the United States, double the number there were two decades ago, and about 50 more are built each year.

But here’s a peek behind the curtain: Outlet malls play psychological tricks on consumers to fool them into believing they are getting great deals when they really aren’t. When you see past the siren song of supposed bargains, you’ll find outlet mall prices are often no lower than those of other retailers. You’ll also find that many outlet mall products are of dubious quality, sometimes nothing more than cheap knockoffs of higher-end products produced by the very same manufacturers.

Here are some of the tricks outlet malls use to lure shoppers, and continue to cheapen our lives.

1. Creating the illusion of inconvenience to keep people coming and staying for longer. Outlet malls were originally built out in the boondocks for four reasons: First, land is much cheaper outside of urban centers. Second, it’s good for corporations when their brand’s outlet stores are far from where the brands sell at higher prices. Third, it creates the illusion that you can’t find these bargains just anywhere; you’ve got to go to see the manufacturer directly.

The fourth reason is the most insidious. Outlet malls are just far enough away from urban areas that shopping at them must become a daylong event. Actually, outlet malls are, as a rule, quite accessible to city dwellers. Woodbury Commons, for example, might be in rural Orange County, NY, but it’s still only a little more than an hour’s drive from midtown Manhattan. But when people have invested an hour or more of travel to an outlet mall, they feel compelled to stay for a while and buy more items. One recent study found that consumers spend nearly 80% more at outlet malls than they do at nearby retail malls.

2. Sometimes the products aren’t bargains; they’re just cheap. The dirty little secret of the retail industry is that nearly all of the products sold at outlet malls are made expressly for those stores and only those stores, according to retail analyst Marshal Cohen.

Unfortunately, these products are often of lower quality than their brandmates sold at a conventional retailers. Items may appear to be the same design and quality to the untrained eye, but they are not. Often corporations treat their outlet stores and the products they sell there as a separate business. So, while consumers might think they’re getting top-notch products at deep discounts, they’re often getting cheap knockoffs, produced by the same corporation.

In 2012, a staff member of Brandculture, a corporate branding group, had a bone to pick with Coach and took it up on the firm’s blog. While Coach acknowledges that it makes products specifically for its outlet stores, it claims its outlet store products are of the same high quality it sells elsewhere. But the Brandculture staff member begged to differ. The staffer had purchased a bag from a Coach outlet in Loveland, CO. Two weeks later, the bag’s turnlock fell off, making it impossible to secure the bag’s contents. Wanting either to return or exchange the bag, the staffer took it to a conventional Coach retail outlet. The salesperson immediately recognized the item as a "factory bag" and explained that they would never sell such a product at a “full price” store.

"To further amplify the point, she pointed out the Coach equivalent of the Scarlet Letter, a tell-tale 'FS' in the serial number designating 'factory style.' Accordingly, she would not be able to exchange the bag or issue a refund—even though we presented our original sales receipt.​"​

The only choices left for the Brandculture staffer were to incur the costs of sending the defective bag to a customer service center in Florida (to determine if it could be repaired), or make a long trek to a Coach factory store to return it. The closest Coach outlet was 50 miles away.

“Returning an item to a Coach factory store is inconvenient...by design,” the staffer wrote.

3. Outlet mall items aren’t always so cheap. When shoppers see advertisements that say “50% Off!” “Prices Slashed” or “Clearance,” they begin to salivate. As a nation of conspicuous consumers, we have a Pavlovian response to these visual cues. But while we’re fixated on buying at discount, we’re often not seeing the real economics behind retail sales.

Retailers plant numbers called “reference prices” in our minds, which convince us of a product’s worth—fictional or not — and then show us sale prices that are much lower. These reference prices are purposefully inflated, so that when we see the much smaller number we’re tricked into thinking we’re getting a great deal. So if an ad says a blender is 50% off the retail price, it may be just 10% less than what it sells for elsewhere — you almost never see products sell for near their suggested retail prices.

Everything for sale is continuously on sale, whether at a conventional retail store or an outlet mall. But the outlet mall stores seem to have an advantage in seducing consumers, because every other store around them is also screaming “sale!” History shows consumers flock to where they think the most bargains are.

4. Not all outlet stores are outlet stores.Seeing the growth of outlet malls versus traditional malls, many retailers are just hanging their shingles out where the money is flowing. So, there’s no difference between Harry & David stores whether they’re at your local mall or an outlet mall, according to Consumer Reports.

While the definition of an outlet store can be soft, what makes a mall an outlet mall? The retail industry calls any retail center where half of the stores are owned by the brand manufacturer an outlet mall (they like the term “outlet center”).

Retail industry analysts say there are plenty of stores at these outlet centers that really aren’t discount stores, they’re just there to confuse consumers into thinking they are. But the developers of some outlet malls, trying to preserve the reputation of their venues, prepare leases for retailers with language that stipulates they must sell 90% of their goods at a discount of 30% or more. However, as many of the products are manufactured specifically for the outlet retailer, these discounts have nothing to do with value to the consumer, but with the illusion of the outlet mall as a destination for bargains.

5. The coupon booklets make you spend more. Coupon booklets are popular among outlet mall shoppers. Selling between $5 and $8, they’re loaded with discounts and “free gifts” to go with purchases. But the problem with these booklets is that you must spend a small fortune to get these deals, if you can, in fact, get them.

Many coupon discounts kick in only after a certain price, say $100, is met and even then the discounts aren’t really that significant, often another 10% or so. They’re designed to entice the consumer who buys one item below the coupon’s savings threshold to buy another item they wouldn’t otherwise buy. The “free gifts” the booklets advertise are no bargain, either. They’re often cheap doodads, product samples, or other near worthless junk thrown in with a purchase.

You’ll also find that not every store — particularly the more popular ones — even bothers to participate in the coupon booklet. Worse yet, read the fine print on many of these coupons and you’ll find that many only discount items that are not already on sale.

And as you know, everything at the outlet mall is continuously on sale.

Cliff Weathers is a former senior editor at AlterNet and served as a deputy editor at Consumer Reports. Twitter @cliffweathers.

 

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