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How Outlet Malls Have Convinced Shoppers into Thinking They're Getting a Sweet Deal

Are America's 55 million outlet shoppers scoring great deals on expensive brandname products, or getting less than they're bargaining for?

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Factory outlets and Las Vegas both play into this natural human desire to "beat the house." And like the house, outlets are nearly impossible to beat, at least consistently. This is doubly true in "premium" luxury outlets where fantasy is a key marketing tool. While luxury is not apparent in these places, the very word instills the impression that it is hovering invisibly over the proceedings like a benevolent fairy godmother waving her magic wand.

Luxury has always been with us, but until recently luxury goods were by definition attainable only by the few. In her absorbing book Deluxe: How Luxury Lost its Luster , reporter Dana Thomas traces the luxury market back to eighteenth-century France where Marie Antoinette "overran her annual clothing budget of $3.6 million by buying gowns encrusted with sapphires, diamonds, silver and gold . . . " Clothing designed and made for royalty and its retinue was in those days so fabulous and fragile that packing it for travel was a job in itself. Louis Vuitton, a farmer's son, walked from his home in the Jura mountains in eastern France to Paris to apprentice himself to a trunk maker, where he learned to build and pack trunks for the world's most discriminating clientele. Eventually, Vuitton had his own business, for which his son Georges designed the distinctive interlocking LV logo, thereby launching the phenomenon of luxury brands.

The rise of Louis Vuitton is similar to that of many luxury brands such as Dior (which Vuitton now owns) and Gucci. All of these began as family-owned workshops specializing in one or two items and serving a small and exclusive clientele. This pattern changed in the 1960s when Yves Saint Laurent, a Dior assistant at the time, introduced a lower-priced ready-to-wear line and a selection of fragrances and accessories affordable to a wide range of consumers. "From then on," Thomas writes, "luxury was no longer simply about creating the finest things money could buy. It was about making money, a lot of money."

Coach was at the cutting edge of this trend. Founded in 1941, the company started as a small leather workshop where craftsmen tooled wallets and belts for sale by major retailers. In 1946, Miles Cahn, son of one of the firm's investors, joined the company fresh out of the army. Cahn didn't know much about leather goods, but he was a natural businessman. Among his innovations was using leather treated in the manner commonly used in the making of baseball gloves to develop softness and patina with wear.

Eventually he bought the company and, at his wife Lillian's suggestion, began making a variety of women's handbags to supplement the factory's low-margin wallet business. Sold under the brand name Coach, the bags were fashioned from sturdy cowhide, the grain and seams of which were deliberately kept visible, a notable improvement on the leather-pasted-over-cardboard technique used by most mass-market manufacturers of the time. Cahn built his bag business into a $20 million company and sold it to the Sara Lee Corporation in 1985. Cheesecake giant Sara Lee repositioned Coach as "affordable luxury," an increasingly popular marketing slogan as brands took on a significance that eclipsed the stores selling them. In 2000, Coach broke away from Sara Lee and developed a collection of wallets, purses, and bags in both leather and canvas. These "signature" items were branded with the distinctive C logo set in a checkerboard print, and many were hot sellers. The company opened new stores in North America and Asia (the European market was considered too competitive), and outsourced most of its manufacturing to China and other developing countries.

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