Why Outlet Stores Are a Big Boom for Unexpected Retailers

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Conventional retailers are increasingly deciding they don’t want to let TJX and its off-price brethren have all the close-out fun

Way back in the bad old days of retailing, every store in the country had a bargain basement…or at least some sort of a close-out area where the outcasts and leftovers from the main selling area ended up. Over the generations, these areas gradually went away, replaced by a whole new channel of distribution called off-price where overruns, never-runs and the runts of the litter were disposed of. It has gone on to become a big business — a very big business — and a serious competitor to legacy retailing brands. Which is why many of them, especially in the home space, are taking another look at the outlet business and moving aggressively to open both freestanding locations and in-store areas where they can address the American consumer’s wanton lust for a bargain…real or perceived.

More for Less

In the home furnishings area, retailers like RH, Williams Sonoma and Best Buy all have initiatives to start or expand their outlet operations. Other brands like Dick’s Sporting Goods and Lowe’s are also exploring the outlet model and, in one of the more ironic twists in a business full of them, Amazon is said to be considering physical stores to dispose of its returned, damaged and otherwise online-phobic flotsam and jetsam.

[callout]Conventional retailing companies are looking to the outlet business as a new area of expansion. Just as significant is that outlets are physical locations, not online, providing companies with a way to utilize existing leased spaces and take advantage of the glut in available retail space.[/callout]

Outlets vs. Off-Price

 What needs to be clear is that these outlet stores are different from the booming off-price model which traditionally involves buying directly from suppliers and vendors. These new outlets are owned and operated by the retail brands themselves and are selling leftover goods, for the most part. Which is not to say both channels aren’t ordering new goods to fill their shelves, sometimes developing dedicated product that will have never seen the light of day of the main floor.

These branded outlets are also different than the ubiquitous outlet centers that seem to ring virtually every major metropolitan area in the country. While some retailers may be located in some of these, they tend to be single brand, vertical players like Ralph Lauren, Coach or Nike. Far more prevalent are suppliers who primarily sell to third-party multi-brand retailers even if they do operate some of their own stores, like Michael Kors, Kate Spade and Tommy Hilfiger

These new retail-branded outlets are also different than the off-price operations that most department stores are now relying on, including Nordstrom Rack, Saks Off Fifth Avenue and Macy’s Backstage. While these stores may contain some close-out goods from the main store, they are mostly populated by merchandise bought specifically for them, much like the TJX and other off-price nameplates.

But there are distinctions among all these retail models and there’s no doubt conventional retailing companies are looking to the outlet business as a new area of expansion. Just as significant is that outlets are physical locations, not online, providing companies with a way to utilize existing leased spaces and take advantage of the glut in available retail space. It’s all a little confusing, sure, but these new retail creatures represent the latest variation on the theme. Ultimately, I guess you can say the retailing business is nothing if not blurry.

New Outlet Outliers

 The lineup of retailing companies stepping up their outlet efforts is growing by the day. Here’s a round-up of some of the more prominent names that are finding outlets good for their body and soul…not to mention their back rooms and bottom lines:

  •  Dick’s Sporting Goods
    The big national chain has two separate models in the outlet space, Overtime by Dick’s Sporting Goods and Dick’s Sporting Goods Warehouse. The former is a new initiative announced last year while the latter has been in existence for several years. Amongst its total of about 730 stores, outlets number more than a dozen locations and Dick’s seems to be opening at least one every month this year so far.
  • Best Buy
    With the reopening of a shuttered conventional location in Brockton, MA next month, the consumer electronics chain will have 15 outlet centers in operation. That’s up from 11 last year and none just a few years ago. The Westgate Mall, in announcing the new store, said “shoppers will find deeply discounted prices on appliances, TVs, computers and more with regularly updated inventory.\” 
  • Williams Sonoma
    The multi-branded home goods company has been opening outlet locations across all its nameplates for years. The newest is a West Elm location in Brooklyn’s Industry City complex, which is at least the sixth it will operate for that brand. Its namesake kitchen wares banner has at least nine locations according to the outletbound.com website while there are 19 for Pottery Barn. One such store, in Arlington, TX, measures in at 52,000-square-feet, four times the size of a regular Pottery Barn and also serves as an outlet for its PB Teens and PB Kids brands, as well as West Elm.
  • RH
    Even as it opens ever more elaborate large-format galleries and expands into new areas like hospitality, residential, hotels and even cruise ships, the upscale home furnishings chain has been building out its outlet side. It now operates 36 such stores and some are brand-new free-standing locations, not part of existing outlet centers.
  • Lowe’s
    The big home improvement chain got into the outlet business when it opened its first one in November of 2019 in a former Orchard Hardware — a since shuttered brand it once owned — in Monrovia, CA. Since then, it has opened two more, including its newest in Irving, TX in January in a former conventional store building. Heavy on major appliances, the stores are often referred to as “dent and scratch” locations in press reports.
  • Amazon
    Showing that the lines of retailing are forever changed, Bloomberg recently reported that Amazon had been considering opening outlet stores to unload returned goods, primarily home furnishings and electronics. While the ecommerce giant declined to comment for our story, it quoted someone familiar with the plan who said, “It’s a way to be able to clean out warehouses and get through inventory without having to destroy it.” Bloomberg sources said the plan had been put on hold as Amazon focused on pandemic-related issues and other physical store formats.

Out, Damned Store, Out

 All of this activity only serves to confirm the obvious: physical retailing is far from dead and in fact with enormous amounts of empty space and motivated landlords, the opportunities for companies to try new formats, test different concepts and expand into adjacent markets have never been better.

The common denominator seems to be that all of these formats are focused on giving the customer a good deal. This surge in new outlets, combined with the ongoing expansions of mainstream off-price chains, dollar stores and deep discount grocers points to the American shoppers’ ongoing rush to the bottom of the pricing food chain.

Was it Winston Churchill or Ben Franklin or Confucius who said, “Never underestimate the appeal of a bargain to the American shopper?” Then again, maybe it was Sam Walton.

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