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Outlet invasion: Upscale stores head downmarket

Two headless mannequins are seen near Nordstrom signage at its store.

The traditional image of Nordstrom, Saks and Bloomingdale's is that of big, anchor stores in wealthier malls. Pianos, brown bags, fancy cafes and upscale clientele come to mind. But a recent report from Bloomberg has found a major shift: High-end department store chains like Saks and Nordstrom now have the majority of their stores in outlet malls.

Outlet locations offer up a lot to Saks, Nordstrom and Bloomingdale's, says Nancy Koehn from the Harvard Business School. To some extent, they help expand the customer base of the brand. In addition, though, Koehn points out that there are also some hidden business bonuses.

"They offer a power of scale," says Koehn. These national store brands buy lots and lots of clothes, and having a place to move slower-selling merchandise helps them turn their product over quicker.

Some analysts worry that outlet sales can also eat into the profits of the flagship stores.

But remember, says Koehn, "most of these outlets are located at least 60 miles from a Nordstrom or Saks store. So it's a lot of driving, a lot of time, a lot of planning and inconvenience for our hunting-gathering customer."

American shoppers, of course, are happy to make the trek if they think they are getting a deal: Hence the popularity of the mega outlet mall, where we can go and make a day of it.

"Even some of our high-end customers want the thrill of victory of grabbing the great bargain," says Koehn. "There is this whole new ethos about 'Look what I just got for 40 percent off.'"

With the revenue per square foot reaching 40 percent more than traditional stores, it looks like the outlet is here to stay.

According to Bloomberg, 13 of the 15 new Saks stores planned to open in the next two years will be outlets, while 17 Nordstrom Rack locations are looking to open by the end of 2013.

About the author

Nancy Koehn is a historian at the Harvard Business School.
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What is amazing is that once again "middle America" is taking over in places where they have no business - very literally. I personally refuse to buy from designers who have lowered themselves to Target, Kohl's, and, of course outlet stores.

Instead of focusing on the market they have upscale and luxury consumers -- they want to become gluttons and go more mainstream. As a New Yorker and an upscale, luxury consumer, I laugh at those who buy knock off and discount/outlet store "name brands". If you don't think those of us who own real Louis Vuitton or Chanel or YSL can't tell the fakes from real -- you are sadly mistaken. If you are trying to impress "us" - you won't. If you're trying to impress people in your small town that is your choice but you are only hurting the economy. Don't believe me? Then I suggest you read this article: http://www.narts.org/i4a/pages/index.cfm?pageid=3313 and find out who you are hurting!!

In the same light, outlet malls are merely discounted junk that the real stores couldn't unload. If something is worthwhile, it will NEVER make it to an outlet such as Off 5th. As others have pointed out, quality is much lower and very often they are not the same products carried in the main stores. Again, the only one you'll impress is yourself and your small town neighbors. Those in the know will know the difference a mile away.

And, as far as Ms. Koehn is concerned. I live in Manhattan (New York City). My closest outlet mall is Jersey Gardens in Elizabeth, NJ. Last time I checked, distance from door to door was about 20 miles. There is a premium outlet mall about 50 miles north of the city called Woodbury Commons and there are few on Long Island as well.

What ever happened to fact checking? Perhaps journalists have gone the same route as many Louis Vuitton bags out there. Fake and unreliable.

The " learned lady" is from the Ivory Tower. To have her spout of on retail is a disservice to objectivity. The Nordstrom Flagship store is 0.25 miles from the Nordstorm Rack in Seattle. Nordstrom Rack BUYS product for its doors, knock down goods to meet a price point and creates the illusion it is original product at a lower price, this happens in most such doors. Yes there are the original items from time to time. I am aghast at the " learned ladies " knowledge of this business.

I agree with the other posters, outlets generally sell lesser quality merchandise. I question whether Ms. Koehn has ever BEEN to an outlet mall. I agree with her premise that more people are shopping in cheaper places, but many people eschew outlets now because the merchandise is not good quality. Now a good story would be about vintage and resale shops. Or Craigslist. Craigslist is wonderful, I have had many great experiences buying and selling random items on craigslist and have met many nice people.

A glaring omission from the report was that retailer's with outlet stores, e.g., Banana Republic, Nordstrom and Brooks Brothers produce and sell much lower quality product, e.g, fast fashion, that was never sold in their flagship stores.

Let's take this one error at a time. "Outlet locations offer up a lot to Saks, Nordstrom ..." according to Nancy Koehn. I challenge you to find me one Nordstrom Rack in an outlet mall.

Ms. Koehn says, "most of these outlets are located at least 60 miles from a Nordstrom..." No, they're not. Many Nordstrom stores have a Nordstrom Rack located about five miles away.

"having a place to move slower-selling merchandise ..." is not the Nordstrom way. They will move merchandise to a Rack even if it is selling well.

This article would have been a lot better if you had just left Nordstrom out of it.

(Cross-posted in my blog.)

Distance of Nordsrrom Rack from the nearest main store....SIXTY miles? Not in the Bay Area! 1.3 miles apart in downtown San Francisco, 3.6 miles apart in Palo Alto, 5.2 miles in Colma, 4.4 and 10miles in San Jose, 15 miles in Pleasanton, etc. etc. Or take a look at Nordstrom's home towm of Seattle. 4.3 miles apart in Bellvue and just 0.7 miles in Southcenter. Doesn't anyone factcheck this stuff anymore? How many other inaccuracies do these people propagate?

I listened to this broadcast twice this afternoon out of sheer boredom since I was driving the Interstate in Nebraska. There was not one thing right about the entire story. Outlet Malls are not 60 miles from "town". Nobody would go there for a measly 40% off. You can get that at any regular sale. There was no mention of the fact that many chains (yes, even upscale ones) buy merchandise of lesser quality just to sell at outlets. Nothing about how they are a mecca for Asian tourists hungry for American goods. Nordstrom Rack has some good deals, Saks Off Fifth to some extent, Neiman's Last Call is a collection of junk that some buyer probably got fired over.
I know this was a story about the trend not the deals, but it really was a bit off target.

Sadly in the State or Oregon with Timberline Lodge, the Oregon Coast, the High Desert etc, the biggest tourist attraction is the Woodburn Factory Outlets about 30 miles South of Portland followed by the Grand Ronde Casino. What does that tell you about hunting and gathering Kai!

I hate to have to disillusion the lady but West Palm Beach is decidedly middle-class. She is thinking of Palm Beach.

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