Are you sure you’re saving at outlet stores?

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Editor’s Note: This story originally appeared on Live on the cheap.

With the holiday season approaching, it’s a great time to review what we’re really getting at the outlets. This is not intended to discourage people from shopping at outlets; it’s just to advise and make us better buyers.

All in all, you can save money at a factory outlet. The same principles that apply to regular purchases apply at an outlet store. You need to know what you are buying and how much it should cost.

Once upon a time, when you went to a factory outlet, you received factory overruns, unsold items, out of season items, and damaged merchandise that once hung in the retail store. Shopping at the outlet was a risky proposition.

Shelves sometimes held only one or two items. All labels were clearly marked, with multiple price stickers superimposed with progressively lower prices. Sometimes clothing labels were cut off to indicate that they were outlet products.

Most major retailers had a few factory outlets scattered across the country. Many were located far from metropolitan areas, often in almost unmarked and not so glamorous malls.

These points of sale were deliberately placed in isolated locations so as not to compete with retail stores. Despite the almost run-down quality of some of these stores, you really do have a $60 jacket that once hung on a rack in the retail store for $20.

Somewhere along the line, everything changed.

Modern factory outlets

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Computerized inventory management has helped retailers better manage their inventory. This reduced the amount of excess inventory that would end up being sold at outlets.

Retailers realized there was a market for their brands at a lower price. These days, retailers have multiple “outlet” stores in every major metropolitan area in the United States and even overseas, so they need to stock the shelves with something.

Where does the factory outlet merchandise come from?

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One source is referred to as factory-produced goods. Factory Outlets are stocked with products made specifically for Factory Outlets.

Retailers make lower-cost, lower-quality imitations of their own full-price merchandise using different fabrics, stitching, buttons, and zippers.

Another type of outlet merchandise is private label. These are manufactured goods with the retailer’s name on the label, but you will never see them in the full price retail store. Again, the quality is lower, and that’s why it costs less.

Four members of Congress who asked the Federal Trade Commission to investigate said that “more than 85%” of all outlet goods fall into these two categories.

Most people don’t realize this. You think you’re getting a good deal on full price merchandise when in reality you’re getting an inferior counterfeit.

Some stores happily admit what they are selling. Neiman Marcus Last Call Studio is upfront about selling almost entirely factory-made and private-label products.

How much are we saving?

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When you look at an outlet store price tag, what does that mean? What does price “compared to” really mean? How much money are we really saving?

To some extent, it depends on where you live, as some states have laws on what can appear on a price tag.

In reality, items may never have been sold at manufacturer’s suggested retail price, “compared” price, suggested retail price, etc.

The Marshalls and TJ Maxx stores – both owned by the same company – are actually close to what a factory outlet used to be. They offer designer items at discounted prices, but with over 2,100 stores, they have to sell other merchandise as well.

The company says “We take advantage of a wide variety of opportunities, which can include department store cancellations, a manufacturer making too much product, or a closeout deal when a supplier wants to release merchandise at the end of a season.”

Additionally, “we also have merchandise made for us to bring you great fashion and quality at an amazing price.”

A word about “outlet” malls

Tanger Outlet shopping center.
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A mall is a shopping center in which most of the individual tenants are owner-operated outlets. This means that some of the stores in a mall are actually regular retail stores.

When a mall is under development, developers require tenants through their leases to sell a certain percentage of merchandise at a discount to retail store prices. This means that in some factory outlets, only part of the merchandise is sold at a reduced price.

How to get a real deal

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  • Understand what you are buying. Be aware that the product at the point of sale may not be of the same quality as the merchandise at the full price retail store. Visit a full-price store before the point of sale to examine the quality of full-price merchandise.
  • Know how much things cost. Visit a full-price store before the point of sale to check prices. Do not rely on labels on factory outlet merchandise. You may save some money, but the MSRP on the label is only an estimate.
  • Shop at discounters, but be aware they also sell items made for the factory.
  • Be patient and shop at traditional retailers. Shop during holidays, closeouts and end-of-season sales. When you’re on sale, use store coupons and discounted gift cards. You can save as much or more than at the point of sale.
  • Subscribe to retailer newsletters. Sign up for retailer emails to participate in regular sales and flash sales. Set up a secondary email address so it doesn’t clutter up your regular email.
  • Shop Builder Flash Sales at Beyond the Rack, Rue La La, Gilt, Zulily and more.
  • Consider buying fewer clothes and buy better quality items on sale. Take care of them so they last longer.
  • Shop at resale stores and high-end thrift stores. I bought Ralph Lauren pants with the tags still in a thrift store.

Other ways to save on purchases

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  • Check the retailer’s website for current sales before you go.
  • Join the loyalty programs of your favorite stores to receive special coupons and sales information.
  • Most malls offer a free coupon book. Download it before you go so you don’t have to find the Visitor Center.
  • If you’re going to Oregon, Alaska, Delaware, Montana, or New Hampshire, leave room in your suitcase as they don’t have state sales tax, although there may be municipal sales taxes in Alaska. I bought big-ticket items like Bose headphones, my current laptop, and clothes in Oregon. Depending on your local sales tax, you save 6% to 10%, and more if you make a sale.

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