The (big) business of off-price and luxury outlets

Hoping to get your hands on some discounted end-of-season runway shows at one of Prada’s glitzy flagship outposts? Think again. The Milan-based fashion brand announced earlier this year that it would be banning markdown items from its carefully curated stores as of now, in a bid to boost its image and profit margins. What will happen to expensive feathered dresses, often embellished outerwear, and logo handbags that don’t sell for full price during the appropriate season? They go to the brand’s factory outlets.

You won’t find outlet stores listed on Prada’s website, but that doesn’t mean they don’t exist. They do. Prada outlets dot the map, from its SPACE location on the outskirts of Florence to one just a short distance from the bustling streets of New York. In many cases, Prada’s low-cost stores are found in designer outlets alongside Alexander McQueen, Balenciaga, Bottega Veneta, Christian Dior, Fendi, Givenchy, Gucci, Loewe, Loro Piana, Saint Laurent and Valentino, and their own respective markdowns.

Thanks to these outposts, these brands – among others – are able to increase their income columns at the end of each fiscal year with figures directly related to the money they make rather discreetly from the off-season, marked and/or clothing and accessories designed for outlet stores.

How much oomph do high fashion brand outlets pack, exactly? It’s hard to say, largely because few of these companies – which typically operated under tight control of production and distribution in an effort to position themselves as exclusive and/or luxurious, and thus sell their wares at luxury – act as open books on these efforts.

In fact, off-price efforts (and point-of-sale products, if any) are rarely topics discussed by industry participants. For example, “Neither Kering, LVMH, nor Richemont – the world’s largest luxury companies – publicly report the value of ‘off-price’ or discounted sales in their annual reports.” the Financial Times said end of 2016.

LVMH – whose brands Celine, Dior, Fendi, Givenchy and Kenzo are among those with outposts in the factory outlet village of Bicester in Oxford – makes only passing mention of sales at the outlets. factory in its annual report, noting that “Louis Vuitton is the only brand in the world never to hold sales [to the public] or sell at points of sale. Kering is a little more communicative, revealing in its annual report that one of the “six sales formats” in its wholesale distribution model is “points of sale”. These points of sale represent 12% of wholesale sales, after single-brand stores (30%), specialized stores (22%) and department stores (20%), and ahead of “online (10%)” and airport stores (6%). percent).

Kering further notes in its 2018 annual report that in pursuit of an effort “to simplify structures and processes and generate additional synergies across functions” for its Gucci brand, it has created “a new organizational structure… based on four pillars”. Among these pillars? In addition to Merchandising & Global Markets, Brand & Customer Engagement, and Digital Business & Innovation… is Indirect Channels, Exitand travel retail.

Yet the norm is that luxury brands have “physically removed their outlets from [their] downtown stores, according to Deloitte 2018 Global Powers of Luxury Goods Report, with the aim of maintaining their meticulously maintained images. (While Dior, for example, holds sales every year to offload unsold fashion items, these take place “only twice a year and for very short periods of time, and in separate rented locations,” according to Deloitte. , “never in their flagship store on Avenue Montaigne.”)

While almost all luxury brands have remained relatively separate and uniformly discreet about their off-price operations, if the growing revenues of a handful of high-end shopping centers – such as Bicester Village just outside London, La Vallée Village in Paris or Woodbury Commons, which is located about an hour and a half from Manhattan – are any indication it’s a lucrative side hustle, and that they’re not likely to stop anytime soon.

Value Retail, for example – which owns and operates 11 global outlet centers, such as Bicester Village, with store directories that rival those of Rodeo Drive – revealed that it “delivered double-digit gross sales growth every year” between its launch in 1995 until 2018. The private London-based group brought a report More than $3 billion for 2017. That same year, the group, which claims to have “partnered” with brands to sell their “excess brand inventory”, revealed that it brought in around $5,215 per square foot. in its villages, some of which are a sprawling 25,000 square feet or more.

Overall, these off-price outlets are “working well,” said Hessam Nadji, president and CEO of real estate brokerage Marcus & Millichap Inc. the wall street journal. “Supported by shoppers looking for discounted products, outlet center owners are showing strong results in an otherwise bleak retail environment,” the publication revealed last spring. But these are not only any discount buyers.

Bain & Co. claimed in its Fall/Winter 2018 Global Luxury Goods Market Study, which found that “off-price sales” represent “about one-third of the luxury products market,” approaching $35 billion globally, up 23% from 2013. The market consultancy only expects this segment to continue growing, with “the development of distribution channels, such as discount outlets,” helping to drive the personal luxury goods market to $361. – 412 billion dollars in 2025.

In other words, even luxury consumers are not immune to the allure of discounted products, and given the potential revenue a brand can generate, while maintaining its image of exclusivity, at least when it comes to its main outposts, luxury players are also not swearing about the outlets. They might just not advertise it on their websites or hold in-house sales.

Luxury is all about image, after all.