Home » Why Outlet Malls Are Emerging As A Hotspot For Luxury Brands

Why Outlet Malls Are Emerging As A Hotspot For Luxury Brands

Luxury brands have a love-hate relationship with outlet stores and malls. Some eschew them entirely, such as Louis Vuitton, Hermès and Chanel. Others keep their outlets on the down-low, such as Prada and Gucci.

And some, like Coach and Ralph Lauren, grew overly dependent on the sugar jolt outlets gave them and pulled back because their discount image was giving the brand a bad name.

But since the pandemic as shoppers’ behavior changed, inflation skyrocketed and the supply chain crisis disrupted the flow of goods, luxury brands, including established and emerging ones, are taking a fresh look at outlets and finding they do indeed have a place in the luxury distribution ecosystem.

Outlets On The Rise

Since 2021, when inflation began to take hold, luxury outlet sales have climbed 35%, from $37 billion to $50 billion, making it the fastest-growing channel in the $387 billion (€362 billion) personal luxury goods market, according to Bain.

Admittedly, outlets are only a fraction of the size of the market’s dominant monobrand and online channels – 13% compared with 56% for monobrand/online combined which advanced 27%, from $171 billion to $217 billion in 2023. Both channels grew fast, but outlets grew faster.

This ignores the luxury travel retail channel, which was decimated by the pandemic. A more appropriate year for comparison in travel retail is 2019 and since then, travel retail lost ground, declining 14%, from $18 billion to $15 billion. Its share of the market also dropped from 6% to 4%.

Full disclosure: I’ve been uneasy about luxury brands showing up in discount environments, but then many luxury and near-luxury brands are adopting more mass than luxury marketing strategies. Few reach the exalted status of a Louis Vuitton, Hermès or Chanel.

And if they are a public company, these brands must meet investors’ insatiable demand for quarterly growth, so they can’t afford to sit back and let the customers come to them. They have to go out and chase customers.

Pain Points

Consumers want the pleasure of making a luxury purchase without the pain of paying the full list price. Prices overall are about 15% higher now than they were in 2021, though the Wall Street Journal suggests luxury goods prices have risen by orders of magnitude higher than the average inflation rate. As a result, consumers are adopting budget-stretching strategies, one of which is shopping at outlet malls.

In March, Placer.ai reports outlet mall traffic was up 11% from the previous year, slightly ahead of the 10% growth in both indoor malls and open-air shopping centers. And while outlet malls draw more lower-income shoppers than the other two – $74k versus $81k indoor malls and $88k outdoor – outlet malls appeal most to what Placer.ai calls “Promising Families,” young couples just settling down but on their way up in terms of incomes.

In particular, Gen-Z adults (aged 18 to 26 years) are forming shopping habits that they will carry forward into their prime earning years. A Bank of America survey among over 1,000 Gen-Zers found they are tightening their belts due to the rising cost of living and plan to keep their money-wise spending habits even as inflationary pressure lessens.

They are keen to achieve financial and career goals and know tradeoffs will be required, though sacrificing quality for value is not one of them. That puts outlet malls on their map as a destination of choice to find the best brands for the lowest prices.

Adapting To The New Luxury Landscape

“Coming out of Covid, the customer shops completely different than they did before,” observed Stephen Yalof, CEO of Tanger Outlets, one of the nation’s largest premium outlet malls with 38 outlet malls.

Yalof understands what customers want in a luxury outlet shopping experience, having worked 12 years for Ralph Lauren and six years as CEO of Simon Premium Outlets. He also knows what luxury brands need to attract the best customer prospects without threatening luxury brand status or reputation.

Tanger’s hit on bringing the experiential amenities more commonly found in open-air shopping centers to their outlets. And because outlet malls are destination centers typically set further out than typical malls and shopping centers – “in the middle of God’s country,” he said – it’s important to offer things for the whole family to do.

“We are taking back some space from merchandising and creating more of a lifestyle environment in our outlet centers because there’s always a car full of people who come to us,” he shared. For example, Tanger’s newly opened Nashville center has a Shake ShackSHAK -0.6%, Tailgate Brewery, and Red Bicycle Coffee location among other experiential offerings.

And because Tanger just acquired its first non-outlet open-air shopping mall and mixed-use center in Huntsville, AL, learnings from operating in that environment will circle back to its outlet operations.

Bridge Street Town Center, Huntsville, ALCOURTESY OF TANGER

First Point Of Contact

Yalof notes that more luxury and near-luxury brands, including emerging direct-to-consumer brands, are lining up to access its over 120 million shoppers nationwide. He hinted that a major French fashion house has signed a lease to open its first outlet with Tanger, but he makes a practice of not announcing until the store is open, three or so months from now.

“There are a lot of retailers that have been in business for a long time or direct-to-consumer companies that are new to the space that are discovering this channel because it is just another channel of distribution to clear excess inventory. With us they can turn product into cash,” he said.

The single biggest advantage of luxe brands opening outlets is that they can control the customer relationship, pricing and the brand’s upscale positioning, unlike in other liquidation platforms. And outlets are often where new consumers start their customer journey with the brand.

“Outlets get a brand out in front of the aspirational consumer, someone who may be an Ann Taylor customer but can trade up to Tory Burch in an outlet. It becomes their initial touchpoint with the brand, so the brands own that relationship when the customer comes into their ecosystem,” he maintains. “It makes loyal brand fans.”

Service To Customers

As long as luxury brands keep the long-term mission in mind, that is to use outlets to create loyal customers who will trade up as their incomes and wealth grow, and not provide sub-par customer service at the outlet level, they can navigate this discount channel effectively without threatening brand integrity.

And then there will always be loyal, affluent luxury customers who typically shop full-price but can’t resist a deal.

“A lot of brands are using outlets nowadays as just another channel of distribution to create customer relationships by doing what outlets were birthed to do: clear excess inventory,” he maintains. “So it might be last year’s styles, but it lasts and it’s still a classic.

“There is a luxury customer looking for the best quality and the best brands but sees that prices have gotten out of hand. Instead of trading down, brands can keep them in an environment where they can find product on sale every day so they are getting a classic, they’re getting quality and they’re getting a brand they love,” he concluded.

Source: Forbes