In 2013, Ken Gunn Consulting identified 6,755 brands operating in the European outlet industry – in 2018 there were 7,916 brands, an increase of 17%. During the same period, the number of occupied outlet stores rose by 26% to 16,768 stores.
Every brand has a different business reason for maintaining its outlet channel however, there are a number of common benefits:
Customers. For many, especially luxury brands, outlet centres open the door to an entirely new set of shoppers who otherwise wouldn’t shop the full price stores.
Margins. Outlets are not simply about overstock and returns from full price. Such product is important to create interest, width, freshness and variety but should not be the main focus of merchandise. By removing such elements quickly from full price channels to outlet, full price can be kept clean and focussed in terms of their offer and seasonality.
Quality Environment. In the last decade, retailers have greatly improved store concepts and environments. Good quality outlet stores are as close to full price concepts as possible as it is vital to avoid brand degradation.
Reduced Off Price Reliance. Outlets reduce 'brand degradation' by limiting clearance through off price channels such as TK Maxx or Secret Sales. Outlet allows far greater control of the brand’s image, price or positioning and often the location of where the goods will be sold.
New Market Entry. Retailers can soft test entry into new markets using outlet at much reduced risk compared to full price locations.
Financial Investment and Profitability. Outlets often have lower rents, fewer staff and smaller capital expenditures than full price channels, resulting in EBITDA that exceeds their full price locations by an average of 500 to 700 basis points.
Over 40 years, the outlet distribution channel has transformed from it’s origin as a way to clear excess and secondary stock without degrading the brand or diluting full price channels to an opportunity for retailers to drive volume and high margin sales in a brand protecting and enhancing environment.
If you would like to know more, please contact ken@kengunn.co.uk
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