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Friday, September 11, 2009

MSNBC: Are outlet malls for suckers?

Factory stores' price markdowns are alluring, but those 'deals' are often less than they seem. Getting your money's worth takes a little legwork.

By MP Dunleavey @ MSN Money

Americans have a long-standing love affair with bargains. Look no further than the warehouse clubs, discount stores and outlet malls that carpet the country.

But in a persuasive new book, "Cheap: The High Cost of Discount Culture," Ellen Ruppel Shell, a correspondent for The Atlantic, describes the web of marketing and manipulation that discount retailers use to drain cash from your wallet.

Outlet malls are among the worst offenders, Shell says, with their glittering promises of "the very best quality, at the very lowest prices."

Ironically, she asserts, they offer neither: Outlet malls are like fun houses that play on shoppers' distorted perceptions of luxury, value and price.

"People are not questioning the quality at these designer outlets; they're not questioning the 'low prices,' so it's a bonanza for retailers," Shell said in a recent interview.

To truly get your money's worth, it pays to learn more about the outlet game.

20% off? I'll take it!

You don't have to tell me about the perils of outlet malls. I live about an hour and a half from one of the biggest: the famed Woodbury Common, home to 220 "premium" outlet stores.

On my first trip there, about 10 years ago, I was single and shopping under the influence of the "Sex and the City" culture. I loved it.

My second trip, about a year and a half ago, left me baffled.

Where were the designer deals? The steals that made you gasp and race to the cash register? Every price seemed steep, from the Coach bags to the DKNY coatsto the $60 Banana Republic jeans that I bullied my husband into buying.

"I've never spent $60 on jeans in my life," he said, fuming.

"Well, they look great on you, and they're marked down from $75. And, for Pete's sake, we've come all this way," I argued back.

Little did I know, I was just another sucker who had fallen for some classic tricks from the outlet mall handbook.

The outlet trap

What makes people shop? Economists, marketers and psychologists have written volumes on this topic, and outlet malls have used that knowledge for their own gain. Shell says the outlet allure is based on two key factors:

1. Location. You might assume that outlet malls are situated far from urban centers because they need the space. But that inconvenience is also designed to create in shoppers' minds what economists call the "sunk cost fallacy."

The 55 million people shopping at outlet malls each year, Shell says, drive a total distance that "equals 440,000 circumnavigations of the globe."

The extra time and resources sunk into the trip encourage a ready-to-spend mind-set even before your car is parked. "Psychologically, all this (effort) must be repaid in terms of purchases made," Shell writes.

That's how "Well, we drove all this way" turns into "Maybe I need a new toaster oven after all."

2. Value confusion. Not so long ago, factory outlet stores primarily sold the real McCoy, Shell says: off-season or slightly damaged -- but still genuine -- designer merchandise at reduced prices.

Today, the merchandise at most outlet mall stores is a mix of actual designer items and products created specifically for outlet stores and outlet shoppers. The system is deceptive because it preys upon people's inability to identify the true quality that marks a designer item.

Thus outlet shoppers put their faith in items that carry a certain luxury brand name, without understanding whether the items in hand are worth the money they're paying.

This value confusion sets the stage for how outlet malls snare your business.

Seductive marketing

People are so seduced by the words "sale" and "discount," according to a study detailed in "Cheap," that they will buy an item that's "on sale" even when they know that the same thing is selling for less elsewhere.

It's not the asking price that gets us to spend, researchers believe, but the amount "saved."

MRIs of shoppers' brains have shown that spending triggers discomfort. Discounting helps alleviate that, Shell says, "so we associate more with the money we saved than the money we spent."

Outlet malls exploit shoppers' discount cravings by setting artificially high reference prices, then marking them down. At one jewelry store, for example, Shell examined a necklace with an asking price of more than $3,000 and a discount price of $800. Its actual value: about $300.

Few of the "original" prices you see in outlet stores are real, Shell says. The sleight of hand is designed to create a discount illusion so powerful that it drives you to buy.

What you're buying is yet another issue.

Is what you bought what you thought?

To be sure, outlet malls wouldn't survive if they didn't offer some real bargains. Many companies still sell off-season goods, seconds (less-than-perfect items) or refurbished merchandise that offer both quality and good prices.

But many retailers (Shell identifies Coach, Ann Taylor, Brooks Brothers, Donna Karan, The North Face and others) supplement that traditional outlet fare with made-for-the-outlet-mall products. Shell says you could be paying retail price for a lower-quality product, thinking you're getting a deal on a designer brand.

Are those products inferior, as Shell claims? A 2006 survey of 6,000 outlet mall shoppers by Consumer Reports found that 77% said the quality of the outlet product was just as good as what they had bought at full-price stores. But a closer inspection by Consumer Reports analysts found that some outlet products were constructed of lower-quality materials.

Companies say their outlet lines are still good values:

  • A Coach spokeswoman, Andrea Resnick, said the company does manufacture a separate outlet line, but she insisted that "it's the same excellent Coach quality." She acknowledged that the styles are often different.

  • A spokesperson for Brooks Brothers was more matter-of-fact about the difference between the full-price line and the factory outlet line, called 346 (after the street address of the company's flagship store on Madison Avenue). The 346 line of clothing is a different make and uses different materials, some of which are less expensive. The company says it considers its outlet brand "better" and its classic Brooks Brothers line "best."

  • "The North Face outlet stores offer the same premier, authentic and technical products that we create for our wholesale business and retail stores," says Lindsay Rice, a vice president of consumer sales. Only 5% of North Face outlet goods are created from surplus materials or previous season designs, he says; 95% are from the retail/wholesale channels.

'Careful to protect their brands'

Outlet stores and malls have a long history of satisfied customers, says Linda Humphers, the editor-in-chief of Value Retail News, a trade publication for the outlet industry. "And retailers are very careful to protect their brands," she says.

Humphers disputes Shell's assertion that outlet retailers use artificially high reference prices to make discounts look steeper and said Shell's tale about the $3,000 necklace was unusual. "No outlet mall developer would deny that there are clunkers in every bunch," Humphers says. "But there are lease requirements (in outlet malls) for 'truth in discounting.' . . .

"I don't think outlets manipulate anything. It's insulting to the consumer to say that they don't know what they're buying."

Getting a real deal

How do you get your money's worth at the outlets?

  • Pay attention to details. Consumer Reports compared outlet items with retail ones and found clear differences in materials (cotton versus wool, for example), stitching and design. You're more likely to get good value if you know what you're looking for.

  • If you don't know, ask. Humphers says that outlet mall sales staffs can tell you whether that Gucci wallet or North Face backpack was designed for the outlet market or the retail market. "Some tags will indicate that it's a factory line," she says, like the Brooks Brothers 346 label. But retailers use various systems, and some don't flag outlet products. Again, it pays to ask.

  • Research prices before you go. One way to get around the reference pricing game is to research beforehand what the going price is for those jeans or set of pots and pans you want.

  • Deepen the discount. For truly rock-bottom prices, do what you'd do with any store: Shop at holiday sale times, search online for coupons (many outlets offer them) and ask for AAA or senior discounts, if they apply.

  • Check the clearance racks. Most retailers have clearance sections in their retail stores or on their Web sites. The most recent "state of the industry" report (.pdf file) by Retail Value News includes an informal survey of 170 companies operating nearly 6,000 outlet stores. The average discount at the outlet stores was 37%. It's not hard to do better.

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