Outlet Stores & Deceptive Pricing

When I was young, outlets were places where you could get previous seasons’ stock at heavily discounted prices. They were a smart way to shop. Today, that’s no longer the case and outlets often rely on questionable marketing practices. ?

Outlets started as a sensible business strategy. Every clothing company has stuff that they can’t sell, so they have to figure out what to do with it. Many put these items in remote areas for savvy shoppers who are willing to drive a bit for discounted stock.

But over time, outlets became something of a drug for companies with lagging profits. Outlets generated a lot of short-term gain, which was a boon for companies that had to meet quarterly earning goals.

For instance, when Julius Garfinckel & Co owned Brooks Brothers in the 1970s, the company had zero outlets. After it changed hands multiple times—Marks & Spencer, Retail Brand Alliance, etc—the company had to find ways to pay for stores experiencing lagging profits.

In 2020, the company was estimated to have 250 stores in the United States alone—and nearly half of them are outlets. Of course, there’s no way that all those outlets are carrying old stock from the mainline.

Instead, it’s common nowadays for companies to produce lower-end lines specifically for the outlets. At Brooks Brothers, this is called the 346 line. Gap, J. Crew, and Banana Republic call these “Factory” stores (or “Factory” lines).

I’ve always felt this is somewhat questionable. One presumes that a “Factory” line comes from the same factory as the mainline. Many assume this also means that it’s of a similar quality. But this is not true—outlet lines are considerably lower in quality.

Factory lines typically use cheaper, lower-quality materials. Sizing can be inconsistent; quality control is generally lower. This may not be a big deal depending on your budget, but it’s worth noting that these are not mainline goodsPictured below: J. Crew factory vs mainline

You’ll also find a ton of deceptive marketing inside these places. Price tags will sometimes say “compare at” to suggest what the customer would have paid at full price (think: old outlet business model). But these items were never sold at these retail prices.

Technically, the company is just telling you to compare. “$15, compare to $100.” Sure, and I can compare this shirt to a $5,000 bespoke suit and a $1.5M home. Compare all day!Or the tag says 50% off when it’s rarely sold at full price. The sale price is the real price.

I used to joke that J. Crew’s copywriter should get the Nobel Prize in Literature for finding 365 ways to say “40% off” because I got a sale email every day. The company will pad the price, expecting to actually sell at a lower “sale” price.

J. Crew and Brooks Brothers are both under better management nowadays. We’re starting to see them ween themselves off constant discounts, which lowers the brands’ value in customers’ eyes and sends the company into a downward spiral.

The danger of such deceptive pricing is that it not only affects the companies that engage in this behavior but also makes cynical consumers more cynical. This makes them think that all discounts are dishonest.

The truth is that most retailers are honest, and once they’ve discounted something by 50%, they are probably losing money on that item given the cost of wholesale and running a business. If you love a store (esp a small business), try shopping at full price when you can.

It is a shame that this once honest part of the clothing trade—outlets—has become full of such questionable practices. Consumer protection groups, state attorney generals, and the FTC have all tried taking action. Yet, these outlets still chug along.

A better approach is to not shop for deals, but rather train your eye for what fits and flatters, and how to spot quality. Don’t buy something just because it’s 50% off or “$50 compared to $500.” Buy it because it makes you look and feel great and is within your budget.