Cheap (18 page)

The first Coach bag discount outlet was in East Hampton, Long Island, a side project Cahn concocted to unload bags with slight defects. Run by Cahn’s children, the outlet was incredibly successful, with inventory frequently selling out within hours after the store opened. “We wanted to be fair to our customers, and we figured that selling slightly defective goods at half price was a reasonable thing,” Cahn said. “The customers agreed.”

Some brands continue to stick to this formula, offering deep discounts on damaged or slightly blemished goods. Others sell last year’s line or, in the case of electronics, refurbished or floor models or returned goods. But Coach, the Gap, Brooks Brothers, Ann Taylor, and Donna Karan, among others, add to their mix items made explicitly for the outlets. Generally these items are cheaper to produce, have fewer details, and are of lesser quality. Still, they carry the brand name, and therefore seem to be worth if not the reference price, then certainly more than the asking price. Lichtenstein put it this way: “Outlet malls today are the absolute epitome of the reference pricing scam.”

When Naylor and I visited the Coach store at the Las Vegas Premium Outlet Mall, no shoppers seemed interested in the $85 shapeless brown canvas sacks heaped on a table in the center of the store. Neither of us recalled seeing bags like this in Coach’s regular store, but a salesclerk assured us that every item here was also available in the full-price Coach stores. Naylor raised an eyebrow and then took me on a tour. The tags on the brown bags and on most of the other merchandise was branded with an
F
for “factory outlet.” (The one exception was a display of green and pink summer canvas purses, four months out of season.) Naylor pulled from the shelf a large slouchy leather bag. It didn’t take a magnifying glass to see it lacked the finish, feel, and details of a luxury brand. Good quality, yes, with the heft and look of a department store private label, but not luxury. Roughly 80 percent of the goods sold at Coach outlets are lower-end pieces manufactured specifically for these stores. Connoisseurs would take a pass on this stuff, Naylor said, but very few shoppers are connoisseurs. “Generally speaking, Americans who shop at Coach outlets are
Sex and the City
types, younger single women or housewives who want the brand but can’t afford it,” she said.

Economists Anne J. Coughlan of the Kellogg School of Management at Northwestern University and David A. Soberman of INSEAD (originally an acronym for Institut Européen d’Administration des Affaires, one of the world’s leading business schools) are editors of the definitive “A Survey of Outlet Mall Retailing: Past, Present, and Future.” In it they trace the history of outlet malls more than a century to when clothing and shoe manufacturers sold overstocked and damaged goods to their workers out of spartan “factory stores” on the company grounds. These goods, whether stained, mismatched, dirty, or just out of season, were deeply discounted and were at first regarded as “perks” of employment. Gradually, factory stores proved so profitable that they were opened to nonemployees and the selection expanded to include a variety of off-price merchandise. In 1936, New England men’s clothes maker Anderson-Little opened the first set of freestanding “factory direct” outlets, all of them in remote locations so as not to compete with the regular stores. More factory outlets followed, and until the early 1970s, Coughlan and Soberman wrote, “outlet stores served primarily to dispose of excess or damaged merchandise, in isolated single-store locations.”

As the outlet was physically liberated from the actual factory it represented, new retail possibilities unfolded. In 1974 lingerie maker Vanity Fair Clothing Company opened the first multistore outlet sixty-five miles northwest of Philadelphia in an old knitting mill and warehouse in Reading, Pennsylvania. The outlet sold panty hose, underwear, jeans, and socks out of mammoth bins. Some of these clothes were defective, and all had labels roughly chopped off to ensure the integrity of the brand. The Vanity Fair operation was so successful that other manufacturers followed suit, and by the end of the decade, Reading had so many outlets that it acquired the nickname Outlet City.

Outlets rose as a product of their time. The fall in discretionary income and the rise in visibility of private-label merchandise contributed to the outlet boom of the 1970s. Individual outlet stores clustered in large outlet malls that popped up around the country. Gradually the stores in these malls came to offer not only “seconds” with missing labels but first-quality, in-season goods. This led to another burst of growth, with the number of outlet malls in the United States more than tripling from 113 in 1988 to a peak of 325 in 1997. Since then the field has thinned out a bit as the size of each individual outlet ballooned to as large as 600,000 square feet.

In
Discount Dreams,
cultural historian Marianne Conroy links the rise of outlet malls to “larger structural transformations in U.S. production away from mass manufacturing and Ford-style economies of scope.” Outlets, she writes, function as “safety valves,” a way for manufacturers and retailers to vent their overheated engines of production and exert control over their costs, distribution, and inventory. Outlets draw customers with brands, thereby diminishing the importance of the reputation of the store that sells the brands. Ultimately, then, it was the rise of brand names that made possible the outlet juggernaut. A philosopher might question whether a Coach bag of questionable quality hawked by clerks who do not know the provenance of their merchandise is the Coach bag of our dreams. Shoppers might ask that, too, but mostly we seem not to. Many other popular brands offer down-market sub-brands: The Gap has Old Navy, Anne Klein has Anne Klein II, and Armani has the Armani Exchange. Others—such as uber-popular outdoor-wear maker The North Face—sell merchandise at their outlets that they decline to guarantee and will not exchange. Once again this leads to a philosophical question: Is a North Face outlet product really a North Face at all?

Discount outlets depend on brands for their survival, for without them they would be nothing but a collection of cut-rate stores. Branding was born with civilization, an age-old technique to conspicuously display ownership or value. The association of quality with brands extends back to ancient Roman craftsmen and, even before that, to ancient Egyptian seals.

In modern marketing, brand equity refers to the extent to which a brand’s characteristics exceed expectations among other products in its category. A branded suit implies to the consumer a higher quality than an unbranded suit. In the early days of outlets, manufacturers ripped labels from items because they were reluctant to link their brand with the cut-rate price. But today many discounters do just the opposite, trumpeting goods under brand names to give the impression of quality while not necessarily backing that claim in a meaningful way. Online marketer eBay has tested the outer limits of this tactic by auctioning off brand-name merchandise at absurdly low prices. In 2004 high-end jeweler Tiffany sued eBay in New York’s federal court, claiming that 80 percent of goods sold on the site under the Tiffany label were fakes. In 2006, luxury purveyor LVMH filed a similar suit in Paris, claiming that up to 90 percent of Vuitton and Dior items peddled on the site were counterfeit. Four years later a Paris judge fined eBay almost 40 million euros ($63 million), arguing that the Internet auctioneer didn’t do enough to stop the sale of counterfeit goods. The French court also ruled that eBay was not qualified to sell LVMH perfumes, which it said should be distributed only through selected retailers with trained staff. In New York a couple of weeks later, the Tiffany case was decided in eBay’s favor; the judge made clear that in the United States it is the manufacturer’s responsibility to protect its own brand, something that in the face of cutthroat price competition fewer and fewer manufacturers appear willing to do.

Do we shop at factory outlets and dollar stores and price clubs and eBay because we believe we are getting the genuine article, or is there something deeper involved? This question, Naylor said, has no sure answer, but she personally believes that most discount shoppers get something close enough to name brands to give them lasting pleasure. Apparently it is the brand, not necessarily authenticity, that discount shoppers are after. But when paying $250 for a briefcase or a handbag at an outlet, the question “When is a Coach not a Coach?” is more than a philosophical quibble. The uncoupling of brand name and product can’t help but confuse us and, over time, even undermine our trust.

 

 

 

DISCOUNTING
dilutes brands, making it less certain that they are a mark of quality. This diluting effect has forced some producers to up the ante with premium versions of their brand-name products. For example, The North Face “Summit Series,” designed for what the company describes as “the most demanding athletes and the most extreme conditions,” is rarely if ever discounted, thereby maintaining its status. Hundreds of other brands from Levi Strauss to Mercedes-Benz slice and dice their offerings for various markets, selling different products in different types of stores for different prices under the same brand. This practice is pervasive at discount retailers. Chains such as Wal-Mart, Best Buy, Target, and Home Depot have items manufactured “to their specifications,” meaning that the brand name is almost devoid of meaning. A television with a model number available only at Best Buy or Wal-Mart is—no matter its apparent brand—a Best Buy or Wal-Mart television. A lawn mower made to be sold only at Home Depot is—for all intents and purposes—a Home Depot lawn mower.

Brand dilution occurs in all the obvious places but also in the less obvious—for example, in higher education. Harvard University flaunts its brand to draw students to Harvard University Extension School, a program with no threshold to entry and a much smaller price tag than the institution to which it is tethered. Harvard University officials insist that extension school graduates receive an authentic Harvard degree, yet the education they have experienced, though presumably of high quality, is not really a Harvard education. By running a second-tier program under its name, Harvard is diluting its brand and in a sense counterfeiting itself.

Brands have become an end in themselves. Many of us who seek them have little if any idea of what’s behind the name. But it is not the brand alone that entices discount shoppers; it is the high value we link to that brand versus the low price we pay that is so seductive. Spinning the wheel of low price is at best a gamble, but it is a gamble few of us can resist taking. The pull of markdowns, always seductive, has in recent years become an unstoppable force.

Having a sale every day is a bad idea, but retailers are afraid to stop.

|
RAMA RAMAKRISHNAN, FORMER CHIEF SCIENTIST OF ORACLE RETAIL

 

 

 

 

 

It is often said that New Englanders talk more about the weather than about all other topics combined. There is scant hard evidence for this, but I’m inclined to believe it. Temperatures here can sink from balmy to arctic overnight, icing streets into axle-twisting slicks that melt into moats in the next day’s sun. But even weather-hardened Bostonians found December 2006 puzzling. As Christmas closed in, it looked as if Donner and Blitzen would be swapping the sled for a cigarette boat. Daytime highs hovered at 15 degrees above normal. There was not even a whiff of snow. The heat spelled sweet relief for the thin-blooded endless summer enthusiasts. But it was very bad for retail.

Sales of woolly hats, boots, snow blowers, and rock salt plummeted. No one, it seemed, needed fleece. Down jackets twisted on department store racks like hungry ghosts. As haberdashers and furriers prayed for cold, the weather gods scoffed and threw another log on the fire. In a last-ditch effort to reclaim the season, merchants closed their eyes, held their breath, and kicked off the “post-holiday” markdown fest three days
before
Christmas.

Bloomingdale’s slashed the price of designer overcoats by 30 percent. Saks slapped a 40 percent discount on its entire cold weather line. The Gap went straight for the jugular, “repositioning” its fabulous faux fur parka from $169 to $68. These measures were every bit as desperate as they seemed. One analyst wailed to the
New York Times:
“Retailers are getting caught with their pants down—and their coats off.” Those pants have been hanging low ever since. Markdown madness is turning even luxury emporia into something closer to the “everyday low price” model. Watching numbly as shoppers pawed through a pile of handbags, a salesclerk at once-tony Bergdorf Goodman put it bluntly: The world, he said, is “off its axis.”

There is nothing new, of course, about holiday sales. But today draconian price reductions are a retail imperative pre-holiday, post-holiday, and most days in between. Radical price cutting has turned the swanki est outposts—Neiman Marcus, Barneys, Bergdorf Goodman—into upscale versions of discount outlets, hustling merchandise out of the store in the largest volume possible as quickly as possible. “Runway clothes next year will arrive in the store in April, and we will have three weeks to sell them at full price before the department stores put them on sale,” moaned one boutique owner to the
New York Times.
“What I’m worried about is the creativity.” By which she meant the loss thereof.

The rise of markdowns has given customers unprecedented purchasing power. It has also given merchandisers unprecedented power over manufacturers and suppliers—the power to demand and get extraordinary concessions. Those of us who merely shop are blissfully unaware of what vendors go through to get their merchandise on the store floor. For some it is merely a trial, for others a travesty. As that boutique owner worried, creativity and innovation can get lost in the stampede toward ever lower prices. But the problem cuts even deeper: When consumer goods are marked down to a pittance, those of us who can least afford it end up paying the difference in the form of low wages, lost opportunity, and crushing debt.