One of the most dynamic industries in any country is the retail industry, whose face and pace are unpredictable. Many factors control the pace of this industry including the sentiments of the market, government policies, the pace of new entrants, growth of the economy, smart handling of stocks etc. India is the world’s fifth-largest global destination in the retail space, growing at a phenomenal speed , which calls for immense stock handling, constant introduction of new products to remain in the customer’s preferential zone, maintaining a good cash flow at retailers end. There is one answer that can easily tackle all these issues – Outlet Malls.
David Soberman, Marketing Professor at University of Toronto, explains that the outlet mall concept took off because of rising middle-class demand for branded apparel. Today, there are an estimated 216 factory outlet centres in the U.S. where some 316 different brands operate 13,000 stores.
If your image of an outlet mall is stores stocked with defective goods that retailers want to unload at bargain basement prices, think again. Today, many retail brands have opened outlets as a way to sell an exclusive product line, just a season behind, at a reduced price. Retailers often fear opening outlets might make them lose customers due to cannibalisation or brand dilution. Cannibalisation occurs when retail customers shift to outlet stores, lured in by their lower prices. Brand dilution happens when customers start buying less because the lower prices and quality of the outlets’ offerings turn them away from the brand altogether.
Research on Positive Impact of Outlet Stores
Professor of Marketing at Kellogg School, Lakshman Krishnamurthi and Professor of Marketing at University of Texas at Dallas, Gonca Soysal, examined the shopping habits of customers at a large national specialty apparel retailer to explore the impact of opening outlet stores. Their research yielded good news for brands that adopt this strategy: customers who began shopping at outlet stores also increased their spending at the retail stores.
The researchers analysed purchasing data from a sample of more than 100,000 customers over a 25-month period. They wanted to know how starting to shop at an outlet store would affect a customer’s retail-store purchasing habits by simply comparing groups of existing customers – some of whom shop at outlets and some of whom do not.
They found that, overall, the customers who shop at both retail and outlet stores spend about 10 percent less than retail-only customers. But what happened to spending among customers who started shopping at both retail and outlet stores? They found that these customers actually increased their spending in the retail stores. This suggests that cannibalisation and brand dilution are not factors when new outlets open. Customers who started shopping at an outlet increased their annual retail-store visits from about 3.5 to 5. Over the course of a year, on an average, these customers spent an additional $155 at retail stores, which represents a 34 percent increase over what they used to spend there.
The upshot is that although customers who shop in both types of stores spend less than retail-only customers – both shopping less frequently and making fewer purchases when they do shop – the overall impact on the brand of having both types of stores is positive. These are folks who, on average, before the outlet, were lower spenders anyway at the retail store. Once they start buying at the outlet, the positive effect is really nice. They weren’t spending much at the retail store before, but now they’re shopping there more frequently. Now they’re spending more.
The researchers hypothesize that the result of customers becoming more comfortable with the brand at the outlet store. This leads them to shop more often at the retail store, perhaps for different items that cannot be found at the outlet.
India is now ready to experiment the ‘Outlet Strategy’. We, at Freeport are very soon going to be announcing India’s ‘First Out Mall’ and take the Indian Retail Story to the next level!