Factory outlet malls: the ultimate discounters

Discount Store News, May 9, 1988 by Richard C. Halverson

Factory Outlet Malls: The Ultimate Discounters

Hypermart U.S.A., Wal-Mart's new hypermarket outside Dallas, boasts of its low prices, offering for example, a pair of Leemen's acid-wash jeans for $24.98, compared to Lee's suggested retail of $37.

But a competing chain of 11 stores, which includes four units in new, enclosed malls it built in the West, is beating Wal-Mart hands down on price, offering the same jeans for $18.50. That's about what Wal-Mart pays at wholesale, said a spokeswoman for Lee.

That chain is VF Factory Outlets, a subsidiary of Vanity Fair Corp., which owns the Lee Company, which, of course, makes Lee jeans.

As if traditional discount stores don't have enough to worry about from fellow chains, they now must contend with mounting competition from their own suppliers-and more important, off-price specialists that join forces with factory stores in outlet malls.

Gitano, a popular discounter label, for instance, operates 16 outlet stores, including a unit in the glitzy Potomac Mills Mall, a 1.25-million-square-foot giant south of Washington D.C.

These factory outlet stores are offering department store, brand name merchandise at prices low enough to induce many shoppers to switch from private label discount apparel: . The VF Factory Outlets offer Vanity Fair intimate apparel, Lollipop, Jantzen, Kay Windsor, Evan Picone, Kay Windsor and Clothes Hounds apparel at half the suggested retail. Examples: Vanity Fair pantyhose, three-pack for $2.50, against suggested retail of $5; Lollipop knit top, $12, against $24 full price. . Barbizon was offering at its unit in the Secaucus (N.J.) Outlet Mall 100 percent cotton night gowns for $11, compared with its suggested retail of $39.

Even mass merchandiser Sears, Roebuck & Co. is getting into the "factory outlet" game with its surplus stores. Of its 109 surplus stores, it has put its two latest into outlet malls, one in Chicago and its largest, at 40,000 square feet, serves as one of four co-anchor stores in Potomac Mills.

Moreover, off-price specialty retailers are benefiting from the public perception that any mall that includes "factory outlet" or just "outlet" in its name consists of factory outlet stores.

Few Genuine Factory Stores

As a result, many of the new "factory outlet" malls popping up across the country total only handfuls of genuine factory stores, with off-price specialty retailers such as Dress Barn rubbing elbows with true factory stores, such as Manhattan, Nike, Corning Glass and Mikasa.

Under the name Belz Factory Outlet Mall, for example, Belz Enterprises, the largest outlet mall developer in the country, operates malls in Orlando and Tampa, Fla., Dallas, Wentzville, Mo., and Memphis and Pigeon Forge, Tenn.

Despite the name, only 13 of the 82 stores in the Belz Factory Outlet Mall in Orlando, near Disney World, are brand name factory stores, including Mikasa, Bass Shoe, Genesco, Totes, Polly Flinders, Kuppenheimer, Aileen and Van Heusen.

The majority are specialty off-prices. And others trade further on the "factory outlet" image by using the words in their own names, such as Bargain Box Factory Outlet and Best Fashion Factory Outlet. They offer a variety of goods from various manufacturers but are neither factory owned nor operated.

Name Is Justified

U.S. Factory Outlets, a New York-based chain, says its name is justified because a number of vendors use it to sell excess goods instead of operating their own factory outlets. President Frederic Raiff said two of his 24 stores are located in Phoenix, Ariz., outlet malls and a third is going into a Cincinnati outlet mall.

The rest are located in conventional strip centers and malls, he said. Raiff said the vendors for whom he serves as exclusive outlet distributor bar him from name disclosure.

In comparison to the Belz Factory Outlet Malls, the majority of the stores in the outlet malls in Flemington, N.J., and Harriman and Saratoga Springs, N.Y., are true factory stores, said Stanley Gilinsky, vice chairman of the Harlan Company, a real estate consulting firm that advised the developer of those malls, the Chelsea Group.

The Chelsea Group, headed by Charles Bloom, is building additional outlet malls in tourist areas: Waynesboro, Va., and Monterey and Napa, Calif., and is considering one in Puerto Rico, Gilinsky said.

Factory stores have become "a very meaningful avenue of distribution," for manufacturers such as Corning Glass (another major discounter brand), Gilinsky said.

Such outlet malls "don't help discounters," Gilinsky said, "but K mart hasn't taken a nose dive" because of them.

"Manufacturers like to put their stores in rather remote locations," Gilinsky said, "to avoid alienating retailers who buy their products." But that reluctance to locate close to existing retail centers is breaking down, he said.

Developers try to site new outlet malls along tourist throughways, such as the Waynesboro, Va., mall along the famed Skyline Drive through the Smoky Mountains, Gilinsky said.

Profile studies of outlet mall shoppers show they are more like Macy's and Bloomingdale's customers than blue collar workers, Gilinsky said. "They are not the kind of people you see in K mart," he said. To appeal to such customers, Chelsea Group has attracted a mix of factory stores that offer a department store variety of items, he said.