Uncertain climate spurs outlets; stores inch closer to off-prices turf - apparel factory outlet stores

Discount Store News, June 4, 1990 by Richard Halverson

Uncertain Climate Spurs Outlets

Factory outlet stores are getting a powerful boost from the retail chaos engendered by the Ames and Campeau bankruptcies.

No longer pipe rack operations carrying seconds and last year's unsold styles, factory outlet stores now offer a complete selection of the same first-quality, current fashions that department stores feature. And, the vendors don't have to worry about getting paid for the merchandise they retail on a cash-and-carry basis.

To avoid offending their department store customers, manufacturers traditionally have avoided locating their stores close to major urban centers or conventional malls. But that reluctance is diminishing. In Holland, Mich., for example, the Horizon Group built one of its five outlet malls right next to a conventional mall, where many of the same brands appear at full retail.

As developers run out of traditional outlet mall sites close to tourist destinations, they will begin moving closer to major metropolitan areas, such as Western Development did with its Franklin Mills Mall in Philadelphia, consultants predict.

But most manufacturers haven't lost their traditional reluctance to talk about their retail operations.

The Factory Outlet Committee of the American Apparel Manufacturers Association conducts an annual survey of outlet stores, a spokeswoman said. The manufacturers refuse to let the association release even the names of vendors operating factory stores, much less the number of outlets they operate.

"They're rather secretive about their outlet business," the spokeswoman said. "They don't want a lot of publicity."

Increasingly, apparel manufacturers view their own stores as a new channel of distribution for first-quality merchandise built into their production schedules, rather than as a means of disposing of overruns and defective goods.

Outlet stores generated retail sales of an estimated $5 billion in 1989, and their sales are growing at a faster rate than general retail revenues. Factory stores handle only 3 percent to 4 percent of total apparel sales, although many of the designer labels they offer, such as Ralph Lauren, Harve Benard and Kuppenheimer Clothiers, are too costly to appear in discount and off-price apparel stores.

Yet, major suppliers to the discount industry such as Hanes, Gitano and VF Corp. (producer of Lee, Rustler and Wrangler jeans), Vanity Fair, Bassett-Walker, Jantzen and JanSport, and Big Ben and Lollipop, are major players in factory outlet stores. Gitano operates 73 outlet stores and VF operates 25 outlet malls, with a Lee jeans and shirt outlet as prime tenants. Both offer primarily first-quality, current fashion apparel.

In August, VF will open its 26th mall in in San Marcos, Texas. And, in October it will depart from its standard practice and open a store in somebody else's mall, the 2.2 million-square-foot Sawgrass Mills Mall in Sun City, Fla., outside of Fort Lauderdale. VF plans to open a total of 10 more stores this year.

Sara Lee-owned Hanes operates 180 outlet units divided between its latest venture, Hanes Activewear, Hanes Socks and Hanes/L'eggs/Bali.

In the Woodbury Common factory mall, Harriman, N.Y., Hanes operates all three types of stores.

Other apparel and shoe brands familiar to discount store and off-price apparel shoppers, such as Wolverine, Health-Tex, Revlon and even Bass shoes, also operate some of the largest retail chains.

And even if, K mart or Wal-Mart doesn't carry, for example, Van Heusen shirts, its pricing structure of at least one-third off suggested retail brings brand products at the bottom of the line into competitive position with private label offerings.

Van Heusen, for instance, offers its $18 dress shirts for $12, a small step up from discount department store private label shirts in the $9 to $12 range and at comparable prices that off-price apparel chains such as Marshalls or T.J. Maxx would charge.

VF Factory Outlets offer first-quality current style merchandise direct from the factory at "half the lowest ticketed price" on all of its branded apparel.

In addition to mass market clothing, Gitano factory stores also offer special apparel designed and priced to appeal to department store shoppers, said president Haim Dabah. Market research shows that the typical factory mall customer is a department store, rather than a discount store, shopper, he said.

The retailers' push for higher-margin private label goods is one reason why manufacturers are opening their own stores, said Charles Bloom, chairman of the Chelsea Group.

Chelsea operates seven factory malls, including Woodbury Common, at the gateway to the Catskills resort region, and The Tin Cannery, Monterey, Calif., another major tourist town. Chelsea is developing an eighth in Petaluma, Calif., entrance to the Napa Valley wine country, a prime tourist destination.

Factory stores permit manufacturers to test new styles and help them "orchestrate and control distribution," Bloom said.

Competition for Off-Pricers

Much of the $5 billion chunk of apparel business that factory outlets are siphoning off is business that off-pricers such as Marshalls, T.J. Maxx and Burlington Coat otherwise might enjoy.