Can Outlet Malls Bring Value to Luxury Brands?

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Bicester Village, is home to brands such as Dior, Fendi and Saint Laurent, also one of the most successful outlet village among all, needless to say, it is an heaven of Chinese luxury goods deal hunters. Photo: Pajor Pawel/Shutterstock.com

An Outlet Empire Builds On Chinese Travelers

Many people would associate outlets with old, cheap, discounted merchandise and remote locations. Discount labels seem to be a comfortable fit for outlet shopping malls, but the outlet empire built by Value Retail is meant to revamp the stereotype, with a concentration on Chinese customers.

The company has built an outlet network with 12 outlet villages in Europe and China, offering retail discount up to more than 60 percent in Europe, and up to 75 percent in China. China accounted for 40 percent of the business of Value Retail’s European villages last year.

Capitalizing on Brexit and a depreciated pound, Bicester Village, one of the villages in the UK, is home to brands such as Dior, Fendi, and Saint Laurent, and is one of the most successful outlet villages. The variety of products and caliber of brands makes it a heaven for luxury goods deal hunters. An estimated two-thirds of all Chinese visitors to Britain come to the village to shop. Visitor traffic there from Hong Kong residents increased 42 percent in 2016 compared to the year before, and Chinese visitors traffic to Bicester is up 34 percent, as reported by South China Morning Post.

When we spoke to a couple of past Bicester visitors, they remarked at how familiar the shopping experience is.

“When the train stops at Oxford, where the village is, the broadcast announcement is in Chinese: That’s when you know you will be seeing a lot of Chinese shoppers here,” said Wan Yang, 25, a student from Central Saint Martins in London.

The village offers free tax return service and a 10 percent discount coupon for anyone with a Visa credit card. The majority of sales associates there are Mandarin speakers. All those customized services targeting Chinese consumers have made Bicester Village the no. 8 most-popular travel spot in London on the Chinese Trip Advisor site, QiongYou.

What’s the Potential of the Outlet Mall Shoppers?

The success of the outlet village is not a new trend. Increasingly, luxury brands are found in outlet malls to attract Chinese price-conscious shoppers. According to Bain & Company, there were 138 new outlet malls that opened in China in 2015, about a 41 percent increase from the year before.

Aspirational Chinese middle-class people are the key demographic group that frequent outlet shopping. Known to be pragmatic, this group of consumers is much more price- and value-conscious compared to the wealthier set of luxury consumers. By 2025, the Chinese middle class is expected to grow to 250 million people, and the potential of their luxury spending could be huge.

Joining the outlet-shopping trend are some young Chinese millennials, who have become increasingly open to the idea of discounted goods as their definition of luxury evolves.

“Hunting for discounted luxury goods is a very stimulating experience for me,” said Jie Li, 24, a Beijing resident who frequently travels abroad for her luxury scavenger hunt. “Digging through outlet stores is almost like thrift-store shopping, only it’s better-quality goods with lowered prices than boutique stores.”

“Each brand has its own identity and personality when you shop here. You don’t feel like it has an outlet mentality,” said Leaf Greener, a Chinese top fashion influencer in an interview with BoF while shopping at Bicester Village for the first time. “It is still luxury here. It’s how you present yourself. They keep it very original.”

For young people like Li and Leaf Greener, luxury shopping is not about show-off status but exclusivity. Even though price tags don’t mean much to them, outlet malls offer a rich variety of selections for a good bargain. According to them, the process of hunting for a unique luxury piece in an outlet mall is also very fulfilling.

Can Outlet Malls Bring Value to Luxury Brands?

The rising demographic of young and middle-class shoppers has made the future of outlet malls brighter, as the lower-priced goods in outlets makes high-end luxury more affordable. These consumers’ interests in luxury remains consistent even in an economic downturn. Taking Brexit as an example, ever since the depreciation of the pound, the UK’s retail economy is more reliant on Chinese tourists. To capture a slice of their consumption power becomes crucial to the survival of these brands, and outlets can offer a channel for consistent revenue growth.

More importantly, shopping at outlets for luxury goods may just be a prelude to full-price shopping for luxury goods at a later date, which is what luxury brands have always hoped.

According to a study by the Boston Consulting Group, at Value Retail’s outlets, 33 percent of customers purchased from a luxury brand for the first time, and 85 percent of them said they intend to buy a full-price item from that brand in the future.

Even if outlets could be an effective tool to lure entry-level, budget-wise customers, the partnership established between brands and outlet malls may jeopardize brands’ long-term pricing strategy. “Brands can make a lot of money with outlet stores, but it’s not to build brand equity and desirability,” said Louis Houdart, Founder of Creative Capital.

In 2014, a journalist from Daily Mail investigated the goods at Bicester Village. He found that besides past seasons products, brands also supplied tailor-made collections for outlet stores. However, the quality of these tailor-made goods was below the average standards. Many Chinese customers have recognized the difference and complained online about the quality of outlet-only products, a situation that could further jeopardize brand value.

“The biggest challenge for us is educating people about what a luxury outlet should be,” as Dan Kelly, the president of The Outlet Company put it. “You have to adapt to the market, and still maintain the integrity of product and service. You cannot forget that China is a long-term investment.”

By Ruonan Zheng Courtesy Jing Daily

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