To Each His Own Outlet

CONSUMER EXPERIENCE AND PRICE AFFORDABILITY ARE THE TWO WINNING PROPOSITIONS OF FACTORY OUTLET CENTERS, WHICH ARE CHANGING THEIR SKIN BY BECOMING POPULAR DESTINATIONS FOR SPENDING FAMILY AND TOURIST LEISURE. BUT THEY COULD HAVE NEGATIVE CONSEQUENCES FOR TRADITIONAL RETAIL CHANNELS

by Sandro Castaldo, Dept. of Marketing, Bocconi
Translated by Alex Foti


The Factory Outlet Center (FOC) is a very simple business formula: a shopping center, usually built outdoors, consisting of factory outlets (stores) of major clothing and fashion brands. FOCs are usually developed by real estate groups, which provide for the creation of the center and then to rent out space to tenants (big brands). In Italy the format has spread very rapidly, starting from McArthurGlenn's FOC in Serravalle, which has recently added a luxury shopping center,  down to the recent Scalo Milano built in Locate Triulzi.
 
What are the reasons behind this success? The attractiveness of FOC lies in selling not-too-recent collections at prices well below those charged by downtown boutiques, which however offer the latest collections and a more complete assortment. In an outlet there are generally less current products, either with small manufacturing defects or in a limited range (with respect to colors and sizes). The advantage is that you can buy at a lesser price, usually at a 30% discount, but savings can go up to 70% off the original price tag. Shopping for a deal, which is the purchase of prestigious brands at discounted prices, is certainly the key benefit acknowledged by the customer. But not only that. These centers have now become real consumer parks, offering restaurants, ice cream parlors, bars, leisure centers, so that visitors can spend the whole day shopping. In fact, the sale of specialized tourist packages is growing, attracting consumers from abroad by offering air travel and hotel accommodation for the entire weekend. In the process, the business of FOCs is having spillover effects throughout the surrounding economy, as happened in the case of Serravalle.
 
Very innovative compared to more traditional FOCs is the recent initiative undertaken by Promos in Locate Triulzi, called Milan Scalo, set in an attractive architectural context. The central issue in this case is not fashion, but design and the world of home interiors, another central element of the Made in Italy business. Again, you can visit the shops and showrooms of the great names in furniture design and accessories for home decoration at discounted prices, without giving up the possibility of shopping for clothes, fashion items and accessories. There is also a well-stocked food hall featuring starred chefs' menus, which makes the shopping experience something very rewarding for the customer. In short, not only purchases, but also experience in the use of personal leisure time.
 
The idea has been widely appreciated, so much that in Biella they are considering the possibility of opening a FOC district dedicated to local textile brands and gastronomic delicacies of the surrounding region, to attract customers and tourists and at the same time redevelop shopping areas fallen into disuse, boosting the local economy. The project is certainly interesting, but brands should be careful with its implementation. For major brands, FOCs are a channel that needs be managed carefully in order to avoid conflicts with traditional and more profitable retail channels, which market the product at full price. For this they are usually located far from the centers of large cities and offer different product selections than traditional retail channels. There are brands which, given the success of the FOC formula, have started to implement product lines which are specifically designed for distribution outlets. If Biella's FOC, which will be located in the city center, sells exactly the same products sold by traditional stores, you could create a dangerous short circuit in retailing that may dilute the brand equity of local brands.