I vividly remember the first time I set foot inside a Nike Factory outlet. It was the summer of 1990 and we were on a family trip to Florida. At the time I was 9 years old wearing a size 9 men’s shoe so expensive sneakers were out of the equation. As I walked around the store my eyes zeroed in on a pair of Nike Air Trainer SC II lows in white, Light Zen Grey, Black and Rad Green. The price? $40 USD, a discount that was sizable enough to make them attainable – had it not been for a generic Nike Trainer take down model that was $10 USD cheaper and went along with my mother’s ideology that “Air” in shoes was a gimmick that she wasn’t willing to pay more for at the time. But that’s for another story.
Over the coming years there would be tons of great deals to be had such as $20 USD Scream Green Huaraches in 2000, $60 USD Jordan XVII’s in 2003, and two full size runs of NIKEiD Presto’s for $5 USD (yes, $5 USD) in 2007 to name a few but it seems like those days, for the most part, are long gone.
Fast-forward to 2016 and the last time I stepped foot inside a factory outlet – more specifically a Reebok and adidas Factory store. I walked in expecting to see some OK stuff at some OK prices but what I actually saw were signs that read “Retail Price $99.99 USD / Outlet Price $99.58 USD” (a whopping 41 cents saving for shoes that you could actually score online for half the amount).
It was this moment that made me completely reevaluate why I had bothered to drive there and whether or not it was even worth it anymore to burn the gas to drive to one of these stores. Sure, there are FB pages dedicated to factory outlets where come ups seem plentiful and individuals are willing to help thy fellow sneakerhead to locate the best shoes and gear at the best prices but let’s be real – it seems you are more likely to find a good buy at a retailer these days than you are at a factory outlet. With that said I still wondered if this was more of a personal feeling or a reality of modern times.
History of Outlets
Classically, the term “outlet” in retailing is defined as “a store in which goods, especially surplus stock, are sold directly by the manufacturers at a discount.” They may also sell irregular items as well. Outlet stores have also evolved to include manufacturer outlet stores, outlets for department stores, and some non-outlet service locations.
There seems to be some conflicting reports as to who started the first factory outlet, but reports claim factory outlets began in the late 1880s when apparel and shoe manufacturers began offering excess and damaged goods to employees at deep discounts. It’s also claimed that by 1936 Anderson-Little — a manufacturer of men’s clothing — opened the first factory direct store. This is in direct conflict with the story that the Harold Alfond – founder of the Dexter Shoe Company – created the first factory outlet store back in the 1960s. Nevertheless, the story surrounding Alfond goes as follows: Since factories made mistakes the company would initially sell the irregular shoes to jobbers (now called “off-price specialists”) for a dollar and they would flip them for five times the price – in essence, OG dirty resellers. Alfond figured that was a pretty good markup and decided to cut these off-price specialists out of the equation and thus began the factory outlet business. Further, when there weren’t enough irregular shoes to fill up an outlet store, they would just fill it with merchandise that was “stale” or older.
There was also a sort of science to the business as told by Stanley K. Tanger & Co., otherwise known for the Tanger outlets. They for example chose each site location carefully to maximize the chances for success and would eventually create specific guidelines to evaluate a potential location — “a viable project had to be near a resort area with an annual minimum of five million visitors, or on an interstate frequented by at least 50,000 cars a day. Each center also had to be less than an hour’s drive away from a minimum population of five million.”
The Good, Bad, and the Ugly
From a business side the factory outlet makes perfect sense. It provides for a channel to unload irregular, old, or overstocked merchandise while simultaneously generating revenue and possibly allowing your product to get into the hands of a customer that otherwise wouldn’t be able to afford it. However, statistics paint a different picture, one that shows that factory outlets may be losing customers. From 2008-2015 according to statista.com adidas for example had increased its number of factory outlets to 872, yet its concept stores decreased for the first time in seven years to 1,698. Meanwhile, their factory outlet worldwide net sales decreased 11% from 2009 and concept store net sales had increased by 1% over the same time period. Even more interesting and supportive of the theory that factory outlets are losing their importance is a surge in other sales types from 4% of total sales in 2009 to 14% by 2014 (more than likely Internet sales).
Further, factory outlets business practices are under the microscope now as Nike was recently sued for 5 million dollars for what someone claims to be deceptive pricing.
According to the lawsuit Nike “intentionally uses the words ‘suggested’ and ‘our’ on its price tags to mislead consumers into believing that Nike the manufacturer and the seller of the product are somehow different and distinct from one another. When ‘suggested’ is used directly above the pronoun ‘our,’ it leads consumers to believe that a third party is suggesting that the items be sold at a certain price. Consumers understand ‘our’ to be Nike. Therefore, in this context they do not understand the suggesting party to also be Nike. Nike uses these carefully chosen words so that consumers will think that the party who sells the product (here, Nike) and ‘suggested’ its price (still, Nike) are not the same, thereby duping customers into thinking they are getting a discount off the price a third party manufacturer determined its worth or the price at which it should be sold.
A lot of these stores have their own separate factories specifically to produce clothes that are similar to what’s sold in the stores, but that can be produced at a lesser price. In other words it appears that companies are in some way knocking off themselves.
Now while there’s arguments to everything that is stated in the lawsuit — more specifically that a typical customer can’t decipher that ‘suggested retail’ more than likely means the suggested retail price Nike set for the initial release and ‘our price’ just references the factory outlets price for the product — Nike, and for that matter most outlets, aren’t without fault. Let’s go back to the last visit to the Reebok and adidas outlet. In what world would a company boast of a 41 cents discount on a product that’s supposed to be either defective or deadstock? Could you imagine walking into a Foot Locker and seeing a tag attached to a $100 USD shoe that said 41 cents off? There’s also the subject of companies using additional deceptive practices to trick customers into buying by making them believe their receiving big discounts on products that were once sold in stores when in fact that’s not the case.
According to a Fox 31 investigative report, a fashion consultant named Dahlia Weinstein explained how a lot of these stores have their own separate factories specifically to produce clothes that are similar to what’s sold in the stores, but that can be produced at a lesser price. In other words it appears that companies are in some way knocking off themselves. Further into the investigative report Weinstein was given purses from a Coach retail store and one from a Coach Outlet to see if she could tell the difference – which she did instantly. The outlet store items were of a lesser quality and stitching wasn’t as detailed as the retail counterpart. It was the same scenario for two pairs of jeans she was presented with as well.
She goes on to explain that “many times there is a major difference in quality” between what is found at retail for a brand in comparison to what is found in a factory outlet. When it comes to footwear outlets it’s the same deal but far easier to spot. For the most part the majority of us know which shoes were in retail stores — or ones destined for retail stores and which ones seem to only show up at factory outlets but as far as the gear goes its not as cut and dry.
By 2014 lawmakers urged the FTC to get involved and now in 2016 we see Nike at the center of a lawsuit that could open up the flood gates for other companies to be sued.
The Future of the Factory Outlet
The factory outlet as we know it may cease to exist in the coming decade if lawmakers crack down on deceptive practices or we may see a return to deals of years past. Companies and retailers have already begun a relatively new mainstream tactic of “restocks” or creating the illusion that product sells out when in actuality they have intentionally held back inventory they will release in small quantities over a long period of time. That same inventory used to either sit on store shelves or potentially make its way to outlets but instead it’s no longer unusual to see shoes that are three years old restocking through online retailers including the SNKRS app.
For now, the allure of finding nicely priced “footwear gems” is what keeps us coming to the outlets. However, with improvements in technology may come with it less manufacturing mistakes or stock left to reach outlets, but of course that’s not always the case. Couple that with outlet sales tactics that have become increasingly scrutinized, worldwide distribution channels that make it easier to move slow selling inventory globally, as well as companies dribbling highly sought-after inventory over a period of time and it’s quite possible that the factory outlets importance may diminish.
- Scott Frederick/DEFY. NEW YORK