Hoping to get your hands on end-of-the-season discounted runway looks at one of Prada’s gleaming flagship outposts? Think again. The Milan-based fashion brand announced earlier this month that it is banishing marked-down items from the confines of its carefully-curated stores beginning immediately, in an effort to boost its image and its margins. As for what will happen to the pricey feathered frocks, statement-making, oft-embellished outwear, and logo-emblazoned handbags that do not sell at full price during the appropriate season? Off to the brand’s outlet stores they go.
You will not find outlet stores listed on Prada’s website, but that does not mean they do not exist. They do. Prada outlets dot the map, from its SPACE location on the outskirts of Florence to one that is but a short trek from New York City. In many cases, Prada’s off-price stores can be found in outlet centers alongside the likes of Alexander McQueen, Balenciaga, Bottega Veneta, Christian Dior, Fendi, Givenchy, Gucci, Loewe, Loro Piana, Saint Laurent, and Valentino, and their respective mark-downs. As a result of these outposts, these brands – among others – are able to boost their revenue columns at the end of each fiscal year with figures directly tied to the revenues they rather quietly derive from off-season, marked-down operations.
How much punch do high fashion brands’ outlet stores pack, exactly? It is difficult to say, largely because few of these companies engage in these activities quite as openly as Prada was until very recently. Many luxury brands have “physically distanced their price outlets from [their] city center stores,” according to Deloitte’s 2018 Global Powers of Luxury Goods report, in an effort to maintain their meticulously maintained image.
“Dior in Paris holds sales only twice a year and for very short periods, and at separate rented locations,” per Deloitte, “never in their flagship store on Avenue Montaigne.”
More than that, few brands are in the business of speaking to this topic at length. While McKinsey estimated that “excess inventory constituted $472 billion of total lost retail revenue globally in 2015, an increase from $362 billion in 2012,” the avenues taken by brands to remedy or recoup such losses are rarely something that industry participants discuss. For example, “Neither Kering nor LVMH nor Richemont — the world’s largest luxury businesses — publicly states the value of [such] ‘off-price’ or discounted sales in their annual reports,” the Financial Times stated in late 2016.
LVMH – whose brands Celine, Dior, Fendi, Givenchy, and Kenzo, are among those with outposts at the Bicester outlet village in Oxford – makes only a passing mention of outlet sales in its annual report, noting “Louis Vuitton is the only brand in the world to never hold sales [to the public] nor sell through outlets.” Kering is quite a bit more forthcoming, revealing in its annual report that one of the “six sales formats” within its wholesale distribution model is “outlets.” These outlets account for 12 percent of wholesale sales, following Mono-brand stores (30 percent), Speciality stores (22 percent), and Department stores (20 percent), and ahead of “Online (10 percent)” and Airport stores (6 percent).
Kering further noted in its report that in furtherance of an effort “to simplify structures and processes and generate additional synergies between functions” for it’s Gucci brand, it created “a new organizational structure … based on four pillars.” Among those pillars? In addition to Merchandising & Global Markets; Brand & Customer Engagement; and Digital Business & Innovation is Indirect Channels, Outlet and Travel Retail.
While nearly all luxury brands have remained relatively distanced from and uniformly tight-lipped about their off-price operations, if the growing revenues of a handful of up-scale outlet malls – such as Bicester Village just outside of London, La Vallee Village in Paris, or Woodbury Common, which is located about an hour and a half from Manhattan – and this part of the market more generally are any indication, this is a lucrative side hustle for brands.
Value Retail, for instance – which owns and operates 11 global outlet centers with store directories that rival those of Rodeo Drive – revealed that it “has delivered double digit growth in gross sales each year” from its launch in 1995 through 2018. The privately-held London-headquartered group brought in a reported $3 billion-plus for 2017. That same year, the group – which says it “partners” with brands to sell their “surplus branded inventory” – revealed that it was bringing in approximately $5,215 per square foot in its villages, some of which are a sprawling 25,000 square feet or more.
As a whole, these off-price points-of-sale “perform well,” Hessam Nadji, president and chief executive officer of real-estate brokerage Marcus & Millichap Inc., told the Wall Street Journal. “Buoyed by shoppers looking for discounted goods, owners of outlet centers are posting strong results in an otherwise bleak retail environment,” the publication revealed last spring. But these are not just any discount shoppers.
Bain & Co. asserted in its Fall–Winter 2018 Luxury Goods Worldwide Market Study that “off-price sales” account for “around one third of the luxury goods market,” approaching $35 billion globally, up 23 percent from 2013. The market consultancy only expects this segment to increase further, with “the development of distribution channels, such as discount outlets,” helping to enable the personal luxury goods market to reach $361 - $412 billion in 2025.
In other words, luxury consumers are not immune to the draw of discounted wares, and given the potential revenues that a brand can bring in, while keeping its image of exclusivity in tack, at least in terms of its primary outposts, luxury players are not swearing off outlets either. They just might not advertise them heavily on their websites or hold any sales in-house.
Luxury is a game that is entirely dependent on image, after all.