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‘Made For Outlet’ Goods Stir Controversy

Publish Date: September 03, 2015

The early days of outlet shopping were all about disposing of excess merchandise, but demand began to outstrip supply at least a decade ago. Without made-for-outlet merchandise, experts say, the fast-growing industry would have stalled. But the concept is not without its controversy, as evidenced by recent court cases.

Michael Kors agreed in June to pay $4.9 million and change the way it labels its made-for-outlet merchandise after plaintiffs’ attorneys filed a class-action lawsuit. In the months since the settlement, approximately a dozen other lawsuits have been filed against various chains, with more copycat litigation likely to follow, according to commercial real estate attorney Lori E. Kilberg, a partner at Atlanta-based Hartman Simons & Wood. Outlet chains should make sure their pricing practices comply with regulations that can vary widely from market to market, Kilberg says. (California is a particular favorite of plaintiffs’ attorneys, she notes, owing to that state’s strict consumer-protection statute.) Meanwhile, some outlet landlords are bringing their lease requirements up to date by changing the terms in acknowledgement of the rising role of made-for-outlet goods. “The major landlords are now requiring that merchandise be clearance, promotional or made specifically for outlets,” Kilberg said. “That is a sea change that has happened only recently.”

A related question is how to deal with the public-relations challenges created by the outlet sector’s increasing reliance on made-for-outlet goods, experts say. After all, high-profile court cases such as the Michael Kors class action tend to trigger new rounds of unflattering media coverage, including stories that describe made-for-outlet goods as a “dirty little secret” and the like. And yet Consumer Reports magazine, one of the most trusted consumer-advocacy institutions, consistently gives the merchandise found in outlet stores high marks for quality, according to consultant David Ober, president of Global Outlet Management.

Based on detailed customer analytics, some chains are even tailoring the cut of their made-for-outlet apparel so that it better fits outlet shoppers, says consultant Nick A. Egelanian, president of SiteWorks Retail. “If you look closely at certain manufacturers’ made-for-outlet goods, the cut of the fabric is in fact different for the outlet stores,” Egelanian said. “They have enough information about how customers’ size and taste preferences differ that they’re able to make those sophisticated adjustments. In a sense, [outlet] customers are getting more of what they want, because the products fit better.”

Whether warranted or not, however, the threat of litigation is already leading to changes in the way some retailers and landlords treat made-for-outlet merchandise. In the Michael Kors class-action lawsuit, a lead plaintiff had purchased made-for-outlet jeans in a California store for $79.99, with the price tag listing the manufacturer’s suggested retail price as $120. As part of the settlement agreement, Michael Kors will no longer use the term MSRP and will instead make a more generic reference to the “value” these products represent, Kilberg says. Meanwhile, landlords are now less likely to require outlet stores to rely on the “double pricing” that some allege is deceptive, she says.

Regardless of the legal issues in play, the outlet industry would be wise to focus on maintaining its strong standing with value-oriented shoppers, Kilberg says. “You want to keep the nature of the outlet center unique as a value proposition,” she said. “The moral of the story is: If you’re going to do comparative pricing to show a discount, it had better be a legitimate reduction from full price.”