As a more discount-minded consumer prepares to hit stores, malls and e-tail websites to spend roughly $655.8 billion on holiday shopping, getting the most bang for one’s buck is top of mind.
Just in time for the gifting season, new research by Harvard Business School professor Donald Ngwe, published in peer-reviewed journal “Marketing Science,” takes a deep dive into key differences between the two top retail destinations: outlet stores and primary retail stores. The researcher uncovered several findings that could help shoppers as well as brands and retailers make key decisions this holiday season.
Here, we round up three things to know this holiday shopping season when it comes to outlet versus primary retail spending.
The Product Factor
Ngwe says most companies with an outlet and regular store presence manufacture two kinds of products: original and factory. (Ngwe created these terms for the purpose of the study.)
“Original products are introduced in the regular stores, and after a few months, taken out of regular stores and sold in outlet stores,” Ngwe explained. “Factory products are sold only in outlet stores.”
While original products are often thought of as “more desirable” than factory products, Ngwe said there’s evidence that few consumers are actually able to distinguish between the two.
“In many ways, outlet store goods now constitute distinct product lines, rather than mere excess inventory,” Ngwe writes. “Many firms design products exclusively for sale in outlet stores [though they may prefer to limit awareness of the practice among consumers].”
Taking the Trek
Generally, outlet stores tend to be off the beaten path and often require a concerted effort to visit.
“Outlet stores are located in areas that have lower population density and lower household income than the areas around regular stores,” Ngwe explained.
Nevertheless, the researcher found that there aren’t many key differences — in terms of annual income — between the customers that buy from both outlets and regular stores.
“Customers resemble each other not only in income, but also in their level of experience with [a] firm’s products,” Ngwe writes.
Interestingly, Ngwe posits that the main reason many fashion firms operate outlet stores is likely to “price discriminate between its consumers by forcing the most price-sensitive among them to travel to obtain discounts.”
Getting the Best Price
The major upside to shopping at outlet stores is cheaper pricing.
And, as Ngwe pointed out, many shoppers aren’t necessarily trading quality for inexpensive pricing.
In his analysis of a “major fashion manufacturer,” Ngwe noted that the typical product sells for about $300 in regular retail stores while most outlet store products sell for less than half of that price.