September 14, 2012 / 6:35 PM / 5 years ago

More luxury outlets planned to lure US bargain hunters

NEW YORK (Reuters) - Top luxury brands that long ago shunned outlet malls as America’s bargain bin are now moving more aggressively with plans to build more outlet stores and take advantage of shoppers’ love of bargains.

Saks Inc SKS.N, Nordstrom Inc (JWN.N), Tumi Holdings Inc TUMI.N, Neiman Marcus Group NMRCUS.UL and Michael Kors Holdings Ltd (KORS.N) are among the high-end names making lower priced outlets a cornerstone of their store expansion, even as some have all but halted building new full-service stores.

For instance, Nordstrom is planning to double the number of its Rack outlet stores to 230 locations by late 2016, while Saks now has 64 Off Fifth stores and could have as many as 100 within a few years. There are 28 Neiman Marcus Last Call locations, and 5 Last Call Studios, a smaller format outlet store, with another opening in Virginia in a few weeks.

Executives at the Reuters Retail and Consumer in New York this week said that for all of the outlet expansion in recent years, they remain a relatively untapped opportunity that is providing luxury companies with a source of growth by helping them reach less affluent shoppers too.

“There’s a hunt that consumers enjoy,” said Richard Dickson, Jones Group’s JNY.N chief executive of branded businesses, told the summit. “Outlets are going to become a more important part of the consumer’s quest for value.” The Jones New York and Nine West chains have long been fixtures at outlet malls.

Outlets used to typically be unattractive locations, used for selling clearance merchandise. But retailers now put a lot more care into making them attractive and brand them.

About 75 percent to 80 percent of the merchandise at Saks’ Off Fifth and Neiman’s Last Call chains is made specifically for those outlets, with a smaller emphasis now on clearance merchandise from the full service department stores.

“They’ve become more mainstream in the eyes of our retailers,” said Steven Tanger, chief executive of Tanger Factory Outlet Centers Inc (SKT.N), noting that it is now chic even for affluent customers to seek out bargains.

There are about 150 outlet malls in operation in the United States. Tanger said the country could support another 100 in the next decade.

“I don’t think we’re anywhere near close to hitting saturation on the Off Fifths,” Saks CEO Steve Sadove told Reuters in an interview ahead of the Summit.

Outlets are a way for Saks to get in on the boom in the “off-price” area of retail, whose leaders are TJX Cos Inc’s (TJX.N) Marshall and T.J. Maxx chains, and Ross Stores (ROST.O), which sell designer brands at deep discounts.

The outside of the Saks Fifth Avenue store is seen in New York October 8, 2009. REUTERS/Shannon Stapleton

Saks, Neiman and Nordstrom have all enjoyed sales gains in the last two years to make other retailers green with envy.

But sales at the outlet chains have often outpaced business at full line stores. For instance, same-store sales at Nordstrom Rack stores were up 7.3 percent in the first half of the year, more than twice the pace of Nordstrom department stores.

Sales gains at luxury chains have generally been strong this year, but some chains are hesitant to add more full service locations and some even closing them.

    For example, Saks last week announced the closing of two Saks Fifth Avenue stores, and Neiman is closing its Minneapolis store. Nordstrom is only opening a new department store here and there.

    Part of the difficult balance retailers have to strike is to offer customers the types of deals they are looking for at an outlet store without hurting the luxury aura or shortchanging shoppers.

    “I don’t want to see in an outlet the same thing that I see in a full price store at a cheaper price,” said Tumi CEO Jerome Griffith. The luggage and accessories maker has about 20 outlets in the United States and plans on opening more in parallel with its full price store expansion.

    Tumi’s outlets are just as lucrative as the full line stores: annual sales are about $1,000 per square feet.

    Neiman Marcus CEO Karen Katz told Reuters that there was relatively little overlap between customers of the retailer’s outlet chains and its namesake stores.

    Retail executives expect the outlet boom to last even after the economy rebounds more forcefully.

    “In good times, people like a bargain,” Tanger said. “In bad times like these, they need a bargain.”

    (For other news from Reuters Retail and Consumer Summit, click here)

    Reporting by Phil Wahba in New York; Editing by Phil Berlowitz

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