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Ever Wonder How Those Factory Outlets Work?

Why are they always so far out of the way?

Factory outlet malls are usually in out-of-the-way places but thousands of people travel to them every week as if they were destination spots. But instead of a nice spa or hotel, visitors are looking for rock-bottom prices on brands they would see in department stores for twice as much.

Where did this idea come from anyway? Would you believe that outlet stores have been around for more than a century? They used to be actually tied in proximity to the factories that created the goods and offered discounts on whatever excess products were made or damaged, such as shoes and clothing. At first they only sold them to employees and later to the public.

It was a menswear manufacturer, Anderson-Little, that opened one of the first off-site outlets. This was in New Bedford, Massachusetts in 1950. Then in the 1970s, multi-store centers began appearing and they evolved into outlet malls over the following two decades.

David Soberman, a University of Toronto marketing professor says the outlet mall concept took off because of rising middle-class demand for branded apparel. Today, there are an estimated 216 factory outlet centers in the U.S. where some 316 different brands operate 13,000 stores.

As for why the outlets seem so out-of-the-way, this is done on purpose. For one reason, the land in rural undeveloped areas is cheaper. David Ober, president of the Council of Developers of Outlet Centers and Retailers, adds that outlets try to be in a location that's accessible to many cities. Then there are the tax breaks being offered by remote towns, not to mention the promise of new jobs and revenue. Moreover, a brand's outlet needs to be far from its full-price stores, competitors and wholesale customers, like department stores, otherwise no one would shop at the department stores.

Consequently, a trip to an outlet mall is often a day trip which is what the retailers want. Since the shoppers traveled for so long and far to get a good deal, they tend to spend more once they've there. One study found that visitors spent 79% more per visit at outlet centers than at ordinary malls.

Better deal?

Are you really getting a better deal? Retailers have gotten a lot better at forecasting demand, which means there are fewer overruns. Since most manufacturing is done overseas, damaged goods are weeded out before they are even shipped.

What does this mean for the outlets? Well, they're no longer a place to dump the crummy stuff. In fact, experts say 82% of products at outlet centers are made specifically for the outlets. The downsize is that the products, made-for-outlet products aren't always on par with their regular-store equivalents. They can be made of cotton instead of wool or lack details like reinforced buttonholes.

What you need to do is inspect tags for the letter F which stands for factory outlet and checking the model number of small appliances online. If a product has been modified for the outlet it may have a different model number.

The signs, price tags and coupons touting big discounts such as 60% off, are common at outlet malls. Researchers say they plant what are known as reference prices. This is what you think something is worth. That's because when outlet shoppers pay less than the reference price, they end up feeling like they got a bargain. It's a powerful psychological effect. Buyers perceive more value when something's discounted.

But reference prices can be misleading: An item with a suggested price of $150 may never have sold for that amount anywhere and inflated reference prices are still common.

Perhaps the biggest surprise is that in the U.S. there is no legal definition of the term outlet mall, which means stores can be at outlet centers and not actually sell discounted products. This can backfire, and could turn customers against outlet malls, so to discourage stores from doing this, some outlet developers make sure their stores sell goods at a discount by having discounting requirements specified in the leases.

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