How Does an Outlet Store Afford to Sell Items Cheaply?

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How Does an Outlet Store Afford to Sell Items Cheaply?
How Does an Outlet Store Afford to Sell Items Cheaply? (Image: 2008 clspeace / Creative Commons)

The Purpose of an Outlet Store

Outlet stores are retail locations that specialize in selling past season, imperfect or overstock merchandise, often for a deep discount. These stores may also carry current merchandise at a discounted rate. Outlet stores may be located in outlet malls with other discounters, or in locales where land and overhead are lower than higher traffic areas.

In the past, outlet stores were full of rejected pieces that had been picked over and trampled by countless consumers. Nowadays, outlets are places to find limited-edition merchandise and first-quality pieces. It can be difficult to figure out what's a real bargain and what's normally priced, but savvy shoppers like the challenge of sorting through the items to find the best deals.

Outlet Expenses

Outlets are less expensive operations to run than a normal retail location. Therefore, the savings get passed to the customer. Many of the usual expenses are reduced for an outlet location.

Think about the local outlet mall. It's probably not so local, and it's probably in an area that's far from popular shopping locales. This is to save money. Rent in a normal commercial mall may be $12,500 a month, while a space in an outlet mall may cost only ¾ of that price. Furnishings and decor are bare bones. A Neiman-Marcus location has top-of-the-line trimmings, while a Last Call location is going to look a lot like most other discount chain stores.

Outlets often don't pay as much as normal retail stores. Payroll is often a store's largest expense, and an outlet store pays according to the cost of living of that particular area. Since outlets are rarely in high-cost areas, that expense is less. Outlets are also far less likely to hire highly paid career retail employees that would command healthy benefit packages.

Outlets and Pricing

Lower expenses mean lower prices, but there are more steps that an outlet takes to pass the savings onto consumers.

The next time you're in an outlet center, scan the return policy. There's a great chance that the stores either greatly limit the amount of return time allowed, or prohibit returns altogether. This lowers the expense of the store by cutting out credit card processing fees and possible expenses for chargebacks and service charges. It also keeps all money made in the store itself, meaning that there's less chance of a potential profit loss.

Outlets also reduce cost by offering less in the way of packaging and services. It's easy to get a loveseat and sofa delivered by a full-price furniture store, but an outlet may require customers to bring their own help and truck to haul their items. This saves the business money in gas and man hours. In the realm of packaging, an outlet is far more likely to use plain bags, plastic sacks and plastic hangers rather than more costly point-of-sale goods. It's all more money saved.

The Bottom Line

An outlet is a good bargain because it takes less to run than a normal store. Manufacturers and chains seek to recoup as much profit per unit as possible, and will do whatever is necessary to reduce overhead expenses that take away from this margin. Unsold merchandise costs money for the store to warehouse, since the federal government taxes them for the items. By cutting the costs and distributing the goods to eager bargain shoppers, companies create an appealing opportunity for smart consumers to catch a bargain while still making a profit and making room for new, profitable products.

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