Monday, October 5, 2009

If There's a Recession, It's Not Apparent In The Discounter's World

Alan Greenspan, former chairman of the Federal Reserve board, said yesterday that the nation’s unemployment rate of 9.8 percent was “pretty awful” and expected the figure to climb even higher. He also suggested that a value-added tax (VAT), or national sales tax, might be necessary to raise revenue for the U.S...Does that mean that we're all doomed?

The economy is highly correlated to the revenues of big-box retailers and luxury boutiques, so most have had to adapt. Luxury brands have been hit the hardest, but the strongest, most innovative companies are surviving - what are they doing to withstand the downturn and what can we learn from this? A lot of companies have been migrating their brand, customer service and deals to outlets. Some retailers would think that this is a ludicrous idea. Why dilute your brand by placing merchandise into a bare-bones box built in a barren location? The evidence points us to a different conclusion: customers have migrated their shopping habits towards the best deal out there. Add to that some customer service and some good branding, and Voila! -- you have a new channel for making revenue in this economy. In some cases, it's become the MAIN channel for revenue generation.

Originally set up as a way to clear out excess inventory from a parent company, outlet stores are today's discount retailers. Not only do outlets sell discontinued, overstock and refurbished products, many outlets developed exclusive contracts with third party vendors to produce new in-box items that are exclusive to that outlet. Brooks Brothers has the "346" brand, while Sears Outlet has a Fisher & Paykel washer and dryer brand called "Elba". Many of these outlet-specific products can be manufactured at lower costs because they don't include the frills that full-price store products include. Lower costs generally lead to lower prices and more customer traffic. Though there is a hit on margins, analysts have seen healthy sales numbers for outlets. This strategy is a winning formula for many retailers today.

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