Why Outlet Stores Sell “Designer” Clothes So Cheap

How Outlet Stores Make Money

Outlet stores do not always sell the same products as regular stores at steep markdowns. Many brands use outlets as a separate retail channel, with products, prices, and customers planned specifically for it.

Business Model and Operating Strategy

• Two-channel, two-customer strategy: Flagship stores serve shoppers seeking the latest collection and full retail experience, often at full price. Outlets serve price-sensitive shoppers who want the brand but might otherwise buy nothing.
• Outlet-specific products: Brands can manufacture lower-priced products for outlets rather than rely only on unpredictable leftover inventory. This gives them more control over supply, size and color availability, and pricing.
• Clearance is still part of the model: Some outlets sell genuine past-season goods, returns, discontinued products, or other surplus stock. But regular, complete assortments and frequent new arrivals suggest that leftovers alone cannot explain outlet inventory.
• Channel separation protects the flagship: Separate locations and shopping experiences help prevent full-price customers from comparing similar items at much lower prices.
• Outlets can introduce customers to the brand: They may attract shoppers who rarely visit flagship stores and potentially turn bargain hunters into future full-price customers.

Pricing and Product Playbook

• Design to a target price: Outlet products may use different materials or construction—for example, a linen blend instead of 100% linen, rubber rather than leather soles, or simpler finishes. They can be genuine branded goods without being identical to regular-store versions.
• Use comparison prices as anchors: A tag showing $59 beside a “compare to” price of $249 makes the purchase feel like a major saving. The video cautions that the comparison is meaningful only if the higher price is genuine; it cites Federal Trade Commission rules concerning prior prices and inflated comparisons.
• Preserve customer trust: Heavy, persistent promotions can weaken the perceived value of full-price products and confuse customers across channels. Brands must balance outlet sales against long-term brand positioning.

Metrics and Examples

• A $249 regular-store jacket versus a $59 outlet jacket creates a displayed difference of about $190, or roughly 76%. The video stresses that the items may not be identical.
• Consumers’ Checkbook examined 40 major brands over three months and found that about half sold products made specifically for outlets or consignment stores.
• J.Crew Factory says it adds new arrivals monthly—one reason outlet supply cannot be explained solely by irregular leftovers.
• Product differences cited include Banana Republic Factory dresses made with a synthetic linen blend versus 100% linen at the main store, and Cole Haan outlet shoes with rubber soles versus leather-soled department-store versions.
• Coach: In 2016, the company said it would remove products from one quarter of its North American department stores to reduce deep discounting. In 2024, its CEO said the popular Tabby bag would be sold at full price in hundreds of North American outlets, illustrating how outlet and regular retail roles may overlap.
• Michael Kors: The video describes a class-action lawsuit alleging that outlet suggested retail prices were used for products not intended to sell at those prices. The company denied wrongdoing and settled, agreeing to change price tags.

Actionable Takeaways

• For retailers: Treat outlets as a deliberately managed channel—not merely a place to send surplus inventory. Align product design, price points, customer segments, and brand positioning.
• For shoppers: Compare fabric and construction labels, not just logos and discount percentages. Check whether the outlet item is the same model as the regular-store product.
• Evaluate the actual price and quality on their own merits; do not assume a “compare to” price proves the item was previously sold for that amount.
• Distinguish brand-operated outlets, where the brand controls product and pricing, from off-price chains such as TJ Maxx or Marshalls, which buy from many brands.

Presenters and Sources

The video’s narrator or presenter is not named; the channel is Business Decoded. Sources cited include Consumers’ Checkbook, the Federal Trade Commission, members of Congress, Coach’s CEO, and reporting on the Michael Kors class-action settlement.