If you are anything like me, bargains are always a welcome sight.  One of the most popular venues for bargain shoppers nationwide are the slew of outlet malls that have popped up in suburban areas and near popular vacation locales.  Outlet stores advertise extensively that they offer upwards of 75 percent off the price of goods normally sold in their retail locations.  Who would turn down a genuine Brooks Brothers suit for only $325 when the retail locations sell similar suits for well over $1000?  But are these bargains actually all they are made out to be?

Recently, four members of Congress wrote to the Federal Trade Commission (FTC) asking it to commence an investigation into allegedly deceitful sales and marketing practices by companies operating outlet stores.  In their letter to the FTC, the three senators and one congresswoman requested an investigation into claims that these retailers are selling lower quality goods that are manufactured exclusively for the outlet stores instead of for normal retail locations.  By marketing these goods in a manner that implies that they are identical to the goods sold in normal retail locations, and by not informing customers of the difference between the lower quality goods sold in outlet stores and the higher quality goods sold in regular retail locations, these stores are purportedly violating the FTC’s Guides Against Deceptive Pricing.

FTC regulations require that any price comparison made between goods must relate to goods “of like grade and quality.”  Thus, both sets of merchandise must be “essentially similar quality and obtainable in the area.”  By advertising goods with signs stating “Brand X shirts – 75% off retail,” the shirts sold must be of the same quality and grade as those sold in retail locations (for the higher price).  When these advertisements appear in relation to Brand X shirts sold in outlet stores, consumers may become confused.  Consumers might think that the shirts are of the same quality as those sold in Brand X’s retail stores.  In years past outlet stores sold excess inventory, slightly damaged goods, and unusually sized goods.  Yet today approximately 85 percent of all goods sold in outlet stores are manufactured specifically for those stores and are simply of a lower quality.

Some stores have created new lines and labels for goods sold in their outlet store locations, thereby attempting to put consumers on notice that those goods were likely manufactured specifically for outlet stores (e.g. Brooks Brothers “363″ line of clothing and accessories sold exclusively in outlet stores).  Therefore, they might not be of the same grade and quality as those sold in normal retail locations, but consumers would be aware of this difference.  However, according to the congressional letter, those retailers that do not label their outlet store goods as such risk “leave[ing] consumers at a loss to determine the quality of outlet-store merchandise carrying brand-name labels.”

Since this letter was sent in January the FTC has published a consumer blog post about the outlet store issue.  They are advising consumers shopping at outlet stores to look for material differences in the goods, noting specific areas where outlet-store merchandise may be of a lower quality, and suggesting that consumers ask the retailers if the goods are “made-for-outlet” only merchandise.  Outlet malls generated an estimated $25 billion in sales last year and are one of the fastest growing segments of the retail market.  But with growth comes enhanced government oversight.

It is now up to the FTC to determine whether consumers truly understand that they are purchasing lower quality goods.  If consumers instead believe they are getting an incredible bargain from the outlet stores, the FTC may take enforcement action against those retailers.  As leading fashion industry attorney stated, it is important for outlet malls retailers and consumers alike to take notice.  Consumers may still want their $325 Brooks Brothers suits, but they should understand that Brooks Brothers is not a charity selling $1200 suits for $325.  There must be something fundamentally different about these products.  It is now up to the FTC to decide whether consumers understand this essential difference.

 

Andrew Solinger

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One Response to Outlet Stores: Deals or Deceit? That’s for the FTC to Decide

  1. Morgan Morrison says:

    I hope that the FTC acts on this. I do think there is a general misunderstanding about what outlet malls offer. My impression was that the reason why products are sold at outlet malls (and therefore, for cheaper prices) is that they are out-of-style or unpopular (and not that the retailer was just being charitable). I personally can’t tell the difference in quality in the jeans I’ve bought at the GAP outlet store versus the ones I (used) to buy at the mall for full price. That only makes it more difficult to realize that the retailer one store over might be selling products made specifically for its outlet mall location.