Uncertain climate spurs outlets; stores inch closer to off-prices turf - apparel factory outlet stores

Uncertain Climate Spurs Outlets

Factory outlet stores are getting a powerful boost from the retail chaos engendered by the Ames and Campeau bankruptcies.

No longer pipe rack operations carrying seconds and last year's unsold styles, factory outlet stores now offer a complete selection of the same first-quality, current fashions that department stores feature. And, the vendors don't have to worry about getting paid for the merchandise they retail on a cash-and-carry basis.

To avoid offending their department store customers, manufacturers traditionally have avoided locating their stores close to major urban centers or conventional malls. But that reluctance is diminishing. In Holland, Mich., for example, the Horizon Group built one of its five outlet malls right next to a conventional mall, where many of the same brands appear at full retail.

As developers run out of traditional outlet mall sites close to tourist destinations, they will begin moving closer to major metropolitan areas, such as Western Development did with its Franklin Mills Mall in Philadelphia, consultants predict.

But most manufacturers haven't lost their traditional reluctance to talk about their retail operations.

The Factory Outlet Committee of the American Apparel Manufacturers Association conducts an annual survey of outlet stores, a spokeswoman said. The manufacturers refuse to let the association release even the names of vendors operating factory stores, much less the number of outlets they operate.

"They're rather secretive about their outlet business," the spokeswoman said. "They don't want a lot of publicity."

Increasingly, apparel manufacturers view their own stores as a new channel of distribution for first-quality merchandise built into their production schedules, rather than as a means of disposing of overruns and defective goods.

Outlet stores generated retail sales of an estimated $5 billion in 1989, and their sales are growing at a faster rate than general retail revenues. Factory stores handle only 3 percent to 4 percent of total apparel sales, although many of the designer labels they offer, such as Ralph Lauren, Harve Benard and Kuppenheimer Clothiers, are too costly to appear in discount and off-price apparel stores.

Yet, major suppliers to the discount industry such as Hanes, Gitano and VF Corp. (producer of Lee, Rustler and Wrangler jeans), Vanity Fair, Bassett-Walker, Jantzen and JanSport, and Big Ben and Lollipop, are major players in factory outlet stores. Gitano operates 73 outlet stores and VF operates 25 outlet malls, with a Lee jeans and shirt outlet as prime tenants. Both offer primarily first-quality, current fashion apparel.

In August, VF will open its 26th mall in in San Marcos, Texas. And, in October it will depart from its standard practice and open a store in somebody else's mall, the 2.2 million-square-foot Sawgrass Mills Mall in Sun City, Fla., outside of Fort Lauderdale. VF plans to open a total of 10 more stores this year.

Sara Lee-owned Hanes operates 180 outlet units divided between its latest venture, Hanes Activewear, Hanes Socks and Hanes/L'eggs/Bali.

In the Woodbury Common factory mall, Harriman, N.Y., Hanes operates all three types of stores.

Other apparel and shoe brands familiar to discount store and off-price apparel shoppers, such as Wolverine, Health-Tex, Revlon and even Bass shoes, also operate some of the largest retail chains.

And even if, K mart or Wal-Mart doesn't carry, for example, Van Heusen shirts, its pricing structure of at least one-third off suggested retail brings brand products at the bottom of the line into competitive position with private label offerings.

Van Heusen, for instance, offers its $18 dress shirts for $12, a small step up from discount department store private label shirts in the $9 to $12 range and at comparable prices that off-price apparel chains such as Marshalls or T.J. Maxx would charge.

VF Factory Outlets offer first-quality current style merchandise direct from the factory at "half the lowest ticketed price" on all of its branded apparel.

In addition to mass market clothing, Gitano factory stores also offer special apparel designed and priced to appeal to department store shoppers, said president Haim Dabah. Market research shows that the typical factory mall customer is a department store, rather than a discount store, shopper, he said.

The retailers' push for higher-margin private label goods is one reason why manufacturers are opening their own stores, said Charles Bloom, chairman of the Chelsea Group.

Chelsea operates seven factory malls, including Woodbury Common, at the gateway to the Catskills resort region, and The Tin Cannery, Monterey, Calif., another major tourist town. Chelsea is developing an eighth in Petaluma, Calif., entrance to the Napa Valley wine country, a prime tourist destination.

Factory stores permit manufacturers to test new styles and help them "orchestrate and control distribution," Bloom said.

Competition for Off-Pricers

Much of the $5 billion chunk of apparel business that factory outlets are siphoning off is business that off-pricers such as Marshalls, T.J. Maxx and Burlington Coat otherwise might enjoy.

"Outlet malls may well represent another form of discounting," said Dan McCarthy, senior manager of the trade consulting group for Deloitte & Touche, New York.

Van Heusen, the largest operator of factory stores, opens stores in three types of locations: in conventional strip centers, in "pure" factory outlet malls whose tenants primarily are manufacturers, and in off-price malls whose tenants typically split between factory stores, off-price stores and other retail establishments such as beauty salons and fast food outlets.

In a recent interview in Fortune, Phillips-Van Heusen chairman Larry Phillips said that the 1987 decision of Macy's to drop Van Heusen shirts in favor of its own private label fueled his determination to better control distribution. In addition, Dillards dropped Van Heusen shirts in favor of Arrow when it acquired department store chains that carried his apparel, Phillips said.

About 50 percent of Van Heusen's business comes from its own stores, estimated Robert Salerno, partner for the national retail consulting group of Coopers & Lybrand, New York.

The number of "pure," or primarily factory outlet malls, rose to 240 in 1989 from 21 in 1981, said Terry Dunham, publisher of Value Retail News, Clearwater, Fla.

The total includes 40 opened in 1989, Dunham said. Developers will open about 40 more this year, he estimated.

Off-price malls, often anchored by, say, a Phar-Mor deep discount drug chain or a T.J. Maxx unit, have shown the most dramatic growth. The total grew to 738 such malls in 1989 from 115 in 1981, Dunham said, including at least 83 that opened last year.

Expect to see "a lot of growth" in factory outlets in the '90s, said Carl Steidtmann, chief economist for Management Horizons, a Price Waterhouse retail consulting division. One factor driving the growth is manufacturer dissatisfaction with retailers that divert goods to off-price chains, Steidtmann said.

"By dealing directly with the public, they cut out diverters," the economist said.

On the demand side, consumers have become accustomed to the continuous sales of the 1980s, so the bargain prices of factory outlets appeal strongly to shoppers, he said.

As more and more manufacturers get into retailing, the potential grows for conflict with their wholesale customers, Steidtmann said. That may lead to retailer demands for regulation of outlet stores, since the "proliferation of outlets is against their self interest."

With the rate of outlet mall growth running 5 percent to 10 percent above last year's rate, a number of larger, well-funded developers have entered the field, said William Haueisen, president of Sterling Research Group, St. Petersburg, Fla.

Sterling serves as consultants to the outlet mall industry and publishes National Mall Monitor, a newsletter that tracks outlet malls.

A prime example is Trammell Crow, which is converting an old B.F. Goodrich factory in Los Angeles into a factory outlet mall, Haueisen said.

With the department store industry in disarray, organized resistance to factory stores is declining, the consultant said. Bankruptcy silenced the Campeau-Federated Group, once one of the most vocal opponents of factory stores, Haueisen said.

Factory stores account for 3 percent to 4 percent of retail apparel sales, Haueisen estimated, although the share in some categories jumps to 7 percent to 8 percent.

With many new malls fighting for their tenancies, manufacturers can pick and choose the strongest store locations where they can best support them with home office supervision and distribution, Haueisen said.

PHOTO : The Hanes Activewear factory store, Harriman, N.Y., is one of 180 Hanes units offering first-quality, current season goods at a discount, competing with the retail chains Hanes sells to at wholesale.

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