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Cheapest Prices Aren’t Always at Outlets, and Shoppers Know It

Discount retailers continue to gain U.S. market share as thrifty shoppers seek more bang for their buck, but a recent study from consulting firm Haynes & Co. has found that the best bargains aren’t always at off-price stores.

In fact, many items marked down in flagships are priced higher in outlets—a telling indicator, as Wall Street Journal put it, of how reliant on discounts U.S. retailers have become—and it seems consumers are starting to wise up.

According to transactions by nearly one million shoppers tracked by Citi Retail Services, a unit of Citigroup that provides private-label credit cards to retailers, close to a third of consumers who had previously shopped at outlet stores are now shopping at mainline stores, too, while a separate group of consumers polled said they’re spending less at outlets because they’ve found better deals at regular stores.

Why, then, are retailers so bullish on opening outlet locations?

Because the country’s three biggest off-price chains—TJX, Ross Stores and Burlington—are projected to see sales grow by up to 8 percent over the next five years, according to credit ratings agency Moody’s, compared with 4 percent for the overall apparel sector. In fact, real estate analysis firm Green Street Advisors named New York’s Woodbury Common Premium Outlets and Florida’s Orlando Premium Outlets among the top 10 highest sales-generating malls in America in 2014.

Even department stores are getting in on the action: Kohl’s will soon test the off-price waters with a New Jersey store stocked entirely with items returned to its full-price locations and; Macy’s announced last month it would open four discount stores in the New York area this fall; and Nordstrom, Neiman Marcus, Bloomingdale’s and Saks Fifth Avenue keep growing their discount spin-off store count.

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But the Haynes & Co. report throws a spanner in the works. The consulting firm found that over one weekend in February, prices at American Eagle Outfitters were cheaper than those at its outlets 43 percent of the time. For instance, American Eagle in Philadelphia was selling women’s jeans for 20 percent less than its off-price stores. Elsewhere, the cheapest sweater at Ann Taylor was retailing for $10 less than the $22.50 sweaters on sale in its factory stores.

“Outlets started out as places where retailers could ship the merchandise that hadn’t been sold at their regular stores… Then came the concept of developing items designed especially for the outlet class of trade. These items were generally of a lower quality,” said Steve Montgomery, president of B2B Solutions, LLC, in a recent online discussion among RetailWire’s BrainTrust panel of retail industry insiders. “The consumers have caught on to this and it has raised doubts about much of the merchandise available at outlet stores.”

Max Goldberg, president of consultancy firm Max Goldberg & Associates, agreed. “Savvy shoppers have known for years that outlets don’t consistently offer the lowest prices, yet mainstream shoppers don’t seem to care. Part of the reason may be the treasure-hunt nature of outlets. One never knows what might be for sale,” he said. “Retailers recognize this and have priced their goods accordingly.”