Buyer Beware: What You're Actually Getting at Outlet Stores

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The New Jersey social worker, an enthusiastic label shopper who frequents sample sales and department store clearance events, was sifting through clothing racks at Neiman Marcus's outlet Last Call a few months ago when she spotted a DVF piece. Weitsz, who's no stranger to the brand, felt that something was amiss.

"The pattern was great and the dress has the perfect fit the way DVF makes all her clothes, but something was really wrong," she explains during a recent shopping trip in New York City. "I think it might have been the fabric or maybe the stitching. I don't know, but I haven't gone back since."

There are numerous joys that come with discount shopping: scoring finds from your favorite designers, discovering trends you missed last season, snagging wardrobe staples at a steep price cut. Most customers believe they are indeed finding gems, that what they're about to buy came from their favorite stores a few seasons ago but was either returned, overstocked, or simply not a best-seller.

In reality, much of the merchandise at the outlets of major department stores is made or bought specifically for those outlets, with designers and vendors creating familiar-looking pieces at a lower cost that often indicates inferior quality.

Neiman, Nordstrom, Bloomingdale's, Barneys New York, and Saks Fifth Avenue all have their own outlets; customers flock to these stores for the brand-name cachet and believe they're shopping last season's carefully curated inventory. However, this isn't exactly the case. Nordstrom Rack, for example, confirms to Racked that only 20% of what it sells is clearance merchandise coming from their stores and website, while the rest is bought expressly for the outlet.

"It is existing merchandise that we are able to purchase from our vendor partners," says Nordstrom Rack's Naomi Tobis. "An example could be end-of-the-season closeouts or excess inventory that a brand has and wants to clear out. In some cases, and you can see this in our public balance sheet with our inventory levels, we purchase these closeouts or excess product at the end of the season, and hold it in a warehouse for a certain amount of time."

For those shopping at Neiman Marcus outlets, things get a little more confusing. Neiman has two kinds of outlets: Last Call Clearance Centers carry overstock from the full-priced stores, while Last Call Studio stores sell items specifically made for the outlets. Yes, made. Ginger Reeder, Neiman Marcus's vice president of corporate communications, says the company works with designers like Equipment, Theory, Stuart Weitzman, Tahari, Furla, Kate Spade New York, and Vince to design and produce merchandise for their outlets. While she wouldn't confirm whether or not this inventory is of lesser quality, she did note the items are meant for an "aspirational shopper."

"We've found that for an aspirational shopper, they are looking for the same design mix found at Neiman Marcus, but at a lower price point," Reeder says. "Many designers we carry are designers we have in our full line store, but there might be a different fabric or buttons or the finishing touches might be different. I wouldn't call the clothing cheaper, it's just less expensive. For example, a DVF dress might have a pattern that wasn't picked up from our full line stores, so we made a batch of them for the Studio stores."

Barneys and Saks would not provide comment to Racked, but it's fairly safe to assume the outlet practices of Barneys Warehouse and Saks Off 5th are similar. According to Buzzfeed, last year Saks Off 5th executives told investors that just 10% of their merchandise comes from Saks, 25% is "private-label" goods, and the rest is created for the outlet by specific vendors.

The formula these outlets employ—designers watering down their original concepts with inferior materials and production methods to get to a lower price point—wouldn't seem so sneaky if shoppers knew what they were buying. Reeder says Neiman Marcus outlet shoppers are fully aware of the difference in outlet offerings, but vague labeling continues to perplex shoppers. If the DVF dress Weitsz almost bought was similar to a full-priced $350 one, but made with inferior materials and sold for $150, "shouldn't the price tag say $150, and not 'compare at $350?'" she asks.

Amondo Redmond, the director of Gap outlet stores, notes that the Gap brand outlets (which also include Banana Republic) only have clothing made specifically for them. Unlike the major department stores, they're quite vocal about this distinction: There is no overflow from regular Gap or Banana stores, and Redmond says the company tries to be as straightforward as possible about its merchandise. He believes there needs to be more honesty in the industry when it comes to telling shoppers what it is they are buying.

"One thing we're aimed at is trying to be transparent about what exactly the brand is propositioning," Redmond says. "It's always good for brands to be transparent about what they are offering. We're clear: If you love Gap, you will love our destination. We offer a design that has a different value proposition, and that is our way of being transparent. We think other brands should follow too."

Some shoppers Racked spoke with were not surprised by these murky tactics, and say the inferior quality of the clothing does not necessarily bother them because the alternative—going to a lower-priced store like Old Navy—is not an option for brand-conscious shoppers.

"I don't expect outlets to tell me their clothing is made with inferior materials. That's obviously bad for them," says Phil Popowitz, a 25-year-old real estate agent who shops at department store outlets for work shirts made by brands like Ralph Lauren, Calvin Klein, and Nautica. "Obviously, this is a 'pay for what you get' situation, and it won't stop me from shopping there. There's no other option for me because I wouldn't go to regular department stores and spend tons of money, and these outlet stores have better variety and design than shopping at Target!"

Adam Gidding, an English teacher living in New York City, has similar sentiments.

"I take shopping seriously, and I've had great experiences with outlet stores," Gidding says. "Some of my favorite articles of clothing have been from outlets. I don't think it's lower quality, and if it is, I definitely don't feel it. I'm just happy with the fact the clothing maintains a semblance to the style of the designers who make them. They've found a way to connect to their authentic style, and to me, that's enough."

Still, deceptive outlet store practices have caught the attention of many, including members of Congress. Earlier this year, three senators and one representative wrote to the Federal Trade Commission requesting an investigation into the "potentially misleading marketing practices by outlet stores across the United States."

They explained that the county's 300 outlet malls generated some $25 billion in sales in 2013, and in addition to being the fastest growing segment in retail, they are also seen as a vacation destiny for those traveling (in other words, a tourist trap). Citing issues like misleading labels and price tags, they wrote that "outlet store consumers are being misled into believing they are purchasing products originally intended for sale at the regular retail store" and noted the tags might violate the FTC's Guides Against Deceptive Pricing.

"Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores," the January letter read. "Today, however, some analysts estimate that upwards of 85% of the merchandise sold in outlet stores was manufactured exclusively for these stores. Outlet-specific merchandise is often of lower quality than goods sold at non-outlet retail locations. While some retailers use different brand names and labels to distinguish merchandise produced exclusively for outlets, others do not. This leaves consumers at a loss to determine the quality of outlet-store merchandise carrying brand-name labels."

The FTC would neither confirm nor deny that they are launching an investigation into outlet stores, but it's clear Congress's concerns did not fall upon deaf ears. In March, two months after they received the letter, the FTC published an article on its site titled, "FTC Advice: How to Shop Wisely at Outlet Malls." Some of the tips include being familiar with regular pricing at department stores and shopping for off-season items to ensure you're buying clearance merchandise rather than made-for-outlet clothing.

"Recognize that if you're buying something that looks new and undamaged, the price may be lower for a reason. For example, plastic might replace leather trim on a jacket, or a T-shirt may have less stitching and a lighter weight fabric," the article explains.

Colleen Tressler, a consumer education specialist at FTC, wrote the piece and tells Racked she decided to do so because she didn't feel that there were enough facts out there about what goes on in outlets.

"People work hard for their money, so we want to make sure they are getting their money's worth whenever they make a purchase," Tressler explains. "I know from personal experience that I didn't know there was a different league of merchandise in outlet shopping, as opposed to retail shopping. I asked around here and a lot of people didn't know either. There hasn't been enough penetration of this kind of information."