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An outlet store or factory outlet or “Best Saving Outlet” is a retail store in which the customers can get branded products with low prices. It was developed in the USA and soon spread to the other countries of the world. What about its development in China?

In the remote area far from the city, an outlet store can have sales amount larger than the shopping center in the city. A simple fact reflects the great business value of outlet stores or malls.

Take the US largest property investment company Simone Property Group for example: its shopping centers can see a profit of 455 US dollars per square feet, while the outlet stores of Chelsea Property Group under it can see a 507-US-dollar profit per square.

In recent years, the outlet stores are developing at an amazing speed. A big outlet mall in Qingpu District, Shanghai was started in 2006 and was quite successful. Then this business pattern was widely adopted by developers and operators. Several outlet stores like the one in Qingpu soon arose in the suburban areas or even city centers of Shanghai.

Actually, the first outlet store was opened in Beijing, 2002. Other outlet stores can also be seen in Hangzhou, Suzhou and so on. However, quite a few of them are successful.

Attractions of Outlets

The outlet stores give the customers opportunities to buy high-quality things with low prices.

The outlet stores give the branded companies opportunities to deal with the surplus products. More and more branded companies choose outlet stores for the expansion of markets, making their products be affordable by those consumers who previously couldnt afford them.

In the USA, the common goods producer Saks Fifth Avenue and luxury brand Coach are both actively developing their businesses in the outlet stores. It can also bring benefits to the governments through more tax revenues – the outlet stores can achieve commercial success in the places where other business activities can not be successful. In the places of interests, the outlet stores can make those places more attractive and create more profits.

Generally speaking, an outlet store is usually about an hours drive from the city center. It takes one and half an hour to drive from New York to the Woodbury Commons outlet store near it. Driving from Los Angels to the Desert Hill outlet store costs the same time. Some outlet stores are established in the urban areas. The outlet stores in Asia usually get nearer to the city, which is usually an hours drive.

Actually, an outlet store possesses two characteristics – full list of brands and low prices. In an outlet store, a customer usually can enjoy a 25% discount from the normal prices. And of course, dont be surprised by a 60% or 90% discount.

Outlet stores are usually established near the big cities. Compared with the normal retail businesses, the outlet stores can cover more areas and can serve a larger population. Only the big cities can satisfy those two conditions. Furthermore, a highway connecting the outlet store and the city center is necessary which is convenient for the car owners to the outlet stores. No matter in the USA or Asia, the main customers of outlet stores have their own cars.

The economical efficiency of the outlet stores is embodied not only in the products they sell but also in their structures and operations. The low cost of developers and operators is the founding of the low rent for the branded manufacturers and further results in the low sales price.

Problems of Outlets in China

Though more and more outlet stores can be seen in China in recent years, they still have more serious and complicated problems compared with the ones in the developed countries. In addition to the reason that China is less developed than those countries, there is a main reason that Chinas business property industry is still in an initial stage. This means that the developers and operators in China have incomplete knowing about the ordinary business property, let alone the outlet business.

From the macro view, the outlet stores develop too quickly in China and cover too large areas. The outlet business is a derivative business which needs certain accumulation of retail business as the condition of development. However, most Chinese developers and operators dont realize this point. In some cities without the shopping center of the international first-tier brands, it is irrational to build the outlet stores of the international first-tier brands there. Some people blindly believe that customers will come when it is built. In fact, currently there are not many cities in China suitable for the international first-tier brands.

Though some outlet stores in the USA dont have international first-tier brands, their operation is not bad because they mainly sell the US domestic brands like Ralph Lauren, Calvin Klein and so on, which are less famous brands but have good quality.

However, the Chinese domestic brands are not so attractive in quality and fame. There are two problems for the consumers: the first is whether they are willing to drive a long way to buy a non-branded product; the second one is whether they can buy those products with the same discount rate in an ordinary retail store.

Another common problem is that the size of an outlet store is usually too big. The largest outlet store in the USA Woodbury Commons only covers less than 90 thousand square meters after five or six times of expanded construction. In China, some outlet stores are planned to cover hundreds of thousand square meters before construction without any regard of the problem of attracting businessmen. In truth, many outlet stores in China are haunted by the problem of low letting rate.

Actually, attracting businessmen is the most important link during business property operation. Chelsea Property Groups nine outlet stores in Asia all see a one-hundred-percent letting rate when opening. Compared with the foreign companies specialized in outlet stores, the Chinese operators and developers have much weaker abilities to attract businessmen.

Suggestions for Outlets in China

Although the current situation of outlet stores in China is not very good, this business pattern still has bright future in China. The high economic growth rate, the increasing number of middle class people, the maturing retail market and the larger number of international first-tier brands all lay solid foundation for the development of outlet stores in China. In addition to the Chinese consumption characteristics of focusing on brands and discount simultaneously, the outlet stores can not neglect such a good market.

Right now there are no famous outlet companies having stores in China. Chelsea Property Group is the most active company developing the outlet business in the world. Apart from those ones in the USA, there are Chelsea outlet stores in Japan, Korea, Mexico and Malaysia, etc. Chelsea Property Group once had the plan to set up a store in China, which was aborted because of the financial crisis. Seeing the great potential of Chinas outlet market, Chelsea Property Group, as well as other international outlet companies, will not give up the opportunity to gain great profits in China. In addition to the existing Chinese domestic outlet developers, the competition in Chinas outlet industry will be very furious in the future.

What is noticeable is that there is no mature environment in China to develop the outlet business quickly. Blind development is unacceptable. Chelsea Property Group has entered Japan for more than ten years but has only opened eight outlet stores. This development pace is too slow for some Chinese developers. However, such a cautious development pattern creates many successful outlet stores.

Actually, outlet business is a business pattern depending on discount. Therefore, to provide an attractive discount store is the key for an outlet store to see success. Controlling cost is important, because lower cost means lower rents and lower rents mean low prices. So the developers should try every means to reduce the cost when building an outlet store.