Factory outlets: A Parallel sales channel

Discount is no longer a dirty word. An economy that considers retail as therapy is shopping with glee at value stores. Companies which were quietly offloading factory surplus stock at discreet stores located on highways and city outskirts now acknowledge that surplus also sells, albeit at a discount. Thus, Mehrauli-Gurgaon Road and Mahipalpur in Delhi, Trimulgiri in Hyderabad, Marathahalli in Bangalore and Parel in Mumbai have become weekend shopping destinations.

Factory outlets can be company owned or franchised like an exclusive store. Traditionally, a factory outlet was a store, attached to a factory or a warehouse, but now these outlets are grouped together, either in a mall or on a highway. The cost saved on transport is generally passed on to the customer. Surplus stock occurs due to assortment problem, which may arise due to lack of variety in terms of colours in a particular range or the oddment problem because of odd size or fit that could not make it t o the retail outlet.

No wonder then, the Future Group's Brand Factory, a 60,000-sq ft mall in Bangalore, selling only factory surplus products of 120 brands, sees a footfall of around 2,000 people on weekdays and 4000-5000 on weekends. With Brand Factory up and running in three locations (Bangalore, Ahmedabad and Hyderabad) and three more ready for launch in the next 3-4 months, value retailing estimated at Rs 40,000 crore and growing at a healthy pace of 20 per cent per annum, consumers are surely in for a mega shopping spree. Prices are marked down by 20-40 per cent every day, apart from promotions such as `Buy one - Get one free' once in four-six months, which are considered great bargains by consumers. Most of the stocks are just one season behind in fashion and make little difference to shoppers. Sales statistics seem to agree with this. At Brand Factory, daily sales range from Rs 40-100 per sq ft occupied by the brand.

With such attractive footfall numbers and sales statistics, even top-notch names can't afford to ignore factory outlets. At Brand Factory, Adidas, Nike, Levi's, Pepe, Woodland, Wrangler, Esprit and Arrow merchandise are all stacked with value brands such as Peter England, Numero Uno and Ruff n Tuf.

Parallel sales channels

The factory outlets as parallel sales channels. The way exclusive store distribution is expanded, the expansion of factory outlets also becomes important. Factory outlets become a parallel chain to sell the `not so fresh' collection. Pant says in the franchisee kind of environment, the franchisee picks up garments at say a price 45 per cent lower than the MRP and sells it at 35 per cent lower. It's also true that the whole process is not very "tightly bound" as it always depends on what kind of rejection is available, the season's merchandise and so on. What is interesting is that the brand's value in the market is reflected in the factory outlet too. While consumers are boldly driving in their limos to a factory outlet to shop for the last season's shirt, some companies are still shying away from the `discount' word.

Sales contribution

• For Levi's, factory outlet sales contribute 5-7 per cent of its total annual sales.
  
• For Indus League, 6-7 per cent of its turnover comes from factory outlets.
  
• For Arvind Brands, says typically for any brand, about 25 per cent of its annual sales come from factory outlets.
  
• Arvind Brands has 51 factory outlets across the country. Called Megamart, these stores stock brands such as Arrow, Lee and Wrangler.
  
• Blackberrys, the men's premium apparel brand, does not have a presence in standalone factory outlets, it is seen at Brand Factory. Sales recorded is Rs 3-5 lakh per month per outlet, which is one per cent of its total annual sales.
  
• Internationally, factory outlets have done well, with brands recording sales close to 20 per cent in these retail formats. Some global big names in factory outlets are Chelsea, Tanger Fatctory Outlet, Belz Enterprises, Prime Retail, McArthur Glen Deisgner Outlets and Bicester Village.

The Future Group, which is shouting `value' from the rooftops, has coerced brands into channelising their surplus stock back into the market. With an expected turnover of Rs 60 crore in the first one year, and plans to set up 20 stores by 2010, brands don't have to worry about their `growing stock' anymore