You know that feeling you get when you buy a brand-name item at a discount? It's like you've beaten the system. You're absolved of any shopping guilt because you've saved money rather than spent it, even if that isn't actually the case. With the rise of discount outlet stores—which raked in over $50 billion in the past five years—retailers are keenly aware of our desire to buy things at prices that seem too good to be believed.
Turns out those deep discounts on brand name labels aren't always a steal. In February, Barneys New York was slapped with a class-action lawsuit accusing the luxury retailer of deceptive discounts at their lower-priced outlet stores. The plaintiff, Kristen Schertzer, claims she spent $450 at Barneys Warehouse on items that suggested a 50 percent markdown, when in fact, she alleges the products were never originally intended to be sold at Barneys.
"Barneys' scheme has the effect of tricking consumers into believing they are getting a significant deal by purchasing merchandise at a steep discount, when in reality, consumers are paying for merchandise at its regular retail price," according to Schertzer's claims.
This isn't the first time consumers have raised concerns over brand name products sold by discount retailers, many of which produce lower-quality products for outlets, despite the implication they're more expensively made.
Banana Republic, Gap, Michael Kors, Cole Haan, and Neiman Marcus have all been accused of selling lower-quality, outlet-only products as if they were deeply discounted items from their higher-end stores, when in fact they're not.
"I think outlet stores are configured to try and nicely mislead most people into thinking they're getting amazing overruns, amazing bargains," Mark Ellwood, author of Bargain Fever: How to Shop in a Discounted World, told Marketplace in 2014. "When you walk into an outlet store, you have to think, this stuff was made to be cheaper."
In their independent investigation, Marketplace "found items in outlet stores made with less durable leathers and different fabrics than the comparable products sold at the retail stores."
Ellwood wasn't surprised by the findings. "The quality of products at outlets varies widely. Remember, this stuff was largely made just to be sold cheaply. So they're going to cut corners," he said.
Coach, one of the labels in Marketplace's inquiry, acknowledged the discrepancies. "Generally, our manufactured-for-outlet product will be less embellished — using less overall hardware and/or simpler hardware, may not have an exterior pocket, or may have a narrower gusset, may have a simpler (non-branded) lining, or may use a flat versus tumbled leather — compared to the retail bag that inspired it," a Coach rep explained.
Meanwhile, Nordstrom Rack—Nordstrom's outlet chain—confirmed to Racked in 2014 "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."
In 2018, Neiman Marcus settled a class action lawsuit over false claims in its Last Call outlet stores and promised more transparency on items made for cheaper outlets rather than the flagship stores.
An earlier suit against Michael Kors over their outlet practices resulted in an almost $5 million settlement and an agreement by Kors to replace the MSRP price on outlet tags with "value". So when you see that word on Kors outlet price tags, it's an indication that the product was made expressly for the outlet and suggests the quality of that item isn't the same as one you might find by the flagship label.
Confused yet? You're not alone. If you really want to know whether your discount is for real, or just a cheaper knock-off with the brand name stamp of approval, the FTC has some helpful guidelines. Here are some things to look out for, according to FTC consumer education specialist, Colleen Tressler:
- 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. If top quality is important, you may want to keep shopping. But if it's the style or the look that's key, quality may be a lower priority.
- If you're unsure whether the store sells "made-for-outlet" only merchandise or how to tell the difference between it and regular retail merchandise for sale, ask the staff.
- Shop for off-season merchandise. It typically comes at bargain prices.
- Ask about return policies. Some outlet stores let you return unused merchandise at any time as long as the price tag hasn't been removed and you have the receipt. Other stores have 90-day or 120-day return policies. Some don't allow any returns.
- Many regular retail stores won't take returns from their outlet stores. That's something to ask your neighborhood retailer about, too.
So the next time you hit the racks and find a brand-name handbag with a price tag that seems too good to be true, don't be surprised if it is. The label may be impressive, but the quality less so. That doesn't mean you shouldn't buy something if you love it, just research what you're really paying for before you hit the checkout counter.
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