Fake Deals

August 21, 2014

Fake Deals

Medium has a story today on the less-than-honest business practices of discount and outlet stores. An excerpt:

Despite common belief, outlet clothing never enters a “regular” store and is most likely produced in an entirely different factory than the “regular” clothing. A few months ago I met with some people from Banana Republic Outlet. Banana Republic has a team of people whose sole responsibility is to design and manage production for their outlet stores. Their production team was looking for new ways to diversify their outlet product-line in order to compete with H&M and Zara. It is rumored that these huge retailers have such agile supply-chains that they are able to bring new product to their stores every 2 weeks. While Banana Republic and J.Crew are not trying to compete on price with H&M, their outlet counterparts must. This means that these companies produce lower cost and lower quality clothing specifically for their outlet stores.


TJ Maxx, known for it’s off-price designer labels, finds itself in a similar position. Ever notice that TJ’s will have a surplus of Calvin Klein, or Rachel Roy, or Elie Tahari clothing? This happens when TJ Maxx brokers a licensing deal with one of these brands. In this situation, the brand (ex: Calvin Klein) agrees to let TJ Maxx produce clothing with their label on it in return for a percentage, usually between 5-20% of the wholesale price of the garment. To put this in perspective, in 2012 Calvin Klein reported that “licensed products currently represent slightly over 50% of global retail sales.” At that time, licensing alone accounted for more than $3.8 billion in CK sales.

Licensing can be a great situation for the brand because they do not have to manage sourcing, production, or shipping. TJ Maxx, or the licensee, manages all of the nitty-gritty stuff, and makes the product in their factories at prices that they control. Then, they put the reputable brand label on the clothing and write that company a check. These branded garments end up at discount retailers and consumers buy them thinking that they’ve just scored an awesome Calvin Klein blazer.

You can read the rest of the article here. To figure out which outlet stores are worth visiting, you can read Jesse’s post from four years ago (as far as I know, all those recommendations are still good). He also has a great post on diffusion lines and licensed clothing.

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