In March 2021, a 220,000-tonne containership called the Ever Given blocked the Suez Canal for nearly a week. The incident broke the internet, held up nearly $60 billion of trade and made supply chains an everyday topic. By 2022, talk of supply chains hadn’t abated. Consumer demand had returned post-pandemic, but Covid restrictions in manufacturing hubs in Asia were hampering supply. Fast forward to today, and businesses are facing the opposite problem: overstock.
Overstock is a continuous minefield to navigate, especially in the post-Christmas returns cycle. It’s something many retailers factor into their yearly sales strategies. But this year especially, things have come to a head. We’re in a perfect storm; supply issues led to delayed stock, post-Covid consumer behaviour has been unpredictable, mixed with rising inflation and a cost-of-living crisis, which has led to an industry-wide problem. Research suggests that half of UK retailers are struggling to find a solution to the problem of unsold goods.
How to solve a problem like overstock?
The approaches to this problem are varied – some brands are ‘deep storing’ stock for next winter, whilst others, like luxury brand Net-A-Porter, are offering up to 70% off designer labels. Flash sales or platform pairing are simple, yet dangerous strategies which could potentially damage brand reputation and integrity and see customers wait for sales to avoid paying full price.
But 2023 is the year of innovation, and off-price is seeing a reinvention. A firm favourite of some, off-price, or discounting, has moved out of the dirty-little-secret and into the limelight. No longer is it just for the likes of Bicester Village, London Designer Outlet or Cheshire Oaks. As McKinsey reported last year, off-price is set to grow five-times faster than full-price between 2025 and 2030, confirming that it’s a significant part of the retail sector that is gaining momentum. When successfully executed, off-price can present an exciting opportunity to bring in new customers, strengthen sustainability, shift stock, and also elevate the full-price offering.
Approximately 29% of all fashion retail occurs online, but for off-price, the online market share is considerably higher, at almost 40%. This channel has advanced significantly in recent years, in part thanks to off-price marketplaces like The Outnet and Secret Sales. They’ve opened the door (or browser) to affordable luxury avoiding the reputational damage of physical outlet stores.
Another route brands are taking are mystery boxes. Many big-name brands such as Charlotte Tilbury and YSL are jumping on the internet trend started by founders of Heat, Joe Wilkinson and Mario Maher. The company buys overstock from luxury retailers and curates it into multi-brand boxes, sold via drops. In 2022 LVMH Ventures invested $5 million in the brand, implementing gamification, AI-driven personalisation and interactive drops.
Off-Price is the new on-price
Outlets are big business. “Call it the Aldi effect,” says Savills director of commercial research, Tom Whittington in an article for The Guardian. “There’s no longer any embarrassment about wanting, or needing, a discount.”
Against a backdrop of tightening belts, luxury retailers are having to forge new paths – or reinvent old ones - to reach new and younger customers. Compelling pricing is key for consumers in the squeezed middle, and there continues to be an opportunity to capitalise on the de-stigmatisation and increasing sophistication of the outlet channel.
Off-price consumers are particularly drawn to affordable luxury and luxury brands. According to McKinsey, these segments jointly account for 80% of total online off-price spending. They’re not necessarily seeking out the lowest-priced items either. Outlet shoppers looking for luxury off-price product lines are often younger and more affluent than the average shopper. They’re also often more focussed on exclusive offers and brand selection, and this combination has resulted in off-price retailers successfully attracting medium and high-spenders. Some brands see off-price as a profitable enough segment to produce goods made specifically for outlet environments- much of the merchandise in own-brand outlet stores is just that, with such stores able to contribute significantly greater than double-digit four-wall margins in many cases.
Of course, on the wholesale side, brands clearing old stock for say, 20% of cost is seen as a last resort option. Care must be taken to retain brand integrity and reputation, but there are ways the channel can be used and still be incremental to the brand. Utilising the off-price channel could reduce the need for deeper discounts in full-price high street stores, encouraging customers here to pay full price rather than waiting for a sale.
Sustainability in new spaces
On top of these benefits, there are sustainability impacts to be seen from off-price too. No longer a buzzword, sustainability is imperative for survival if we are to reach our net-zero goals. There are a host of innovative tech-enabled products in this space to help retailers benefit, whilst cutting their carbon emissions.
One in ten items bought are never worn – they end up in landfill or are incinerated, a fact highly publicised in 2018 when it was reported that Burberry torched $36.8 million worth of merchandise. Selling off-price via outlets or online can strengthen sustainability goals, whilst taking care of overstock and catapulting brands into newer generations shopping baskets.
In the UK there are 37 large-scale designer outlets, which in 2021 saw an estimated 111 million visitors. Outlet specialist Ken Gunn Consulting suggests that off-price sales at outlets are growing at ten times the rate of traditional high street retail. By 2024, spending in outlet centres is expected to grow by 18.5%, reaching £ 4.1 billion.