What Modern Day Store Formats Have Learned From The Original Factory Store

Outlets first appeared in the Northeast in the 1930s. Factory stores started to offer damaged or excess goods to employees at a low price. As the word spread, the audience expanded to include non-employees.

Outlets grew from the success of warehouses that sold directly to consumers. They were considered cheap and different. I grew up in Northern New Jersey. As a child, I remember my parents taking me to shop at Factory Outlets in Secaucus, NJ.

Organically, more than 60 traditional warehouses opened warehouse stores in the front of the warehouse. They offered irregular and excess merchandise – everything from furniture to fashion to food – sold directly by the manufacturer, directly from the warehouse. The outlets were raw warehouse stores with racks of merchandise.

The manufacturer’s warehouse made more than retailers chose to buy or because the company already had a warehouse in the area and income from an outlet helps to pay the rent.

Over time, outlets grew from successful and austere operations to become full-fledged shopping destinations accessible to consumers seeking a collection of value retail shopping environments. Until the 1970s, the primary purpose of outlet stores was to dispose of excess or damaged goods. While these types of warehouse operations still exist, outlet malls have all but replaced them. In 1974, Vanity Fair opened the first multi-store outlet center in Reading, Pennsylvania, offering a wide selection of designer and brand name fashion.

Over 75 years later, changing consumer demands accelerating during the pandemic have led retailers to rethink their physical footprints.

Traditional brick-and-mortar stores have transformed into fulfillment centers offering a new range of purposes that boost productivity, including improved inventory management and meeting on-demand delivery needs, placing products in customers’ hands faster than ever.  Today, last-mile logistics solutions from retail stores demonstrate a return to this old school “Outlet” distribution strategy. Many are optimizing places and spaces for new market conditions, engaging consumers in meaningful ways, and employing diversification strategies to remain resilient.

We should expect to see a trend of reducing store footprints to more flexible store formats with more warehouses in-store for click-and-collect and delivery options.

Click-and-collect is a way of trading that allows consumers to ‘click’ and buy online, then ‘collect’ at a store by picking up their items rather than having them delivered. This process has proven to be a more cost-efficient sales model for retailers than selling online and shipping directly to consumers. Furthermore, if the need for showroom space continues to decrease as predicted, the back of house can grow to enable a more flexible last-mile solution. Click and Collect is still a relatively new concept, but it further demonstrates the importance of the physical store as a competitive advantage for a retailer’s distribution strategy. It is also an essential component of omnichannel retail at its best, as the retailer fulfills orders from the location most convenient for the consumer and most profitable for the retailer. It is also a way for retailers to use physical stores to their competitive advantage against e-tailers that do not have a physical presence.

Retail has always been a dynamic industry that constantly changes to keep up with consumer demands. Brick and mortar retail always has and always will need to respond to the ever-changing consumer demand and create compelling reasons to attract the consumer. We learn from history that outlets were a precursor to outlet malls and big-box retail. Today, Data-driven insights are reshaping retail, and it is more important than ever to be equipped with the resources to design a path to a future of profitability that aligns with project goals and differentiation. While it often feels like retail looks nothing like the past, we can learn from history that the fundamentals have not changed.