Deluxe
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Outlet shopping is perhaps luxury’s greatest ploy to get its goods into the hands of anyone and everyone. “We have shoppers ranging from celebrities who can have it all but love the thrill of the hunt to value-conscious shoppers who aspire to wear these top brands,” Chelsea Premium Outlets spokeswoman Michele Horner explained.
But outlet shopping is the antithesis of the flagship, the antithesis, in fact, of luxury itself. “It was jolting to view pieces from Prada’s brilliant fall 2004 ‘extreme romanticism’ collection withering on the vine,” wrote columnist Karen Heller in the Philadelphia Inquirer in 2006 after visiting Woodbury Common Premium Outlets in New York. “The clothes were marked down, picked over and repeatedly pawed, the opposite of how they were originally displayed. Their power to enchant seemed minimized, even at a third the price, smashed together like produce in a storage hold.”
Yet in today’s luxury industry, outlets make good business sense: they sell goods that the movie stars, the flagships, the ads, and the billboards flack to the masses, but at a price that the masses can actually afford, sometimes in bulk. “The 1980s were all about status and how much you paid for something, but now it’s prestigious to say how much you’ve saved,” said Randy Marks, publisher for OutletBound.com, an online guide to outlet shopping. “Outlets are accessible. If you were to go to Rodeo Drive or Madison Avenue, you might be intimidated to walk into Michael Kors stores. But outlets are not as uppity. And retailers like that because they are opening their brands to people who might not get a chance or be willing to walk into a flagship store.”
Outlet shopping began in the late nineteenth century as small company stores in factories where employees could buy items—often rejects—at a discount. It remained that way until 1970, when Vanity Fair clothing company opened the first factory outlet center in the United States in the old Berkshire Knitting Mill in Reading, Pennsylvania. It was a clever way to use the space that sat empty after manufacturing moved elsewhere. I remember my mother taking me there from our home outside of Philadelphia when I was a kid. We’d drive up early on Saturday morning, twice a year—spring and fall—to stock up on Vanity Fair brands such as Fruit of the Loom underwear and Lee jeans at a deep discount. The outlet was actually in the factory: mammoth hangar-like workrooms filled with busloads of frantic shoppers rummaging through giant bins of jeans, bras, T-shirts, tube socks, panty hose—the basics—all with defects, large and small. The labels were cut off roughly, leaving the seamed edges, inside and out. We always left with Hefty bags full of new clothes.
By the late 1970s, the entire town had become a giant outlet center. Developers, like Chelsea, saw what happened in Reading, realized that outlet shopping was a burgeoning business and by the mid-1980s, were constructing outlet shopping centers outside of towns across America. Desert Hills Premium Outlets began humbly in 1990 as a strip mall where midrange brands could unload overruns and leftovers. “Though we are in the middle of nowhere,” says Kathy Frederiksen, “it was an instant success. It’s a day trip from L.A. and Orange Country, and we capture residents and tourists from Palm Springs.”
As outlet shopping became a legitimate segment of the retail industry, American luxury brands such as Ralph Lauren, Donna Karan, and Oscar de la Renta, and department stores such as Saks—companies that knew the American bargain-hunting mentality well—opened stores at these malls and started sending their leftovers from each season there instead of to discount chains. Several of the brands sold so well that they began to produce less expensive lines to be sold solely in their outlet stores. Their success gave luxury brands from Europe—where outlets were still a foreign concept—the courage to give it a try.
In 1995, Desert Hills built a more highly designed addition. Gucci opened there in 1998, Tod’s and Prada in 1999, and Tag Heuer in 2001. In 2002, Desert Hills opened a twenty-five-thousand-square-foot addition with a fancy brick outdoor esplanade lined with handsome storefronts dedicated to what Frederiksen calls “high-end tenants,” bringing the total to 130 stores. Ferragamo, Bottega Veneta, Hugo Boss, and Sergio Rossi arrived in November 2002. Yves Saint Laurent came in March 2003, and Dolce & Gabbana in July. Dior opened in late 2004. “We promote the outlets as 25 to 65 percent off full retail price,” says Frederiksen, “but a lot of these stores want to move the merchandise, and you can get it for a fraction of what it will cost in the store.” Indeed, when I went into the Dior store, I was surprised to see that everything was 25 to 50 percent off full retail price, some items with an additional 75 percent off the reduced price. That meant that sexy lace bustiers cost a mere $25 instead of several hundred dollars. Desert Hills makes the shopping that much more interesting by selling coupon books for $5 that offer further discounts in particular stores.
The luxury brand outlet stores are often done up to look like their regular full-price boutiques, with blond wood floors, chrome-trimmed sales counters, and glass display cases. The salesclerks wear the same uniforms, and hip music is piped in. The stock usually comes from flagship stores around the region—Beverly Hills, Las Vegas, South Coast Plaza in Orange Country, California—but it can come from as far away as Hawaii, Hong Kong, or Japan. It can be one month, one season, or a year or two year behind. Sometimes the items have a slight flaw or a hem is ripped out or buttons are missing; shoppers must be diligent. “I once got home from the Ferragamo outlet only to find two mismatched silk evening pumps among my purchases,” wrote reporter Laura Landrop in the Wall Street Journal. But, says Linda Humphers, editor in chief of Value Retail News, a monthly trade publication that covers the outlet business, “you will not see any fuchsia sweaters with three arms…because today outlet chains understand that is not good business. It’s not the quality customers expect. And image is one of the reasons for opening an outlet, so excess goods don’t end up [at a discounter] where goods are jammed together.”
As a result, the array of goods at luxury brand outlets is choice. When I went into the Yves Saint Laurent shop in July 2005, it was as if I had stepped into a Best of Tom Ford store. Suits, shirts, dresses, gowns, and shoes from all four of his Rive Gauche collections from 2002 to 2004 were on the racks, and Ford’s fashion shows played on a video screen, though he hadn’t been with the company for more than a year. “They do a lot of sales by phone,” Frederiksen tells me. “People call and then Saint Laurent ships it.” At the Versace boutique a woman picked up a black leather gown that an A-list actress had worn to the Oscars and returned to the company. Some brands use outlets as their primary sales venue for more middle-market areas. Burberry, for example, had a dozen outlets in the United States in 2005, including a new one about forty miles outside Seattle. At the time, it was the only freestanding Burberry store in the entire state of Washington.
Desert Hills gets about 100 to 150 bus tours a month—80 percent are Japanese, and 10 percent come from other Asian countries. Bus tours originate out of Los Angeles, arrive at 10:00 a.m. and depart at 3:00 p.m., giving the customers five hours of concentrated shopping. Desert Hills has a Japanese-speaking customer relations representative, and several of the stores have Japanese-speaking sales associates. There are Japanese restaurants at the mall, too. But the average outlet center customer in the United States, according to OutletBound.com, is a forty-three-year-old white female with an annual income of $50,000 or more. The reason for this, Humphers told me, is a mix of culture and marketing. “Men in the U.S. don’t shop—90 percent of men’s clothing is bought by women,” she said. Furthermore, “outlet prices, while bargains, are still higher than those found in discount and off-price stores,” she said, and that demographic is “the most targeted in marketing programs.”
Desert Hills visits increased with the opening of the Morongo Casino Resort and Spa down the road in late 2004. Desert Hills does what it can to buff up the shopping experience: it has a VIP Shopper Club that allows shoppers to download exclusive savings offers from merchants, and in 2005 introduced Chop n’ Shop, a helicopter service from Los Angeles to Desert Hills, for $770 per p
erson. Each store has its perks too: good customers get e-mails and phone calls when new merchandise arrives, and customers can request to be notified when specific items come in. “The winning formula is to build a center big enough to keep out the competition, that’s close to a major metropolitan area so it attracts local shoppers ten times a year instead of the four or five times a year they used to,” said Humphers.
In the United States, luxury outlet malls are expanding. Las Vegas Premium Outlets is adding some 30 new stores to its 120-tenant list. In the rest of the world, outlet shopping is just taking off. Former Washington, D.C., real estate developer J. W. Kaempfer brought the notion of outlet malls to Europe in the early 1990s. Today his firm, McArthur-Glen, is the largest outlet mall developer there: its sixteen Designer Outlet malls, located in such former industrial towns as Troyes and Roubaix in France; Ashford, England; and just outside Florence, Italy, draw fifty million shoppers each year to such luxury brand outlets as Armani, Bulgari, Dolce & Gabbana, Hugo Boss, Prada, Roberto Cavalli, and Salvatore Ferragamo. Chelsea Premium Outlets has opened one mall in Mexico City and four in Japan. David Simon, CEO of Simon Property Group, the owners of Chelsea Premium Outlets, said in 2006 that it was building a premium outlets mall in Korea. And he added, “We believe in China.”
WHILE MUCH of luxury’s expansion to the middle market was created by the machinations of executives in corporate offices, the idea for luxury’s newest and most promising retail avenue was, like so many great inventions, discovered by accident by an outsider. In 1998, freelance fashion editor Natalie Massenet told then–Sunday Times Magazine fashion director Isabella Blow that she wanted to produce an Edwardian-themed fashion shoot. The ever-creative Blow had one suggestion: “Think porcelain.” Massenet went home that evening, sat down at her husband’s computer, and for the first time surfed the Web, in search of Edwardian porcelain that might inspire her. Instead, she found something else: the endless possibilities of the Internet. “It was a mind explosion for me,” Massenet told me over breakfast at the Westin in Paris in 2006.
How, she wondered, could she apply this to the world of luxury brands? Suddenly, the answer was obvious: online shopping, she said, was the “next logical step in the evolution” of luxury retailing. Before luxury e-tailing, she told me, “you had the whole media machine telling you what you needed to have, and then you had to travel to a city center to buy it. You had women in the Middle East who took shopping trips to London and Paris twice a year, women in the country going to the city.” Wouldn’t it be fantastic, Massenet thought, if they could order the luxury brand items they wanted from the comfort of their home and have them delivered in a matter of days? Wouldn’t that be a true luxury?
Massenet, a pretty brunette who could pass for Sandra Bullock, immediately got to work on a business plan. Her idea: to do an online fashion magazine where you could buy the items you read about with a click of the mouse. She called it Net-a-Porter.com and describes is as “merchantainment—the convergence of impulse and media.” Her plan was to hire buyers who would go to showrooms and order clothes at wholesale that she would sell for full-retail price online, just like a department store. To give the site more depth and hook interest, it would be set up like a Web magazine, with articles that “tell readers what makes the items for sale so special,” she said. “You have to keep the magic. If you reduce it to a garment, you are missing the point of what that garment is about. It becomes a generic item.”
Though new to the Internet, Massenet knew all about fashion and marketing. Born Natalie Rooney in L.A., the only child of a foreign correspondent-turned-film-flack and a Chanel showroom model, she was raised in Paris, studied English at UCLA, and worked as a film production assistant. In 1990, at twenty-five, she landed her first fashion job, as a stylist for a friend’s fashion production company in Los Angeles. In 1993, she joined Women’s Wear Daily as West Coast fashion editor, where she did styling and reporting, and covered events including the Academy Awards. In 1995, she met Arnaud Massenet, an investment banker based in London. She left Women’s Wear, moved to London and married him, and became senior fashion editor for Tatler, a glossy women’s fashion magazine, where she says she “learned about the high-fashion consumer.” She went freelance in 1998, and began to work with Isabella Blow at the Times.
To get her Net-a-Porter idea going, Massenet called on designers she had worked with while at Tatler and the Times to ask if they’d participate. Among the first to sign on were London-based companies Jimmy Choo, Burberry, Matthew Williamson, and Anya Hindmarch. Once Massenet compiled a list of about thirty-five, she started looking for investors. It wasn’t easy. “We didn’t have a broad appeal to the investment community because we had a business plan that showed realistic sales projections and didn’t show a public listing in six months,” she told me.
Instead, she pulled together just over $1 million in start-up capital from friends and family in three months and sublet a quaint artist’s studio in Chelsea, where the Chelsea Art School had been founded. “It had a beautiful studio room with a mezzanine where we kept the Jimmy Choo shoes and packaging, and one of the bedrooms was our stock room and the other the packing room,” she remembered. There were five on staff. “We were a lean machine,” she says.
Yet the luxury industry was averse to online retailing. Despite their rabid expansion in such middle-market retail spots as Las Vegas and far-flung outlet malls, luxury executives deemed Internet retail tacky. “The luxury industry couldn’t get their heads around the idea that a three-dimensional retail experience they had spent years perfecting could be reproduced in two dimensions, so instead they stuck their heads in the sand,” said Marc Cohen, director of Ledbury Research, a consulting firm that focuses on wealthy consumers.
And then there was the Boo.com fiasco. In the late 1990s, a trio of Swedish entrepreneurs jumped into the Internet start-up frenzy with a trendy sportswear e-tailer they called Boo.com. Boo got loads of press in such influential business titles as Forbes and the Financial Times and had impressive backers, including Bernard Arnault. Surprisingly, Arnault is a bit of a computer nerd who reportedly spends much of his free time surfing the Web. In the late 1990s, he put €500 million of his own money in an investment fund called Europ@web that backed various start-ups, including the online auction house QXL, the French search engine Nomade, and the music e-tailer Peoplesound.com.
But Boo was a badly managed company. It ran a huge overhead—its plush offices in London, New York, and Paris held 420 employees, an enormous number for a start-up. The founders lived large, flying on private jets or on the Concorde, traveling by limo, staying at hip four-star hotels. They had a $42 million marketing budget that they used on such follies as announcing their May 1999, launch on billboards across Europe and Scandinavia and hiring award-winning video director Roman Coppola to make their television commercials. When they finally launched Boo.com, six months late and seven weeks before Christmas, it was a technical failure: fewer than 25 percent of attempts to access the site were successful. And it was a financial disaster: the company burned through an impressive $7 million a month. At its best, Boo made $1.1 million a month. Backers withdrew their support. There were layoffs, including the chief financial officer. Finally, in May 2000—just six months after it launched—Boo.com shut down and was liquidated. The founders had gone through $135 million in two years.
The Boo implosion didn’t drive Arnault away from Internet retailing or teach him what mistakes to avoid when launching a site. Au contraire. He poured more than $100 million—from his personal Europ@web fund and LVMH—into eLuxury.com, a San Francisco–based Web site dedicated to showcasing and selling LVMH fashion brands. Arnault’s idea was to produce an online version of a luxury department store, with each floor devoted to a different brand. It would sell everything from $20 Dior lipsticks to $20,000 Vuitton trunks, all wrapped beautifully in hard boxes with tissue paper and shipped from a warehouse in Memphis, Tennessee, where FedEx’s worldwide distribution hub is l
ocated.
To get customers to return to the site regularly, Arnault and his team came up with the same idea as Massenet: an Internet fashion and lifestyle magazine that would be informative as well as highlight the brands available. Like the retail side, the webzine would be high-gloss—the online equivalent to Vogue. The eLuxury site hired top editors and journalists away from such prestigious titles as Conde Nast Traveler, In Style, and Food & Wine to create and write the content. No expense was spared. “We’d write articles like ‘Celebrity Beauty Secrets’ or ‘Hot Spas’ and to do it they’d send you some place for ten days, put you up at the best hotel, and pay for you to take in all the best restaurants, spas—everything,” remembers one of eLuxury’s original writers. “The amount of money they spent was dizzying.”
ELuxury launched in June 2000—a month after the Boo.com flameout and about the same time as a handful of other sites, including LuxLook.com, LuxuryFinder.com, and Net-a-Porter. Compared to the others, eLuxury was a monolith. “ELuxury launched a week after we did and I thought at the time, ‘I have one week to make it, then this hugely funded machine will take over,’” Massenet remembers with a laugh.
Actually, it didn’t work out that way. Though luxury online shopping made perfect sense—it appealed to wealthy customers who knew the products and wanted the ease of ordering from home, and it attracted a new middle-market clientele that had coveted the items but either didn’t have access to or felt intimidated in the stores—it took a while to get going. “The market was nonexistent,” says Massenet. “We had to create it.” Not all the sites survived. Both LuxLook.com and LuxuryFinder.com went under in 2001; eLuxury acquired their URLs and customer databases. And eLuxury had its problems, too. Like Boo before it, the company ran far too high an overhead and was hemorrhaging money. Soon it began to make substantial cuts in the luxury side of its offerings: the fancy packaging disappeared, customers had to pay for return shipping, the editorial content started to shrink. “I remember in 2001 every time I attended an editorial meeting, there’d be one less person,” one writer told me. In 2002, the magazine was completely phased out and only the e-tailing remained.