Clearance Outlets - Saints or Sinners?

They are popping up seemingly everywhere. And not just on the geographic horizon. They are now the subject of weekly sightings on television shows as bus loads of organised “shopping tourists” are shown swooping like locusts to devour off-price bargains – thus converting more full price shoppers to off price shoppers through their behavioral lead being broadcast on television.

Clearance outlet malls.

A marriage of retailers prepared to sell for up to 75% off recommended (or regular) retail price and shoppers prepared to compromise almost anything in the name of cheap price for branded merchandise. Increasingly fueled by property developers seeing a low cost, high yield opportunity, the outlet mall phenomena is now starting to push the envelope in terms of clearance need. Today there are probably enough of them to cover what was traditionally seen as stock overhang. But they continue to be built and leased. The growing pipeline of scheduled and planned developments of these so-called low rent environments has gone beyond the retailer backlash against high occupancy costs in major malls and the gradual decline of many high streets.

So are they saints or sinners?

The truth is somewhere in between. Clearance is a necessary part of almost every retail model – as is promotional pricing, but that’s a different subject. Every retailer needs to clear, to maintain stock-turn and reduce aged inventory. The way most of us were trained, overhang was a mistake that you were better acknowledging early and acting aggressively on. The appropriate number of clearance outlets form a powerful weapon once the first two mark-downs have been taken in full line stores without liquidating all surplus stock.

But when retailers begin to see clearance outlets as a more profitable opportunity than their full line stores and – far from seeing overhang as a planning and buying mistake – begin to engineer ranges to maximise profit in the clearance outlets, you begin to see the clouds of retail armageddon closing in over the top of the retailer in question. The international retail battlefield is littered with casualties from this fools gold enterprise. The secret to successfully managing a sustainable long term business model in retail is to understand how to use clearance outlets appropriately and productively. Then – and only then – do clearance outlets take their proper place at the entry to the pearly gates of retail heaven.