Customer Perceptions of Factory Outlet Stores vs. Traditional Department Stores

Pages: 29 (8253 words) Published: December 23, 2009

Dr. G. S. Shergill* Department of Commerce, Massey University, Albany Campus, Private Bag 102 904 NSMC, Auckland, NEW ZEALAND Ph: 0064 9 414 0800 x9466, Email:


Y. Chen Department of Commerce, Massey University, Auckland, NEW ZEALAND, Email:


This paper examines customers’ perceptions of two different types of retail stores; factory outlet stores and traditional department stores; as well as their purchasing preferences. In addition, the paper compares these preferences across demographics. It explores four critical factors which significantly influence customers’ perceptions of both types of retail store. Findings are base on a mall intercept survey with 205 respondents across a range of demographics. The results indicate that factory outlet stores are perceived as having comparatively lower prices and attractive promotions in comparison to traditional department stores, while traditional department stores have competitive advantages in terms of the other three factors. Also it is found that different demographic characteristics play an important role in influencing differences in customer perceptions regarding the different types of stores. The main implication of these findings is that factory outlet stores are perceived favourably and that they need to build more positive marketing strategies accordingly. Keywords- Factory outlet stores, Traditional department stores, Customer preferences.

Nowadays, an increasing number of customers choose factory outlet stores as their alternative shopping places, rather than continuing to shop at traditional department stores. Since customer loyalty is becoming more important for marketers in achieving sales performance goals (Kulpa, 1998), this increase in the use of factory outlet stores as an alternative choice poses a significant challenge to traditional department stores. This circumstance means that the competition between these different retail channels has become extremely intense.

A factory outlet store is owned and operated directly by a manufacturer to sell only its brand of merchandise, whereas a traditional department store does not manufacture products itself but instead sells a variety of products manufactured by independent firms (Meyers, 1995). In a factory outlet store, the manufacturer has full control over the product offering, in-store customer service and the quality and price of the product sold, as well as the physical attributes of the store. Traditional department stores are owned 1

and operated independent of manufacturers. Manufacturers of the products sold at these stores have limited control over in-store customer service, prices of the products sold and the physical attributes of the stores. Initially factory outlet stores were established to offer end-of-line goods and seconds at the lowest possible prices (Lombart, 2004). As a result it was mainly customers in lower socio-economic groups who were willing to buy through this channel. These outlets have begun, however, to be gradually accepted by more customers, in part due to special annual sale promotions which began during the 1980s (Lombart, 2004). Additionally, customers’ increasing value-consciousness has stimulated the development of factory outlet stores. This has especially been the case in the United States, where there are over 10,000 factory outlet stores now in operation (Meyers, 1995). Nowadays, factory outlet stores which provide the same range of brand name merchandise attract more and more customers, and have developed into showcases in much the same form as that of traditional department stores (Fernie and Fernie, 1997).

It is unclear, however, whether customer perceptions of factory outlet stores versus traditional department stores...

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