20-Discounters at the High End

Can a premium brand sell a cheaper version of itself without damaging the original? Cole Haan, Liz Claiborne and Talbots were betting they could. They added factory outlet stores selling Price Leader products under Performance Leader names, and walked a tightrope: reach the customer who will never pay full price without losing the one who will. Nearly two decades later, outlets are a retail phenomenon in their own right, and a Stripper airline is now playing the same game in reverse.

A company selling exclusively high-end, Performance Leader, products offering Low-End Products with discounts sometimes exceeding 50% seems like a contradiction in terms. Sometimes it works. It has to be managed very carefully so that there is virtually no overlap between the customers of the two separate product categories. Here is how some distinctly high-end companies have pulled it off.

Posted 5/12/08

Even high-end brands can offer lower-end products. We call the high-end companies and products Performance Leaders. These companies and products offer better performance than the Standard Leader products in an industry for prices starting at least 10% over the Standard Leader product prices. Price Leader competitors are those companies who offer less performance than the Standard Leaders products for prices generally starting about 25% below those of the Standard Leader.

Even Performance Leader brands can offer Price Leader type of products. These Price Leader products are high-end products with significant discounts to the normal high-end prices. This concept developed years ago with the emergence of off-price retailers and the Performance Leaders brands’ own outlet stores. The concept has evolved today to where these stores have their own distinctive merchandise and independent lives.

In today’s stressed economy, many of the higher-end brands are putting more emphasis on their factory outlet stores in order to keep their growth going. Cole Haan, the shoe company, plans to renovate or open 40 total outlet stores over the next two years, as it seeks high-end customers looking for bargains. Other companies doing the same include Liz Claiborne and Talbots.

These companies have to walk a tightrope. They want to protect their high-end, Performance Leader, brand and at the same time offer a lower-end product to keep growing in the marketplace. Most of these companies manage that tightrope walk by limiting the number of factory stores and by ensuring that these stores are at some distance from the locations of its main branded stores.

Some companies may prefer not to walk this particular tightrope. But if competitors will walk that tightrope, you may have little choice but to follow in their footsteps or see them gain market share at your expense.

***

Update 2022:

The high-end factory outlet stores have continued to grow into 2021. Many of the high-end, Performance Leader, retailers offer outlet stores. Virtually all of these stores are located in specialty outlet retail malls. These outlet stores sell products that did not sell well or those that are being replaced by a newer version. These are Stripper products. They offer products that are no longer on fashion point, less Function, and with less Convenience than the original product. Stripper products are one of the two Price Leader types of product. Below is a description of Stripper products from our article Turmoil Below. You will note here that this is a Price Leader Stripper product in a Performance Leader product category. This is really a niche within a niche of the industry but it attracts a segment of customers who either would not or could not buy the original Performance Leader product. It fulfills a specific customer need in the market. For more on how to think about segmenting customers by need go HERE.

Strippers offer a bare-bones product or service, reduced in Function, and, usually in Convenience as well. The substantial price reductions these products offer appeal to the most price sensitive consumers. Strippers, as a group, typically achieve only a modest market share -rarely as much as 30 percent and more often below 15 percent of market volume.

Competition from Strippers can appear wherever there is an opportunity to provide a basic product with cheaper components making up the functional benefits or with fewer functions or distinctly less convenience. They seem to be most common in service and distribution businesses where the industry leaders are particularly committed to their industry standard products.

JetBlue is a Stripper Product. It offers very limited choice of flights. It flies into secondary airports in large markets and serves only a small part of the domestic market.

Motel 6 is a Stripper Product. The company cut out features that the average business traveler wants, such as amenities and room service, and also built its motels outside major city centers, making them less convenient for business users. Yet what they offer, and their low price, was sufficiently attractive for senior citizens, military personnel, and others on a limited budget. Motel 6 is profitable because the company enjoys very low costs. They buy inexpensive land and can build a room for one quarter the cost of a traditional motel room. That enables Motel 6 to undercut its rivals’ rates by up to 40 percent.

Costco discount stores are also examples of Stripper products. This chain of membership warehouse stores sells high quality, primarily nationally branded, merchandise at very low prices to businesses and individuals. However, the product choice it offers is a very small fraction of that of Wal-Mart or even of the average grocery store.

***

Update 10/26

Factory outlet stores, once accompanied by a “bargain bin” reputation have become a retail phenomenon on their own. 90% of these stores reside in factory outlet retail malls. They are highly successful retail innovation generating high sales per square foot and very attractive investment returns. Performance Leader companies who sell through their own factory outlet stores are careful to appeal to the right customer with products and pricing fit for that customer. They earn their good returns through uniquely low costs for these stores. Here is some more detail on how they have succeeded.

Customers

These stores appeal to a customer that the branded store would view as a Medium or Small customer. Most of these customers would not frequent the branded stores. They are often tourists, aspirational customers or young buyers in search of brand quality. They have very little overlap with the customers of the branded store and thus serve as potential introductory customers for the branded store. These customers have become an important source of growth as the factory outlet concept has grown quickly even while department stores suffer sales declines. Outlet mall traffic did fall in 2025. Placer.ai found outlet malls the weakest of the three mall formats it tracks, with visits down 1.1% over the holiday season. Yet sales per square foot kept rising. Tanger Outlets reported 2025 sales of $473 per square foot, up nearly 7%, at 98% occupancy. Growth now comes from higher spending per visit and strong tenants, not from more visits. Despite the short-term weakness in traffic, the outlet concept remains very strong and may be getting stronger.

Products

The branded companies are careful to distinguish the products in the factory outlets from those in their regular stores. These factory outlet stores offer products with distinctly lower Function, Reliability and Convenience than their regular stores. Function differences begin with the “off-season”, clearance products and unsold merchandise traditional with factory outlet stores. That is the minority of product offerings. Most of these stores’ products are specifically made for the factory outlet. Their Function differences include less costly materials, simpler designs and lower cost finishes as well as less product selection. In a Reliability difference, some of the products may carry different brand names as well. The factory outlet stores offer lower Convenience due to their location at some distance from the branded stores.

Pricing

The factory outlet stores must offer a significant value advantage to these Small and Medium nontraditional customers. They offer item pricing at 30% to 70% below the prices common in the branded stores. They rely on their uniquely low cost structure to maintain profitability despite these very low prices.

Costs

The factory outlet cost structure is notably lower than that of a branded store. As noted above, the products themselves carry much lower costs. These lower cost products avoid markdowns on their unsold or unsalable merchandise. The factory outlet stores usually avoid returns and restocking costs by setting much stricter return policies, usually not allowing returns at all. Finally, the location costs of factory outlet stores are much lower than those carried by the branded stores. They spring up in locations with relatively low land and capital costs, in contrast to the much higher urban and suburban location costs carried by the branded stores.

Examples revisited

Several examples in the earlier postings have changed. The pattern has not.

JetBlue. JetBlue is a Stripper. Its brand is weaker than those of the legacy airlines and its on-time record ranks among the worst, so its Reliability is lower. It flies into secondary airports, so its Convenience is lower. It typically charges less than its competitors. The airline has now added Performance Leader products, its Mint business class and its new BlueFirst first class, and priced them below its direct competition. Published comparisons put Mint typically 15% to 25% below Delta One on transcontinental routes. BlueFirst goes on sale with introductory one-way fares starting at $249, and service begins December 8, 2026. How its regular fares compare with Delta, American and United first class will not be clear until it starts flying. This is the reverse of the outlet stores in this blog. JetBlue is a Stripper adding Performance Leader products, where the brands above are Performance Leader companies adding Price Leader products. In both cases a specialist at one price point adds products at another to take advantage of potential growth in the market. This is happening in Stable markets with limited discounting.

Motel 6. OYO, an Indian company, now owns Motel 6 after buying G6 Hospitality from Blackstone for $525 million. The product is still a Stripper unless and until its new owner changes it.

Liz Claiborne, Cole Haan and Talbots. The 2008 posting named Liz Claiborne. That company became Fifth & Pacific Companies in 2012 and Kate Spade & Company in 2014. Coach, now Tapestry, acquired Kate Spade & Company for $2.4 billion in 2017. Nike sold Cole Haan to Apax Partners in 2012, and Sycamore Partners acquired Talbots the same year. Ownership and names have changed, but the outlet concept this blog describes has not.

***

Quick Hits

Six patterns from the StrategyStreet system this story confirms.

1. Specialists at one price point add products at another to chase growth, and they do it where discounting is limited. Performance Leader brands such as Cole Haan added outlet lines from the Price Leader side. JetBlue, a Stripper, added Performance Leader products in Mint and BlueFirst. Each specialist stepped across price points to share in market growth. Both moves are happening in a Stable Market with limited discounting.
2. Introduce the lower Price Point line to customers who would not have bought the premium one, and keep the two groups apart. Outlet shoppers are tourists, aspirational buyers and the young, segments the branded store barely reaches. The brands keep outlets few and distant from their own stores. Done well, the outlet becomes an entry point to the brand. Done carelessly, it cannibalizes the core customer. The tightrope is overlap.
3. A lower-priced version works best when it is a different product, not leftover goods. Most outlet merchandise is made for the outlet, with simpler designs and cheaper materials, some under different brand names. Leftovers are the minority. The lower Function, Reliability and Convenience are what justify the lower price and keep the outlet customer distinct from the branded-store customer.
4. A deep discount pays only if the cost structure falls by as much. Outlet economics rest on products that cost less to make, no markdowns on unsold goods, strict or no returns and cheap land. The result shows in the numbers: Tanger’s 2025 sales reached $473 per square foot, up nearly 7%, at 98% occupancy, even as outlet visits fell. JetBlue, a Stripper moving into premium cabins, expects sustained operating profitability in 2027.
5. When a rival makes money with a lower-priced line, you can match it or give up share. The 2008 posting said that if competitors walk the tightrope, you may have little choice but to follow. Declining to follow is Product Parochialism. Cole Haan, Liz Claiborne and Talbots all added outlets. Their owners have changed since, but the concept has continued.
6. Reliability is always relative. A customer of a Price Leader product would not and cannot expect the same level of Reliability in the product as would a customer of a Standard Leader or Performance Leader product. Every customer knows there is a trade-off between product and price. But the brand stands for something consistent, adding to Reliability. The Yaris and the Avalon are both Toyotas. The Yaris customer does not expect the same Function and Reliability as does the Avalon customer. However, each customer relies on the Reliability of the Toyota brand, its maker’s mark.

***