Saks & Nordstrom Hit Outlet Malls

Highlights include Saks, Inc. (SKS - Analyst Report), Nordstrom, Inc. (JWN - Snapshot Report), Wal-Mart Stores, Inc. (WMT - Snapshot Report) and Target Corp. (TGT - Snapshot Report).

To attract shoppers trading down, high-end retailers Saks, Inc. (SKS - Analyst Report) and Nordstrom, Inc. (JWN - Snapshot Report) are expanding their reach with new stores in outlet mall locations.

Consumers that typically shop in luxury retail stores have experienced unparalleled wealth destruction from asset values deflating in housing and the equity markets. This demographic is increasing savings, paying off debt and looking over their shoulders to see if they are still employed. Even so, those consumers still want to shop at Saks, Nordstrom, or privately-held Neiman Marcus because of the popular brands and exceptional customer service offered in those stores. They just want to pay less.

This is where outlet malls fit in to a luxury retailer’s strategy. Previously, outlet malls were used to move overstocked merchandise, odd sizes, or clearance items without hurting the brand or pricing in full-line stores. Today, outlet mall stores also sell merchandise that is exclusive to their stores. That merchandise is designed and manufactured to look similar to merchandise found in full-line, but it is sold at lower-price points.

Selling lower cost, exclusive merchandise should sound familiar. Discount retailers such as Wal-Mart (WMT - Snapshot Report) and Target (TGT - Snapshot Report) have been implementing this strategy for years. Saks and Nordstrom are simply copying a successful retail strategy with the benefit of having a stronger brand image than what is found at discount stores.

The success of high-end retailers in outlet mall locations points to a changing retail landscape in the years ahead. While Saks is known for its luxury Saks 5th Avenue stores, the retailer will have more Off 5th stores than 5th Avenue stores by sometime next year. Nordstrom is also planning to open Nordstrom Rack stores at the same pace as its full-line department stores.

The shift to outlet malls is not a reason to buy the stocks of these retailers, but it a reason to think they are going to hold up better than if they had stuck to a full-priced strategy.