BrainTrust Query: How Loyalty Programs Fit with Retail Outlets
Through a special arrangement, presented here for discussion is a summary of a current article from the rDialogue blog.
Since the Great Recession, consumers have turned to outlets to shop the brands they love at prices they can afford, demanding more value. Determining the right way for retailers to leverage this channel without cannibalizing its broader business begs the question: How should loyalty programs fit in this space? Should it be the same value proposition the flagship stores offer?
We think there is a lot of opportunity for a loyalty presence in this space, with certain factors taken into consideration:
- Profit margins: Some retailers’ outlet margins may be too thin to take on any promotional or program activity.
- Cannibalization of the broader brand: Retailers should develop an outlet-focused loyalty strategy catered to the different consumer segments that shop this channel. The idea of engaging a customer through the outlet and graduating them to the flagship brand should be top of mind when developing the loyalty strategy.
- Creating non-transactional value: An outlet loyalty program, just like any other, should balance soft benefits tailored to the outlet shoppers with minimal transactional benefits, given the already deeply discounted merchandise. Examples include: rewards for social activity (sharing great finds, check-ins, etc.); outfit ideas based on customer profile preferences; early access to new arrivals; and wish list integration (consumers create wish lists based on flagship brand merchandise and are notified when the merchandise hits the outlet and/or goes on sale).
- Multi-channel approach: At this point, most outlets don’t even have dedicated e-commerce, which is widely expected from consumers. With 67 percent of U.S. consumers shopping online, digital outlets such as Gilt Groupe, Haute Look, Amazon, etc. are more of a threat than ever.
A stand out in this channel is J.Crew. It is one of the few retailers with dedicated outlet e-commerce and has just launched a tender neutral, outlet-only program called Factory First. It’s right on brand and offers great soft benefits tailored to outlet shoppers — early access to new arrivals, free shipping periods, exclusive deals, and outfit ideas for adults and children (through Crewcuts).
With 40 percent of Americans visiting at least one outlet mall in a given year and outlet shoppers spending up to 79 percent more per visit at outlets than regional malls, we expect to see other retailers follow J.Crew’s lead as this channel becomes increasingly profitable.
What do you think of the opportunity for outlet store loyalty programs? How should such programs be differentiated to avoid cannibalizing full-price channel efforts?