Factory outlets generating twin profits

The old merchandise in retail stores gives way to new merchandise at the end of every season. Offloading the out-dated goods from retail stores, making an inroad for new merchandise, retailers are increasingly opting for factory outlets. Franchising these factory outlets is however, serving the two way purpose of these retailers: one the old merchandise is sold off at discounted prices, second high benefits generated through franchising these outlets.

Emergence of factory outlets

Selling off the damaged or outdated products has always been a nerve-wrecking task for a retailer. However, the retailers can liquefy their obsolete products on discounts to those consumers who want to get branded stuff at reasonable rates. And to get benefited from it, some smart entrepreneurs have started franchising their factory outlets. This article gives an insight of how franchising a factory outlet can be a profitable idea.

Elaborating on the concept of factory outlets NP Singh, Director, Samsonite says, “Factory outlets keep only the liquidated products. These products are not in regular line and through the concept of factory outlets; we flush them out off the system to create space for the latest products.”

Franchising has further added to the concept of factory outlet.. Through franchise route, franchisor not just makes profit for himself but also provide an opportunity to the aspiring entrepreneurs to join hands and gain a fair share of the pie.

EBOs / MBOs versus factory outlets

Opening of a franchised factory outlet is not that easy as opening an Exclusive Brand Outlet or a Multi Brand Outlet. This is because of the following reasons:

• Products lines: EBOs and MBOs represent the regular and fresh stocks of the brand, whereas the product line which is sold in factory outlets is either damaged or out-of-date. For instance, the business in footwear industry is all about sizes and colours. As it is not necessary that all the fresh arrival be sold in one season, therefore the company has to get rid of the unsold stuff. Similarly, the apparel industry of India is witnessing rapid changes in the styles and seasonal colours that one has to dispose off, if left unsold.  
• Location: An utmost important factor in getting started with a franchised factory outlet is its location. This is because a factory outlet cannot be launched anywhere. Normally, these factory outlets are situated in out-of-the-way locations, along the highways, and areas with low penetration of branded outlets. As Singh says, “The factory outlets should be located primarily in an area where some factory outlets are already operating and where the customers are looking for value for money.” He further added that starting a factory outlet in an area like ‘Connaught Place’ would be a disaster as it is the place of brand positioning and brand marketing. If customers are willing to spend money on branded products than there is no point offering them liquidation products.

Who can take up the franchise of a factory outlet?

The eligibility criteria for selecting a franchisee for a factory outlet are quite similar to that of a normal outlet. The investment is almost same as required in opening an EBO. For instance, Samsonite requires an investment of Rs 15 lakh for taking up the franchise of a factory outlet. As per Singh, “We look for people from any background, as the location is an important thing, and necessary for the success of the factory outlets.”

Steps to success

Besides the location, there are other factors that contribute towards the successful operations of a franchised factory outlet. These include competition, stocks update and pilferage. 

• Competition in the area: Understanding of the local competition and the presence of other brands in the same area can help in learning new tactics to raise the sales. In franchising, the franchisor makes full use of the franchisee’s knowledge of the local market in order to generate maximum profits.
• Regular stock takes: Though factory outlets sell the old outdated merchandise still the regular change in stock takes place, it is essential for every kind of retail business as it ensures the regular footfalls at the factory outlets.
• Avoid pilferage: In order to make profit out of the factory outlet concept, it is necessary for a franchised owner to avoid pilferage that can eat up the profit. As Kapil Prakash, franchisee, Reebok (factory outlet) says, “If the pilferage is high then you may end up in losing money rather than earning profit. So, as a franchisee you need to keep a check on it to ensure the smooth running of the franchise.”

In nutshell, the idea of franchising the factory outlets is the best way to flush out the unwanted stock, while at the same time upgrade the profit margin.