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Hunt for Value Leads Shoppers to the Outlets

Apparel sales rose only 1.4 percent over the past year, according to the latest report from market researcher NPD Group, but where the growth is in the segment is very telling, and offers clues to where consumers will be shopping this fall.

A Tanger Outlet Mall in Park City, Utah.
Source: tangeroutlet.com
A Tanger Outlet Mall in Park City, Utah.

Sales of clothing at factory outlets and warehouse clubs logged double-digit gains—rising even faster than online sales, which have been growing at a breakneck pace.

"Why did these channels achieve this kind of growth and factory outlets even beat out the online channel for sales growth? One word, value," said Marshal Cohen, chief industry analyst at the NPD Group. "Consumers are looking for brands that they either already have, or that they trust. They want products that are tried and trusted and they don't mind spending money on them."

Outlet stores such as those operated by Tanger Factory Outlets and Simon Property offer consumers a chance to get popular brands at a discount, and warehouse stores such as Costco and BJ's Wholesale have been offering more apparel and more well-known brands. As a result, sales in for the 12 months ended April 2011, rose 24.7 percent at warehouse club stores and climbed 17. 9 percent at factory outlets, according to NPD.

Although that paced online sales, the gains in that retail channel are still solid. During the same period, online sales rose 12 percent from the prior year.

The latest numbers also show that customers are migrating away from mass merchant retailers. Retailers in this category include the dollar stores, Wal-Mart Stores , and Target , among others.

According to Cohen these retailers have lost momentum they gained during the recession.

Apparel Sales, by Retail Channel

Dollar %, Change 2011 Vs 2010
Total Channel 1.4%
Department Stores 2.5%
National Chains 1.7%
Mass Merchants (7.5%)
Specialty Stores 5.0%
Off-Price Stores 2.1%
Factory Outlets 17.9%
Warehouse Clubs 24.7%
Online 12.0%
All Other 0.5%
Source: NPD Group; Figures in parenthesis are losses.

"Even by promoting value, which in their words is 'shop here we have the lowest price,' consumers have migrated away from this 'lowest price' to 'better value,'" he said. "However, not all retailers in this channel are struggling, those are the ones that can directly relate to the consumer's desire to buy the names brands they feel ultimately give them more bang for their buck."

There also is a reversal of fortune with department stores such as Macy's gaining ground. Cohen attributes this to these stores' improvement in timing their merchandise to suit consumer needs.

There also are signs that consumers are starting to spend on more discretionary items. For example, within the specialty store category, sales of sports apparel rose 11.2 percent.

Cohen expects this "value centric" consumer mindset to continue into this year's back-to-school retail season. This means retailers that best communicate that they offer good value will likely be the most successful.

NPD will release the results of its back-to-school survey later this month, but Cohen already expects it will be a "late bloomer" again this year, with sales occurring closer to the start of the school year.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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