The Retail Experience: BERLIN – Desigual’s ‘Atypical’ Approach to Outlets

Despite nearly a 6 month delay to this year's World Retail Congress (thanks for the volcano, Iceland!), we were rewarded for our patience with a huge attendance by retail executives from all over the globe, excellent speakers, and the opportunity to visit - and shop - the beautiful city of Berlin.

Within a few blocks of the Hotel Intercontinental, where Congress was held this year, is one of Berlin's most famous shopping districts - Ku'Damm (Kurfürstendamm). Berlin's most celebrated department store, the Kaufhaus des Westens (known colloquially as "KaDeWe") is located in this district along with a who's who of global fashion brands: Nike, adidas, Bally's, Burberry, Versace... just to name a few along this two-mile stretch. One in particular that I first encountered at the 2009 World Retail Congress in Barcelona and was VERY excited to see again was Desigual.

Desigual is a women's, men's, and children's fashion retailer that began in Barcelona in 1984 and continues to expand their global operations. They entered the U.S. market with a store in New York City's Soho district and recently opened a second location in NYC on 34th.

Desigual is known for their colorful and 'atypical' fashion style, something I personally ADORE them for. But beyond the style of Desigual's clothes, I want to call attention to one aspect of their retail approach that I find very 'atypical'. It's their "internal" outlet model.

Many fashion brands have an outlet presence. The lagging economy has pushed even more high fashion retailers into this arena. Outlets generally reside in a mall-like cluster found on the outskirts of the metropolitan core. Prada, Tommy Hilfiger, adidas, Dolce&Gabbana, Versace, GUCCI, Mango, Nike, Replay, Levis, and Burberry, just to name a few. Germany is NO different than in the U.S. in terms of the proliferation of outlets. In fact, before I went to Germany I was informed that Germans LOVE and expect a deal. (Remember, this is the country whose discount-centric grocers sent Wal-Mart packing...) What is different though is that there are strict regulations in Germany that prohibit retailers from having separate price labels on a garment, so the same outlet strategy we have here in the U.S. isn't possible in Germany.

In their Berlin store along this most fashionable street, what Desigual has done differently is actually position the outlet WITHIN the store on the top floor. Why is this a good strategy in my opinion? Well, first you don't have shoppers immediately divereted away from the premium offering to a discount one. Second, the shopper maintains the brand perception of quality instead of feeling they're in a "lower-end" section. And third, it ensures that shoppers are exposed to two floors of the latest designs and styles before getting to the bargains.

Like many other brands I mentioned above, Desigual has a huge following of "loyalists" who are constantly looking forward to the next new debut of their designs. (Heck, these people are even willing to show up to a Desigual promotion in just in their underwear to receive 2 free items!) But Desigual recognizes that all shoppers - including those "loyalists" -  want a deal as well. Desigual has made it possible for them to have the best of both worlds in one place.

In most outlet scenarios shoppers are being offered product specifically designed and manufactured for the outlet (82% on average according to NPD analyst Marshall Cohen) - much of the time of a lower quality. As retailers have improved their planning and allocation processes, the amount of excess goods has significantly diminished. Hence, the need to feed the outlet beyond sparse past-season surplus or "irregular" merchandise means custom-making "outlet products". The outlet model certainly expands brand-awareness, but it leaves retailers at risk of cannibalizing their own brand's marketshare, harming their image/value proposition, and the profitability of their "regular" stores. Plus they aren't connecting with their best shoppers. Outlets are one of the few bright spots in today's retail economy, since they give fashion labels access to shoppers who otherwise wouldn't pay for the designer labels, but is splitting the brand up the best approach?
 
We heard a lot of discussion at WRC about "value" and what that means to the shopper. Is it about the shopper's willingness to pay full price or that value now refers to the "experience" and service? Neither is a wrong definition and shouldn't be any less of a concern to them, but the bottom line is that today's shopper will continue to define the value of a brand and what it means to them.

Desigual has a very different strategy when it comes to offering value to its shoppers. They don't have sale racks on the first two levels of the Berlin store. The first floor is designated to women's fashion and accessories - current season and full price. The second floor is children's and men's - also full price and current season. But instead of hiding the "deals" in a stark, dark basement in a disorganized fashion or the location clearly marked, there are prominent signs on both floors directing shoppers up the escalators to the third floor where here they will find a lot of merchandise marked down (sometimes dramatically) that is either last season, overstock or damaged, but unlike many other retailers, the merchandising and display is the same style and quality as the full-price levels.

Does this strategy hurt them or help them? I think it helps and maintains the brand image. After all, I ended up observing the store twice during my stay in Berlin, and both times saw shoppers browsing all three floors picking up merchandise all along the way. And personally, I was not swayed away from the freshest, seasonal merchandise in favor of the discounted offerings on the third floor: though I browsed the outlet level, the clothes I ended up buying were current-season... and full-price.