In the early days of outlet stores, a company that sold consumer items would have a dingy store located either near the factory or in a low-rent part of town to get rid of their overstocked products and unload “factory seconds,” those items that didn’t quite pass inspection for sale as first quality.

The concept proved to be irresistible to bargain conscious shoppers. It turns out that a great many people were more than happy to painstakingly remove an embroidered monogram from a shirt sleeve if the shirt could be purchased for 20% of its retail price.

The discovery that shoppers would beat a path to a factory outlet store even in a seedy part of town convinced some marketers that there was untapped potential in the format. More stores sprang up in more upscale spaces, and in 1974, the first outlet mall opened in Reading, Pennsylvania. The rest is history.

Have you ever wondered how manufacturers can supply so many overstocks and factory seconds to their network of outlet stores? Very obviously, the game has changed somewhere along the line.

This question may never have crossed your mind, but it has occupied the thoughts of some class-action attorneys, and the litigation waters are beginning to boil with lawsuits against a host of brands. The following quote from one such complaint summarizes the allegation:

“In an effort to increase profits, major retailers such as Burberry have, without notice to consumers, begun using company-owned ‘outlet’ stores to sell madefor- outlet goods that are never intended to be sold at nonoutlet stores.”

They further allege that the price tags and marketing of these outlet clothes deceive the consumer into thinking that they are paying a lower price for the goods than they are sold for elsewhere, when they aren’t sold anywhere else.

In addition to Burberry’s other brands named in these complaints have been Ann Taylor, Calvin Klein, Carter’s, Tommy Hilfiger, The Children’s Place, Dooney & Bourke, and New York & Co.

All the suits name past customers as members of the class action and are seeking damages in excess of $5 million. None of the suits have been litigated yet.

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