One of the outcomes of the 2008 Great Recession in the U.S. was the almost complete shutdown of the retail development industry. The only bright spot for about four years was the development of outlet centres. These outdoor malls that featured name brands at lower prices continued to be developed, catering to the recession-wary shopper. While all kinds of retail development has picked up in the U.S., the strength of outlet mall development continues at a faster rate.

Canada is seeing some of the same development pressures — albeit at a much slower pace. The development of malls that feature designer names at reduced prices is relatively new in Canada primarily because many of the designer names did not have outlet versions in Canada. Until recently, the Canadian version of an outlet centre featured some popular brand outlets like Nike and a group of clearance stores for retailers like Gap.

That is all changing with the entry of Simon, the largest developer of designer outlet centres in the U.S., as well as Tanger. In addition, retailers like Nordstrom and Saks plan to open their full-price stores but also develop many more of their outlet versions — Nordstrom Rack and Saks Off Fifth. Having recently visited outlet centres in Chicago, I really wonder how many of these off-price stores and outlet centres can be built before the cachet of the featured brands are tarnished.

A case in point is Coach. This retailer was the darling of outlet centres with long line-ups to get in and with eye-popping sales productivity. Now same-store sales growth in both the full price stores and the outlet centres is in freefall. North American comp store sales in 2014 were 15% below 2013 and 2015 is tracking at more than 20% below 2014. Has the proliferation of outlet stores contributed to this decline or is it just a brand that has failed to keep pace?

The growth of luxury brands at low prices has not only happened in the bricks and mortar world. Websites like Gilt Group and Beyond the Rack compete for this customer. In addition, retailers like TJ Maxx in the U.S. and Winners in Canada have brought these brands to the bargain hunter for many years. However, when the actual brand starts flogging their own lower quality products at lower prices in outlet centres, this changes the game.

One of the attributes that makes for a luxury brand is both the high price point and the inaccessibility. What happens when these brands, regardless of quality are accessible to everyone? If you buy a $2,000 Burberry coat and you see a cheaper version from a Burberry outlet, do you feel that your coat is devalued?

This challenge to brands and full-price stores that feature them is going to become greater with the expansion of outlet stores and centres around the world, with many featuring lower quality products of the designer name. Outlets are seen as growth vehicles for retailers and their real estate partners. How many can be built before the retailer is no longer in the luxury business but is now in the outlet business?

Written by: Maureen Atkinson, Senior Partner, Research Insights at J.C. Williams Group