What Happened: Chinese consumers are stocking up on name brands like Nike, Adidas, Coach, and even Burberry — all on a budget.

Outlet malls, known in Mandarin as aotelaisi (奥特莱斯), a transliteration of the word “outlet,” are gaining traction in China. These are collections of stores that offer discounted goods or specially manufactured product lines using lower-quality materials. Shanshan, Wangfujing, Bailian and Capital are among China’s leading outlet companies that have benefited from recovering foot traffic post-pandemic, with the latter announcing its best first-quarter on record earlier this year.  

In the first half of 2023, sales at outlets across the country exceeded $17.8 billion (130 billion RMB), putting them on track to surpass last year’s sales of $28.8 billion (210 billion RMB), per data from the China Commerce Association for General Merchandise. According to a McKinsey forecast, outlet sales in China could reach as much as $53.5 billion (390 billion RMB) by 2025.

And it’s not just Chinese companies cashing in on the retail format. Big global players like Value Retail (which owns the UK’s Bicester Village) have brought lifestyle experiences and deals on luxury to China through projects like Bicester Village Suzhou and Bicester Village Shanghai. 

On Chinese lifestyle platform Xiaohongshu, the hashtag “outlet” (#奥特莱斯) has gained 247.3 million views as netizens share posts about the deals they’ve scored and their favorite outlet malls. In fact, journeys to outlet malls are treated like day trips or mini vacations (一日游); Tianjin’s Florentia Village, for instance, offers visitors a replica of a historical Italian town.

The Jing Take: Given the economic uncertainty in China, it’s unsurprising that outlet malls are booming. When times are tough, consumers search for good deals; however, that doesn’t mean they’re trading down.

More Chinese consumers are “smart shopping,” writes Daniel Zipser, a senior partner in McKinsey & Company’s Shenzhen office, in a recent blog post. 

“Consumers aren’t necessarily shifting to cheaper brands, but are instead finding ways to trade up at a lower cost via different platforms, promotions, or by adjusting quantity or pack size in their purchases,” he adds.

“Consumers aren’t necessarily shifting to cheaper brands, but are instead finding ways to trade up at a lower cost via different platforms, promotions, or by adjusting quantity or pack size in their purchases.”

Not only are consumers enticed by apps like Douyin and Pinduoduo — “where average transaction prices are often half or less than on more mature e-commerce platforms,” Zipser states — but outlet malls as well. 

According to local media reports, at Shanjing Outlet Plaza in Ningbo, a Coach bag that originally retails for about $727 (5,300 RMB) can go for as low as $230 (1,680 RMB), while a Michael Kors bag that costs $824 (6,000 RMB) can be purchased for just $206 (1,500 RMB).

Outlet malls are good for brands, too. They’re used by many to sell overstocked or out-of-season items and exclusive lower-priced collections. Although some analysts have raised the issue of cannibalization, studies covered by the Harvard Business School Working Knowledge and Kellogg Insight dispute this. There is vertical differentiation, with outlet stores offering both a different purchasing experience and a distinct line of products.

“Once customers adopt the outlet channel, they increase spending in the retail-store channel,” says Lakshman Krishnamurthi, professor of marketing at the Kellogg School of Management, Northwestern University, as quoted in the Kellogg Insight.

Since launching in China in 2002, outlet malls have proliferated across the country. But if the US is any indication, their popularity comes and goes with the times. What remains consistent, however, is consumers’ hunt for the best value.

The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.