Dive Brief:

• The Limited on Monday announced its lower-priced Backroom at The Limited brick-and-mortar effort.

• The Limited said that Backroom stores are distinguished from its flagship brand by lower prices, and different from its outlet stores because apparel is specially made for Backroom locations. Backroom merchandise will also be available at outlet stores, according to a press release.

• The first six Backroom at The Limited stores rolled out earlier this year at malls and shopping centers in Ohio, New Mexico, Georgia, Texas, New Jersey and New York. Additional locations will launch throughout this year.

Dive Insight:

In an effort to capitalize on the popularity and success of the likes of TJX Companies, apparel retailers from Macy’s to J.Crew have made moves to establish discount stores and stand-alone discount brands that offer lower-priced items. The Backroom announcement from The Limited, once the flagship brand of what is now known as “L Brands” but now owned by private equity Sun Capital Partners, Inc., represents another attempt to capitalize on the success of lower-price discount retail.

There’s some evidence that customers who regularly shopped at one “leading specialty retailer with more than 400 retail stores and 100 exclusively sourced outlet stores” actually spent more at the retailer’s flagship store once they shopped regularly at its outlet store. But there are still concerns about the approach. For example, while for years Old Navy was viewed as a stroke of genius and a success story at Gap Inc., the flagship Gap brand has suffered as lower-priced Old Navy has grown.

A University of Texas-Dallas study published late last year eases concerns somewhat. “When positioned properly, outlet channels can bring in not only incremental dollars—from customers who would otherwise not buy from the regular retail stores—but it also serves as an entry point for certain kinds of customers,” Gonca Soysal, an assistant professor of marketing in the Naveen Jindal School of Management, said in Management Science. “When managed well, this is a good strategy.”

“Managed well" is a fairly loaded phrase. But Soysal said the research results suggest that an outlet store could be a gateway for more price-sensitive customers to a brand’s higher-priced flagship store. 

“If there’s a price-sensitive customer who is not very experienced with the retailer, they might come in and experiment with the brand at the outlet channel,” Soysal said. “Since the products have similar designs and similar fits across the channels, once they gain experience with the brand, they might feel more comfortable purchasing more from the higher-priced channel.”

But there’s also other evidence that some consumers eventually are turned off by outlet stores: Luxury brand Coach, for example, has seen sales improve after it tempered its discounting and outlet sales.