Factory Outlet vs Departmental Outlets

CUSTOMER PERCEPTIONS OF FACTORY OUTLET STORES VERSUS TRADITIONAL DEPARTMENT STORES Dr. G. S. Shergill* Department of Commerce, Massey University, Albany Campus, Private Bag 102 904 NSMC, Auckland, NEW ZEALAND Ph: 0064 9 414 0800 x9466, Email: G. S. Shergill@Massey. ac. nz & Y. Chen Department of Commerce, Massey University, Auckland, NEW ZEALAND, Email: alwaysyinyin@hotmail. com CUSTOMER PERCEPTIONS OF FACTORY OUTLET STORES VERSUS TRADITIONAL DEPARTMENT STORES Abstract

This paper examines customers’ perceptions of two different types of retail stores; factory outlet stores and traditional department stores; as well as their purchasing preferences. In addition, the paper compares these preferences across demographics. It explores four critical factors which significantly influence customers’ perceptions of both types of retail store. Findings are base on a mall intercept survey with 205 respondents across a range of demographics.

The results indicate that factory outlet stores are perceived as having comparatively lower prices and attractive promotions in comparison to traditional department stores, while traditional department stores have competitive advantages in terms of the other three factors. Also it is found that different demographic characteristics play an important role in influencing differences in customer perceptions regarding the different types of stores. The main implication of these findings is that factory outlet stores are perceived favourably and that they need to build more positive marketing strategies accordingly.

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Keywords- Factory outlet stores, Traditional department stores, Customer preferences. Nowadays, an increasing number of customers choose factory outlet stores as their alternative shopping places, rather than continuing to shop at traditional department stores. Since customer loyalty is becoming more important for marketers in achieving sales performance goals (Kulpa, 1998), this increase in the use of factory outlet stores as an alternative choice poses a significant challenge to traditional department stores. This circumstance means that the competition between these different retail channels has become extremely intense.

A factory outlet store is owned and operated directly by a manufacturer to sell only its brand of merchandise, whereas a traditional department store does not manufacture products itself but instead sells a variety of products manufactured by independent firms (Meyers, 1995). In a factory outlet store, the manufacturer has full control over the product offering, in-store customer service and the quality and price of the product sold, as well as the physical attributes of the store. Traditional department stores are owned 1 and operated independent of manufacturers.

Manufacturers of the products sold at these stores have limited control over in-store customer service, prices of the products sold and the physical attributes of the stores. Initially factory outlet stores were established to offer end-of-line goods and seconds at the lowest possible prices (Lombart, 2004). As a result it was mainly customers in lower socio-economic groups who were willing to buy through this channel. These outlets have begun, however, to be gradually accepted by more customers, in part due to special annual sale promotions which began during the 1980s (Lombart, 2004).

Additionally, customers’ increasing value-consciousness has stimulated the development of factory outlet stores. This has especially been the case in the United States, where there are over 10,000 factory outlet stores now in operation (Meyers, 1995). Nowadays, factory outlet stores which provide the same range of brand name merchandise attract more and more customers, and have developed into showcases in much the same form as that of traditional department stores (Fernie and Fernie, 1997).

It is unclear, however, whether customer perceptions of factory outlet stores versus traditional department stores may differ in general and across demographics, as well as how such differences may be seen. The findings will assist marketers, particularly those employed by manufacturers, in understanding the ways in which customers view both traditional department stores and factory outlet stores. This insight will allow such marketers to set more suitable customer-oriented marketing strategies and business objectives, achieve superior financial performance and develop their marketing performance in the retail industry.

The main objective of this paper is to explore customers’ perceptions of these different types of retail stores, as well as their purchasing preferences. In addition, the paper examines customer preferences across demographics regarding customers’ perceptions of factory outlet stores and traditional department stores. The paper contains five sections. Following the introduction is an overview of literature, summarising previous studies, and sets the hypotheses to be tested. The next two 2 sections deal with research methodology, data analysis and findings.

Conclusions and implications are discussed in the last section. LITERATURE REVIEW Factory outlet stores vs. Traditional department stores Factory outlet stores An increasing number of factory outlet stores have been built for various reasons. Some of these stores have been created to deal with seconds’ products, some are presented as discount stores associated with new distribution channels, and some have been designed by manufacturers in order to reduce the price of their products through savings on overhead costs (Parker et al. , 2002).

This last reason has been pursued in order to attract more current and potential customers in price-oriented and price-sensitive markets and satisfy customers’ varying needs and wants (Parker et al. , 2002). Initially, the factory outlet store was identified and established as an off-price retailer (Joshi, 2003). Internationally, especially in Europe, factory outlet stores were built and developed for four basic reasons: to sell discounted products; to reduce overhead costs and carry out sales promotions; to create flexibility of stock running; and to achieve brand promotion (Joshi, 2003).

The roles and functions of factory outlet stores have changed significantly over the past few decades. They are no longer designed only as low price stores, but are also used for branded product promotions, especially in Europe and the US. For example, manufacturers of the Reebok, Levi, Gap and Warnaco brands regard their brand promotion to be one of the key functions of their factory outlet stores (Joshi, 2003). Factory outlet stores have also been designed as specific seconds stores and discount stores, and are located in many of Japan’s major cities (Joshi, 2003).

There has been a 62% increase in factory outlet stores since 1990 and the trend is for this increase to continue (Rudnitsky, 1994). Factory outlet stores have been developed using original styles by including some specific characteristics of conventional shopping centres in order to provide products with attractive prices and a leisurely shopping environment for most price-oriented customers (Golub and Winston, 1983). 3 Nowadays, the factory outlet stores are normally recognised as “… gaining a larger market share through price reductions, which are aimed at capturing the mass market” (Hellofs and Jacobson, 1999, p. 3). Therefore, the factory outlet stores need to develop their level of customer satisfaction and ensure that the products sold in these stores are of a reasonable quality in comparison to the previously built brand images (Parker et al. , 2002). Overall, the trend in factory outlet store development is quite satisfactory. For example, according to a survey discussed in Happy Campers at Outlets (Rauch, 2005), around 84% of respondents agreed that the prices in these stores met, and even exceeded, their expectations.

Also, nearly 93% of the respondents indicated their intention of making a return visit (Rauch, 2005). In summary, the development of factory outlet stores is rapid. They are seen as offering reasonable and lower prices than traditional department stores, and a much better shopping environment and atmosphere than ever before. Therefore, the sales performances achieved by factory outlet stores are satisfactory, tending towards positive maintenance and a continuous increase in this type of store.

Traditional Department Stores Nowadays, traditional department stores are facing a significant threat because the number of consumers who shop at traditional department stores is decreasing, although the sales of these stores have increased (Nasri, 1999). The number of customers who shop at traditional department stores has dropped sharply (Li, 2003). This means that department stores are in an endangered situation, and are receiving a lessening portion of the total retail sales. This situation has led to a significant decrease in the number of department stores (Li, 2003).

Traditional department stores are perceived by customers as playing a distinctive fashion role and offering a range of up-to-date fashion merchandise with reasonable prices, high levels of customer service and a comfortable shopping atmosphere 4 (Johnson, 1994). Customers are more willing to enter into, and purchase products in, traditional department stores, which offer more excitement and emotional attachment than do outlet stores. As a result traditional department stores tend to be developed to create and satisfy various demands of customers of different ages and with differing perceptions of fashion trends (Facenda, 2005).

This could be a competitive advantage which traditional department stores can utilise to attract and maintain customers, as well as increase market share as an effective defence against the threat presented by factory outlet stores. In summary, unlike discount stores, traditional department stores tend to be challenged into finding and creating a winning combination of a diverse customer and merchandise mix, along with service and price expectations, rather than addressing and focusing on attracting bargain-seeking customers through niche target marketing (Coward, 2003).

Therefore, the first hypothesis to be tested in the research can be stated as follows: H1: There is a significant difference in customers’ store preferences (traditional department stores, or factory outlet stores) across their demographics. Product Brand Image Loyal customers may hold strong and positive images of a brand which are hard to change and lead to long-term sales revenue (Wyner, 2003). A well-known brand as one important extrinsic factor can significantly affect customer perceptions (Ailawadi and Keller, 2004).

Retailers have an obvious opportunity, and are in an ideal position to build these kinds of positive experiences for customers (Schmitt, 2003). Brookman (2004) noted that brand images should be used to link merchandise ranges and store design. Parker et al. (2002) also recommended that good brand imagery leads to good sales revenues. Ailawadi and Keller (2004) pointed out that there was a direct relevance between branding and customer perceptions of retailer imagery, which has been confirmed by a large number of researches in this topic area. Inman et al. 2004) pointed out that customers associate different branded product ranges with different types of retail stores. Accordingly, store image is impacted significantly by customer perceptions 5 of the different branded products and services offered by retailers (Ailawadi and Keller, 2004). The greater the breadth of different products and services offered by a retail store, the greater the number of customers who will frequently patronage the store, as the variety of product categories provided in the same store provides a much more convenient shopping experience for customers (Messinger and Narasimhan, 1997).

Furthermore, the depth of within-category brand products is another very important factor in influencing store image in customer perceptions, and could be a main stimulator in the customer store choice decision (Ailawadi and Keller, 2004). Developing a selection, a range of styles, and favourable categories of branded products are the most important keys to increasing customer perceptions of store image and, as a consequence, achieving higher sales (Dreze et al. , 1994). Therefore, the design of brand-name products can be a comparable factor in creating images for factory outlet stores and traditional department stores.

The customer image of retail stores is highly and positively influenced by the quality of the manufactured product brands (Ailawadi and Keller, 2004). Accordingly, Jacoby and Mazursky (1984) noted that carrying strong positive images of brands could improve the positive image of retail stores. Furthermore, they noted that it was much easier to increase sales and achieve market share by increasing both the images of the brands and of the retail stores in the current saturated retail environment (Jacoby and Mazursky, 1984).

Nevertheless, Jacoby and Mazursky (1984) also mentioned that a good product brand image would be damaged if it was associated with a retail store which had a poor image. Therefore, brand products sold in either type of retail store should be designed and managed to create and improve relevant customer perceptions. In summary, customers having good brand image tend to be much more loyal in their shopping patterns, whether at traditional department stores, or factory outlet stores.

Also, customers who wish to purchase high quality branded products would consider whether the quality and value of the brand products sold in traditional retail stores is higher than those products sold in factory outlet stores (Parker et al. , 2002). So, the second hypothesis to be tested in the research could be stated as follows: 6 H2: The brand images of those products sold in traditional department stores are higher than for those products sold in factory outlet stores. Retail Store Image The store image plays a very important role in creating profit and maintaining customer loyalty.

Therefore, it could be a determining factor in customer perceptions (Parker et al. , 2002). A high quality store image implies the possibility of differentiation, loyalty and profitability, while a low-quality store image paves the way for price wars by emphasising and intensifying customer price sensitivity (Hallanan, 1994). The conclusion that retail stores should develop a positive, clear and favourable self-image to be an alternative choice in customers’ minds was drawn by Martineau (1958).

Understanding the impact of product brand image, and how a retailer should be positioned, is extremely important in building the image of a retail store (Ailawadi et al. , 1995). Building the image of a retail store requires the identification of sufficiently different goods and services from those of their competitors, which tends to increase customers’ appreciation (Keller, 2003). There are lots of different attributes which significantly influence store image. These include the quality of merchandise and services, the tore appearance, the quality of the purchase service, the physical facilities, the behaviour and service of employees, the price levels, the depth and frequency of promotions and the store shopping atmosphere (Lindquist, 1974). Two basic dimensions can be used to analyse the store image. These dimensions are in-store atmosphere, and price and promotion (Ailawadi and Keller, 2004, p. 333). In-store atmosphere is one of the most important factors in the influence of customer perceptions of retail stores. Baker et al. 2002) pointed out that a store’s shopping environment plays an extremely important role in providing information and shopping guides to customers, and is the key attribute in building store image. The in-store environment; particularly physical features such as merchandise pricing, quality and store design and layout, as well as social service facilities such as employees’ service 7 and friendliness, as well as food-court service; can influence customers’ economic and psychological shopping behaviours (Baker et al. , 2002).

Certainly, store environment plays a major role in providing informational cues and signals to customers about the type of merchandise and service they should expect (Parker et al. , 2002). Merchandise quality and service quality are key variables in influencing store image (Parker et al. , 2002). This indicates that service attributes might be some of the most important factors in store image brand building, and deeply influence consumer purchase behaviours (Hicks, 2000). This leads to the creation of long-term sales revenue and profitability (Hicks, 2000).

Furthermore, when different retailers stock similar products and brands, an appealing in-store atmosphere can play a critical role in building retailer brand image (Ailawadi and Keller, 2004). In this research, the in-store atmospheres of factory outlet stores and traditional department stores are compared, especially in terms of the physical characteristics and social service features. Two further hypotheses need to be tested, as follow: H3: The physical features (such as lighting, air conditioning, washrooms, music, cleanliness, displays, etc. of traditional department stores are perceived to be better than those of factory outlet stores. H4: The in-store customer service features (such as friendliness, helpfulness of salespeople, etc. ) of traditional department stores are perceived to be better than those of factory outlet stores. Price and promotion is another factor which directly affects customer perceptions of different types of retail stores and their images. A store’s image in terms of price and promotion will be influenced by average levels of prices, seasonal variations in prices, and the frequency and depth of promotions (Dickson and Sawyer, 1990).

Different customers hold different perceptions of the store choice decision, according to the different images of stores. For example, large basket shoppers like every-day low price stores, while small basket shoppers prefer high-low promotional pricing stores (Bell and Lattin, 1998). Traditional department stores tend to create “… a diverse customer and merchandise mix, service expectations and price point …” in order to design a desirable shopping experience (Coward, 2003, p. 27).

For example, Coward (2003) suggested that 8 stores needed to rethink convenient designs, return policies and commission policies in order to make their service more flexible and satisfying for customers. Parker et al. (2002) pointed out that there is an incredible interaction between price levels and customer perceptions of product brand images and store images. In particular, comparatively lower price levels would lead to negative customer perceptions of the retail stores (Parker et al. , 2002).

To identify the different price and promotion images of retail stores, the hypotheses formulated are: H5: The price and promotion features of products sold in traditional department stores are perceived as being higher than that of factory outlet stores. H6: There is a significant difference in customers’ store ratings (traditional department stores vs. factory outlet stores) across their demographics. RESEARCH METHODOLOGY The study was conducted in a mid-sized multicultural city with a range of local and international retailers, including a number of traditional department stores and factory outlet stores.

Using Parker et al. ’s (2002) nineteen items developed for measuring store characteristics, a questionnaire was constructed which measured preferences for generic stores. A five point scale was used in the questionnaire, anchored by 1=very poor and 5=very good. In addition, four items designed to measure the demographic characteristics of the respondents were also included. The data was collected using intercept surveys. The respondents were selected equally at both types of retail outlets. The usable sample was 205 respondents. The sample profile is given in Table I.

DATA ANALYSIS AND FINDINGS Sample Profile The sample profile of 205 respondents is summarised in Table I below. There are 107 female and 98 male respondents in the survey. The majority of the respondents are less than forty-five years of age (approximately 71% of the total sample). Furthermore, the majority of the respondents had completed secondary school and completed at least one trade diploma, or certificate degree. Additionally, around 78% of the respondents earned 9 a yearly gross income (before tax) of over NZ$20,000. Respondents with a yearly income over NZ$60,000 only comprised 9. % of the sample, with the majority having a yearly income of between NZ$20,000 and NZ$40,000. Table I: Gender Sample Profile (N=205) Percentage Female Male Total Under 25yr 52. 2 47. 8 100 15. 6 25. 9 29. 8 18. 5 7. 8 2. 4 100 16. 6 30. 2 38. 5 14. 6 100 21. 5 45. 4 23. 9 9. 3 100 Demographics Formatted: Swedish (Sweden) Age 25-34yr 35-44yr 45-54yr 55-64yr Over 64yr Total High School Degree Education Trade Diploma/Certificate Bachelor Degree Masters Degree Total Individual tax) yearly Less than NZ$20,000 NZ$20,001--$40,000 NZ$40,001--$60,000 Over NZ$60,000 Total ross income (before The reliability analysis was utilised to test whether the nineteen questions used in the questionnaire fit the factor analysis criteria. Using Cronbach alpha, we found that the nineteen items’ reliability for traditional department stores was . 889 and for factory outlet stores was . 880, both figures being at an acceptable level (Nunnally, 1978). Factors which Customers keep in mind while Shopping at Traditional Department Stores (TDS) and Factory Outlet Stores (FOS) Table II displays the factor analysis results for different scales of TDS in the questionnaire.

Four factors were extracted through the factor analysis for TDS. Factor 1 concerns the in-store customer service characteristics of TDS. The variables relating to 10 customer service in the stores; such as friendly, helpful, familiar with merchandise, exchanges, salespeople’s’ pressure and enough salespeople; are loaded more highly than other variables contained in Factor 1. Customers are especially concerned with whether the salespeople in traditional department stores are helpful.

Within Factor 2, higher loadings are given to quality, wide selection, newest styles and fully stocked in regards to the products sold in the stores. These loadings indicate that Factor 2 largely displays concerns about the brand images of products sold in TDS. Table II: Factor Analysis Results for Traditional Department Stores and Factory Outlet Stores Traditional Department Stores Factor 1: In-store customer service features Factor 1: In-store customer service features Factory Outlet Stores Variables Factor 2: Brand images of products Factor 2: Brand images of products

Factor 4: Price & promotion features Salespeople are friendly Salespeople are helpful Salespeople are familiar with merchandise Exchanges happily Less pressure from salespeople Enough salespeople Quality is good Selection of products is wide Styles of products are newest Stock level Store is attractive Store is not crowded Store is clean Store is neat Store is bright .600 . 746 . 637 . 571 . 601 . 580 . 449 . 763 . 771 . 702 . 458 . 545 . 763 . 745 . 672 .628 . 717 . 652 . 590 . 640 . 639 . 471 . 694 . 779 . 740 . 556 . 697 . 822 . 677 . 160

Factor 4: Price & promotion features Factor 3: Physical features Factor 3: Physical features 11 Prices are good Value for price Markdowns are attractive Prices of products are marked clearly .655 . 810 . 468 . 360 .359 . 325 . 882 . 739 Customers shopping in TDS tend to pay more attention to whether products sold in the stores display a wide selection, with the newest styles and are fully stocked, rather than being concerned about their quality, as the loadings of these three variables are 0. 763, 0. 771 and 0. 702, respectively, while the loading of quality is only 0. 49. Furthermore, Factor 3 shows significant loadings on the variables of attractive, not crowded, clean, neat and bright, at 0. 458, 0. 545, 0. 763, 0. 745 and 0. 672, respectively. Therefore, Factor 3 can be identified as containing the physical features of TDS. Specifically, the variables of clean and neat have much higher loadings than the others. This implies that these two factors significantly influence customer perceptions of the physical features of TDS. Factor 4 shows customers’ considerations regarding the price and promotion features of products sold in TDS.

Within the fourth factor, comparatively higher loadings are found for the variables of price, value for price, markdowns and clearly marked price. These loadings are 0. 655, 0. 810, 0. 468 and 0. 360, respectively. In particular, customers’ who preferred traditional department stores tended to give more consideration to whether they could gain reasonable value from their purchase. Table II also displays the factor analysis results for the different variables of the factory outlet stores (FOS) in the questionnaire. Again, a similar group of four factors is extracted through factor analysis.

As in the TDS analysis, Factor 1 concerns the in-store customer service features of FOS. The variables regarding customer service have higher loadings than the other variables contained in Factor 1. Respondents were concerned as to whether the service offered by the salespeople is helpful or not, as it is given the highest loading, at 0. 717. The variables of quality, wide selection, newest styles and fully stocked, regarding the products sold in FOS are included in Factor 2. Their high loadings indicate that Factor 2 is related to measuring the brand images of the products 12 sold in the retail stores.

The customers who shop in FOS tend to give more consideration as to whether the products sold in these stores are comparatively new styles and have satisfactory stock levels, as shown in the related high loadings of these two variables (0. 779 and 0. 740, respectively). These customers do not pay much attention to the quality of the products sold in FOS, however, as this variable’s loading is only 0. 471. Moreover, Factor 3’s variables of attractive, not crowded, cleanliness, neat and bright have loadings of 0. 556, 0. 697, 0. 822, 0. 677 and 0. 160, respectively. Thus, Factor 3 can be identified as concerning the physical features of FOS.

More specifically, customers tend to be concerned about the cleanliness of FOS, but few of them indicate that store brightness is important. Lastly, Factor 4 concerns the price and promotion features of the products sold in FOS. Higher loadings are given to the price, reasonable price for value, markdowns and clearly marked price variables included in the fourth factor, at 0. 359, 0. 325, 0. 882 and 0. 739, respectively. Customers of factory outlet stores tend to be more concerned as to whether the markdowns of the products sold in the stores are attractive, and whether the prices of the products are clearly marked.

Customer Store Preference across Demographics To know if there is a trend to shop at factory outlet stores, we asked respondents which store they normally prefer to shop. To control for any possible response bias, we selected respondents equally at both types of retail outlets. As shown in Table III, the number of respondents who prefer TDS as their shopping place is 113, compared to 92 respondents choosing FOS as their preferred shopping place. This implies that a sizable number of customers prefer and/or are shopping at factory outlet stores.

Table III: Frequency analysis of store choice Frequency Traditional department stores Factory outlet stores 113 92 Percentage 55. 1 44. 9 13 Total 205 100. 0 Chi-square is next used in order to examine whether there are any significant effects from the different demographic characteristics on customer decision-making in regards to shopping choices. As shown in Table IV, significant differences exist in customers’ store choice as regards to their different genders, levels of education and gross yearly income, as the relative P-values for these variables are 0. 001, 0. 000 and 0. 003, respectively.

Nevertheless, there are no significant differences between customers’ shopping preferences in regard to age, as the P-value is 0. 690. Table IV: Store choices and demographic characteristics Department Chi-squa re values 11. 343 Traditional Demographics Gender Female Male Total 47 66 113 19 28 36 18 8 4 113 13 24 56 20 113 60 32 92 13 25 25 20 8 1 92 21 38 23 10 92 107 98 205 32 53 61 38 16 5 205 34 62 79 30 205 20. 223 . 000 3. 065 . 690 . 001 P-values Factory Total Outlet Stores Stores Age Under 25yr 25-34yr 35-44yr 45-54yr 55-64yr Over 64yr Total Formatted: Swedish (Sweden) Education

High School Grad. Trade Diploma/Certificate Bachelor Degree Master Degree Total Individual yearly tax) gross income (before Less than NZ$20,000 NZ$20,001--$40,000 NZ$40,001--$60,000 Over NZ$60,000 Total 18 46 33 16 113 26 47 16 3 92 44 93 49 19 205 14. 256 . 003 14 More specifically, female respondents tend to prefer shopping in factory outlet stores, while nearly two-thirds of the male respondents prefer to shop in traditional department stores. Furthermore, customers with higher levels of education are more likely to choose traditional department stores as their shopping preference.

As shown in Table IV, the number of customers who possess degrees and prefer shopping at traditional department stores is much higher than the number of those customers who are willing to go to factory outlet stores. In addition, customers who earn a higher yearly income; particularly those whose gross yearly income is between NZ$40,001 and NZ$60,000, or over NZ $60,000; tend to choose traditional department stores over factory outlet stores. These statistics are summarised in Table IV above. Therefore, H1 is supported on gender, education and income, but not on the demographic of age.

Customer Perceptions of Brand Images of Products Sold in Traditional Department Stores and Factory Outlet Stores Table V below provides a comparison of the brand images and T-test results of products sold in traditional department stores and factory outlet stores. According to these results, H2; which holds that the brand images of products sold in TDS are higher than those of products sold in FOS; is supported (see Table V). In other words, the overall mean rating of TDS branded products is significantly higher than that of FOS branded products, at 16. 02 and 9. 1, respectively. Specifically; according to the analysis of the individual items of product features; the respondents gave higher ratings for products sold in TDS (regarding their wide selection, newer styles and satisfactory stock levels), than for the products sold in FOS. There is a significant difference between the mean ratings of the branded products sold in TDS and FOS. Thus, the results from the data analysis show that there is a significant difference in the brand images of the products sold in traditional department stores and factory outlet stores.

Customers tend to have higher, and more positive, images of branded products sold in traditional department stores than they do for branded products sold in factory outlet stores. 15 16 Table V: Comparison of brand images of products sold in stores Factory Outlet Brand Images of Products Sold Traditional Stores in the stores Department Stores Mean SD Mean SD P-values Quality is good Selection of products is wide Styles of products are newest Stock level 3. 88 4. 05 4. 02 4. 07 16. 02 .70 . 81 . 93 . 88 2. 69 3. 11 2. 53 2. 16 1. 91 9. 71 .77 . 89 . 87 . 94 2. 73 .000 . 000 . 00 . 000 . 000 Overall Customer Perceptions of Store Images of Traditional Department Stores and Factory Outlet Stores Table VI below provides a comparison of the store images and T-Test results of both types of retail stores. As shown, the respondents’ overall mean ratings, as well as their item-wise mean ratings of TDS physical features are significantly higher than for FOS, at 19. 87 and 16. 13, respectively. Therefore, H3 is accepted. That is, the physical features of traditional department stores are perceived as being better than those of the factory outlet stores.

There is a significant difference between the mean ratings of the physical features of TDS and FOS. Thus, the respondents indicated that the physical characteristics of traditional department stores are more attractive than those of factory outlet stores. Further to this finding, the respondents’ overall mean ratings, as well as their item-wise mean ratings of TDS in-store customer service features are significantly higher than those for FOS, at 22. 18 and 20. 48, respectively. Therefore, H4 is accepted.

That is, in-store customer service features of traditional department stores are perceived as being better than those of factory outlet stores in New Zealand Furthermore, H5; which holds that the price and promotion features of products sold in traditional department stores are perceived as being significantly higher than those of factory outlet stores; is accepted, as indicated in Table V. The applicable overall mean ratings of TDS and FOS are 12. 70 and 16. 11, respectively. Also, the individual scale 17 items of price and promotion features are much higher for the factory outlet stores.

This finding indicates that respondents consider the prices of products sold in FOS to be comparative lower than those sold in TDS and that the promotions offered by FOS are more attractive and satisfactory. Table VI: Comparison of the features of traditional department stores (TDS) and factory outlet stores (FOS) Features Traditional Factory Outlet P-values Department Stores Stores SD Mean SD Physical Features: Mean Store is attractive . 000 . 94 3. 32 . 84 3. 63 Store is not crowded . 000 . 85 3. 25 . 81 3. 70 Store is clean . 000 . 83 3. 44 . 75 4. 10 Store is neat . 000 . 86 3. 49 . 73 4. 16 Store is bright . 00 . 70 2. 62 . 73 4. 28 Overall In-store Customer Service Features: Salespeople are friendly Salespeople are helpful Salespeople are familiar with merchandise Exchanges happily Less pressure from salespeople Enough salespeople 19. 87 Mean 3. 86 3. 76 3. 77 3. 39 3. 48 3. 91 22. 18 Mean 2. 88 2. 82 3. 38 3. 63 12. 70 2. 96 SD . 67 . 73 . 86 . 84 . 81 . 85 3. 45 SD . 83 . 88 . 91 . 88 2. 71 16. 13 Mean 3. 59 3. 52 3. 42 3. 07 3. 36 3. 51 20. 48 Mean 3. 99 3. 66 4. 22 4. 24 16. 11 3. 10 SD . 82 . 82 . 88 . 87 . 87 . 96 3. 95 SD . 65 . 76 . 79 . 84 2. 26 .000 . 000 . 000 . 000 . 000 . 000 . 000 . 000

Overall Price & Promotion Features of Products Sold in the stores: Prices are good Value for price Markdowns are attractive Prices of products are marked clearly .000 . 000 . 000 . 000 . 000 Overall Customer Perceptions of Traditional Department Stores and Factory Outlet Stores across Demographics To investigate Objective 4 (to evaluate whether demographic characteristics are related to customer perceptions of traditional department stores and factory outlet stores), the ANOVA and T-tests are used to determine whether there are significant relationships between customers’ store ratings and their demographic characteristics.

Table VII 18 displays the customer perceptions of overall store ratings and their relevant four demographic characteristics. As shown in Table VII, only the income level shows significant mean differences in the ratings of TDS. In other words, customers’ concerns regarding the physical features and price and promotion features of TDS are highly influenced by their income level. More specifically, the higher the customer’s income is the more favourable will be the mean ratings for physical features and price and promotion of TDS.

There is, however, no difference in the customer perceptions of TDS and FOS across gender, age groups and educational levels, as the respective P-values are all much higher than 0. 05. Therefore, H6 is supported only on income, but not on gender and education levels. Table VII: Store ratings and Demographic Characteristics Demographics Traditional Department Stores Physical Physical features features In-store customer service features In-store customer service features Mean SD Mean SD

Mean SD Mean SD Price & promotion features Price & promotion features Product features Product features Factory Outlet Stores Traditional Department Stores Factory Outlet Stores Traditional Department Stores Factory Outlet Stores Traditional Department Stores Factory Outlet Stores Formatted Mean SD Mean SD Mean SD Mean SD Gender: Female Male P-value 3. 93 4. 02 . 682 . 54 . 64 3. 32 3. 12 . 059 . 60 . 63 3. 66 3. 74 . 307 . 58 . 57 3. 43 3. 40 . 832 . 64 . 68 3. 14 3. 22 . 636 . 70 . 65 4. 02 4. 03 . 635 . 58 . 56 3. 97 4. 04 . 734 . 65 . 69 2. 48 2. 7 . 476 . 74 . 61 Age: Under 25yr 25-34yr 35-44yr 45-54yr 55-64yr Over 64yr 3. 88 3. 95 4. 05 3. 94 3. 86 4. 48 . 270 . 55 . 60 . 57 . 59 . 66 . 74 3. 23 3. 22 3. 20 3. 38 3. 14 2. 76 . 330 . 69 . 62 . 64 . 44 . 69 . 82 3. 82 3. 63 3. 71 3. 59 3. 85 3. 73 . 450 . 56 . 57 . 60 . 52 . 57 . 89 3. 47 3. 39 3. 38 3. 59 3. 28 2. 73 . 097 . 59 . 66 . 64 . 57 . 76 . 66 3. 24 2. 99 3. 31 3. 13 3. 27 3. 10 . 206 . 69 . 70 . 58 . 65 . 77 . 68 4. 09 3. 88 4. 05 4. 14 4. 09 3. 80 . 225 . 48 . 57 . 60 . 46 . 56 . 56 4. 13 3. 90 4. 09 3. 99 3. 86 3. 90 . 532 . 58 . 8 . 63 . 72 . 75 . 67 2. 54 2. 32 2. 44 2. 50 2. 44 2. 10 . 572 . 80 . 64 . 65 . 74 . 56 . 65 Formatted: Swedish (Sweden) P-value 19 Education: High School Grad. Diploma/Certificate Bachelor Degree Masters Degree 3. 96 3. 85 4. 02 4. 11 . 201 . 62 . 53 . 60 . 65 3. 38 3. 34 3. 11 3. 14 . 058 . 68 . 52 . 68 . 53 3. 59 3. 70 3. 76 3. 63 . 480 . 55 . 50 . 60 . 67 3. 51 3. 55 3. 26 3. 42 . 590 . 74 . 56 . 65 . 71 2. 94 3. 15 3. 31 3. 15 . 066 . 72 . 65 . 65 . 72 3. 99 4. 09 3. 97 4. 08 . 552 . 60 . 50 . 63 . 45 3. 83 3. 99 4. 10 4. 00 . 281 . 85 . 59 . 6 . 85 2. 57 2. 41 2. 30 2. 63 . 075 . 72 . 52 . 70 . 82 P-value Yearly gross income: Less than NZ$20,000 NZ$20,001--$40,000 NZ$40,001--$60,000 Over NZ$60,000 3. 90 3. 87 4. 11 4. 27 .64 . 54 . 58 . 62 3. 22 3. 28 3. 19 3. 06 . 524 .66 . 63 . 59 . 55 3. 67 3. 66 3. 78 3. 74 . 674 .56 . 59 . 56 . 58 3. 44 3. 48 3. 29 3. 34 . 413 .68 . 67 . 63 . 65 2. 88 3. 20 3. 30 3. 43 .71 . 67 . 59 . 68 4. 02 4. 05 4. 01 3. 99 . 960 .57 . 57 . 53 . 66 3. 85 3. 97 4. 12 4. 28 . 060 .76 . 65 . 62 . 58 2. 61 2. 38 2. 31 2. 55 . 130 .75 . 61 . 63 . 93 P-value .010 .005

CONCLUSIONS AND IMPLICATIONS The findings on customer store preference across demographics show that customers with different genders, levels of education and gross yearly incomes tend to make different store choices, however, they perceive traditional department stores and factory outlet stores similarly regardless of their age. More specifically, male customers regard traditional department stores offering famous branded products as their first choice, however, female customers are willing to shop at factory outlet stores in order to seek branded products with comparatively lower prices.

Female customers tend to be more price oriented and price sensitive. Furthermore, the higher the level of education customers have the more likely they are to choose traditional department stores as their shopping preference. This finding indicates that more highly educated customers tend to have greater concerns in regards to the shopping environment and atmosphere offered by traditional department stores. In addition, customers earning higher yearly incomes are more willing to choose traditional department stores over factory outlet stores.

In regards to customer perceptions of brand images of products sold in traditional department stores and factory outlet stores, there is a significant difference in the brand images of products sold across these stores. The brand images of products sold in traditional department stores are perceived more positively than are those of products 20 sold in factory outlet stores. Customers perceive traditional department stores as offering wider and more satisfactory selections of various types of merchandise in comparison to factory outlet stores.

The stock levels in traditional department stores are also seen as being superior. Obviously, the wider selection and greater breadth of different branded products offered in the stores, the greater the number of customers who will be more attracted to TDS. In regard to customer perceptions of store images of traditional department stores and factory outlet stores, there is a significant difference between traditional department stores and factory outlet stores.

Firstly, respondents feel that the physical features of traditional department stores are more satisfactory, comfortable and attractive than those of the factory outlet stores. Customers believe that they will enjoy shopping at traditional department stores, as they provide them with a more comfortable in-store shopping environment and atmosphere. Secondly, there are significant differences in the in-store customer service features of traditional department stores and factory outlet stores. Customers believe that traditional department stores provide a higher quality of in-store customer services.

TDS are also seen as having better exchange policies and an adequate number of salespeople offering to meet customers’ different wants and needs. Therefore, traditional department stores do have distinctive advantages in terms of their in-store customer services, in comparison to those offered by factory outlet stores. Thirdly, traditional department stores have much higher prices when compared with factory outlet stores. This is due to their different marketing orientation and segmentation.

Customers tend to be attracted by the prices and value of products sold in factory outlet stores. Schneiderman (1998) found in his research that customers believed that factory outlet stores could provide greater value for their money than did traditional department stores. Results on the examination of customer perceptions of traditional department stores and factory outlet stores across demographics indicate that only income levels have any significant effects on customers’ mean ratings of traditional department stores, but that 21 o significant differences exist across the variables of gender, age and education. This means that customer perceptions of physical features and price and promotion features of traditional department stores are highly influenced by their different income levels. Customers with higher incomes tend to be attracted to physical features and price and promotion features of traditional department stores. They are interested in shopping in a comfortable environment and seeking famous and fashionable branded products, rather than being price sensitive, bargain seeking customers.

The implications of these research findings include the point that traditional department stores should maintain their competitive positions by continuing to offer good physical facilities and environments, satisfactory in-store customer services and famous branded products, in order to maintain and attract more customers. This will also help to maintain their market share and gain competitive advantage against the intense competition created by factory outlet stores. Customers perceive that the prices offered in traditional department stores are much higher than those of factory outlet stores.

Therefore, department stores are facing a big challenge from factory outlet stores in terms of price and promotion strategies. As a result, they need to assess their value positions and adapt more reasonable prices to provide satisfactory value for customers. Clearly identifying and dividing their current and potential customers into different target segments is necessary for retailers in setting differing price strategies. During sales seasons, more attractive promotion of branded products could be undertaken in traditional department stores.

Certainly, customers tend to purchase more when there are large sales and attractive promotions of branded products in traditional department stores. In order to target appropriate segments, traditional department stores need to identify what relevant level of branded products should be sold and assign these products reasonable prices in stores across different ages, genders, and levels of education and income. Traditional department retail stores also need to provide more selection characteristics (in terms of their branded products adapting to the newest styles frequently and maintain good stocks level), in order to 22 eep their competitive advantages through being perceived as offering more positive brand images of the products sold in their stores. Furthermore, strategic alliances between different traditional department stores and their distributors could also be developed. In such an alliance, competitive advantages (such as better offerings of quality in-store services and providing similar branded products with reasonable prices and promotions) could be shared by traditional department stores, , which should reduce costs for the alliance partners.

Regarding implications for factory outlet stores, they need to learn from the comparative disadvantages of traditional department stores and engage in enhancing their current competitive positions on price and promotion offerings, in order to improve customer perceptions of their stores. Maintaining their comparatively lower prices and providing frequent promotions of branded products is one of the most useful price and promotion strategies for factory outlet stores in maintaining and enhancing their competitive positions in this area.

Meanwhile, manufacturers which utilise factory outlet stores need to control the values of the products through assessments. As a result, customers who are not only price sensitive, but are also value seeking will be satisfied with the prices and promotion features of the products sold in the factory outlet stores. It is extremely important for manufacturers to immediately improve their products’ brand images. Widening the selection of characteristics, improving stock levels and offering positive branded products in the stores are ways which this could be achieved.

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