Factory stores and outlets (so-called discounters) are dark horses in a market where department stores are finding themselves in dire straits. This new business model, basically offering big brand names at bargain prices, is a real life saver for big brands, helping them to clear out inventories and speed up cash flows.

Two new stores are being prepared to open in Guangzhou at the turn of the year. They're larger than all existing outlet stores in southern China both in terms of scale and number as well as in their assortment of brands.

Meanwhile, Wanguo Plaza, the first "factory store" in Guangzhou, is speeding up expansion, aiming to form the largest cluster of "factory stores" in southern China.

Turnover at these factory stores and outlets has soared in the wake of the economic downturn. This business model is now growing at an unprecedented speed.

In 2006, Tianhe City Department Store opened its first discount outlet in southern China at Wanbo Centre in Panyu. The mall had a floor area of 13,000 sqm when it first opened for business and eventually expanded in size to cover 18,000 sqm. Today it is the largest outlet mall in the southern China region.

Wanguo Plaza began recruiting tenants by introducing the "factory outlet" concept in October 2007. Only Nike took up the offer in the first year. But then Kappa, Puma and 10 other international first-line brands signed up a year later. Levis, the original blue jeans brand, opened its first southern China factory outlet at Wanguo last April.

Factory-related stores representing 14 international brands are currently open on the first basement level of Wanguo Plaza. The mall plans to expand the business area and scale of factory outlets.

The Plaza's strategy of running sales campaigns offering ex-factory prices involving nearly 20 domestic and foreign brands during the May Day holidays was intended to test the water.

Outlets and factory stores are able to move into fast track development thanks to the combined efforts of manufacturers and consumers. The former wants to move the stock, the latter to buy at reasonable prices in uncertain times.

Since domestic and foreign consumers are inclined to "tighten their purse strings" in this economic climate, regular-priced items are selling slowly in department stores. Bargains are king, even where brands are concerned.

Soaring inventories and cash flow problems are prime movers behind the opening of factory stores and outlets. There are many indications of a drastic increase in the inventories of brand-name garments, built up over the previous years.

"A dealer of Adidas goods recently came to us and asked us to help them reduce their stock. We can now get supplies at 70% or 80% discount, which was unthinkable in the past," said one sports goods retailer in Shanghai.

Daphne, one of the dealers of Adidas and Nike in China, says in its newly-published 2008 yearbook: "our two sportswear brands Adidas and Nike generated a steady income with the advent of the Beijing Olympics in the first half. However, business was still not as good as we expected. These two brands reported falling annual profits due to keen competition between international brands and local brands in the market, as well as the outbreak of the financial crisis in the second half of the year."

from Dionne Liu, Guangzhou Office