Cut-price goods find a new outlet: Heather Connon on the latest idea from the US to threaten UK retailers

FORGET warehouse clubs: that American import is already old hat. The retailing concept of the future is the factory outlet.

But banish all thoughts of trawling through industrial estates searching for warehouses offering sub- standard goods at reduced prices; factory outlets look nothing like factories.

Instead, they are custom- designed malls, offering facilities to compete with the most modern shopping centres. And they aim to sell the very best in designer names, from Calvin Klein to Laura Ashley.

The shops in a factory outlet are occupied by manufacturers, not retailers like Marks & Spencer or Burton. But the names should still be familiar - Aquascutum or Royal Doulton, for example. The difference is that, because they offer seconds or end-of-season goods, prices can be half those on the high street.

Gerald Ratner, who is behind a scheme at Tobacco Dock in London Docklands that is due to open next April, was inspired by a visit to America. 'Everyone is talking about factory outlets there. I went to see some and was very excited to pay dollars 1.80 for Calvin Klein underpants when I was paying pounds 8 at home.'

In the US, factory outlets are big business. They started about 15 years ago when Vanity Fair, parent of the Wrangler jean company, opened one at its factory in Reading, Massachusetts, and invited other manufacturers to join in.

Since then 300 outlets have been opened and, according to some estimates, at least another 200 are planned. They have sales of more than dollars 8bn ( pounds 5.4bn) a year.

But, with the US market maturing, outlet operators are looking at Britain as the next place to expand. At least four US firms are hoping to open sites, generally in collaboration with British property companies. Tarmac, in tandem with the US outlet operator Prime Group and the property developer Richardsons, is planning three sites.

Last month BAA, the airport operator, announced a joint venture with McArthur/Glen, one of the leading US operators, to develop sites here and in Continental Europe.

There are already three factory outlets in Britain: Clarks Village, opened by the shoe retailer C&J Clark at its headquarters in Street, Somerset; Hornsea Freeport in Humberside, run by Peter Black, a Marks & Spencer supplier; and Boundary Mill, at Colne in Lancashire. None, though, is as large as a typical American-style scheme and only one - Clarks Village - is purpose-built. Statistics on other proposals are sparse, but research suggests that at least 17 are planned.

Visitors to Hornsea Freeport - where tenants include Austin Reed, Berketrex and Dash, as well as a Peter Black outlet selling unlabelled seconds and end-of-lines - have risen from 750,000 in 1991 to an expected 1.4 million this year.

Since Clarks Village opened in August, it has attracted more than 800,000 visitors - beating its first year's target in three months. It is coy about sales figures, but Paul Knight, who developed the village for the group, said: 'It far exceeds our expectations. Sales densities to date are considerably better than in the US.' There, sales per square foot can be up to 40 per cent higher than on a typical high street.

The success has encouraged it to plan another outlet, at its K-Shoes factory in Kendal, Cumbria.

Tenants at Clarks include clothing manufacturers such as Alexon, Benetton, Triumph and Pierre Cardin, along with china makers like Denby Pottery, Dartington and Royal Worcester. Unlike most of the proposed outlets, it is next to the factory, and the shop on the site, selling seconds and end-of-line merchandise, was already well known locally.

Apart from transport - it is some way from the nearest motorway - Street is an ideal factory outlet location. It is some distance from a main shopping centre, so sales are not transferred from the high street, and in an area that attracts a large number of tourists.

But finding such locations in Britain is not always easy. McArthur/Glen operates 19 outlets in the US and, through its joint venture with BAA, is planning to open six in Britain in the next four years.

In the US, it looks for sites about 60 miles away from a metropolitan area or shopping mall, but which has 2 million to 3 million people within an hour's drive. When it applied those requirements to Britain, said Byrne Murphy, president of the group's European operation, 'we came up with a site 60 miles out into the North Sea'.

After tinkering with the criteria, he is confident of getting enough suitable sites and expects to have the first British outlet up and running in 1995.

Tobacco Dock is likely to be the first US-style outlet to open in Britain. 'Its success hinges on the US designer names,' said Mr Ratner, who bought the development from the receivers.

He has already signed up some British and European manufacturers, and is hopeful that contacts with US companies at a recent trade fair in New Orleans will pay off. But he also has to persuade tenants that Tobacco Dock will not clash with their central London - full-price - outlets, despite being less than half an hour's drive away.

Marks & Spencer provides a good example of the problem. Its Brooks Brothers chain in the US has 15 stores in factory outlets, all selling goods under the Brooks Brothers label, and is aiming for 50. In Britain, however, it is extremely careful about where its suppliers sell their seconds and end-of-season lines. It issues strict guidelines on when seconds can be sold and insists that any labels - including washing instructions - that could identify Marks & Spencer are removed.

'In the US, we are attracting different customers,' a Marks & Spencer spokesman said. 'The person who will go into Brooks Brothers in Manhattan is not the same as one who will go to a factory outlet store.' In Britain, however, Marks & Spencer is such a ubiquitous presence that it would be impossible to establish a completely new market.

Austin Reed, which has space in Hornsea and Boundary Mill, also believes factory outlets have limited usefulness - largely for cancelled orders for overseas customers or for goods that it could not shift in end- of-season sales.

Laura Ashley, however, which has 10 outlets in the US and is at all three British sites, believes they are useful. 'It is an essential part of the retail formula,' said Jim Maxmin, chief executive. 'It allows you to take a product which was not selling on the high street and sell it again. It also means the shops are less likely to have discounted products in mid-season.'

Like many other retail fads, however, there is a danger that too many companies will jump on the factory outlet bandwagon. John Milligan of Jones Lang Wootton - which is advising McArthur/Glen - points out that there were planning applications for 100 million square feet of specialist shopping centres like Covent Garden in London a few years ago. Only seven were opened.

Outlets will be classified by planning authorities as retailers, not wholesalers, so there should be little scope for the wrangles that have dogged the opening of Costco's warehouse club in Essex - classified as a wholesale operation.

Scott Malkin of Value Retail - a consortium of companies including London & Metropolitan and Chelsea Group, the US outlet operator - which is planning an outlet at Bicester, Oxfordshire, believes there will be scope for only 10 to 15 large, US-style outlets in Britain, although there could be many other small, specialist centres.

These might include schemes like one in York, run by Factory Outlet Shopping Centres, where seconds from a range of manufacturers are sold in one warehouse, rather than in individual shops.

Factory outlets are in effect selling manufacturers' mistakes, whether through over-production or poor quality. Their growth should be limited by improved production systems and just-in-time manufacturing.

But in the US, a growing number of manufacturers are producing specially for outlets. The goods in question are often of a poorer quality than those available in full-price shops. Customers are unlikely to be fooled by that for long.

(Photograph omitted)