Why outlet stores aren’t as good a deal as you think

Reporting for Racked, Chavie Lieber spoke to some shoppers who didn't mind that the clothing at outlet stores was lower quality because they cared more about the design and the brand. But as Lieber, noted:

The formula these outlets employ—designers watering down their original concepts with inferior materials and production methods to get to a lower price point—wouldn't seem so sneaky if shoppers knew what they were buying.

The fact is most casual shoppers probably don't know that outlet stores are selling clothing that never sold at the higher-end retail stores. And that's exactly what the brands intended.

A class-action lawsuit filed against Kate Spade & Co. this week highlights the tactics that fashion brands use to maintain general confusion about the origin of the clothing.

The complaint accuses Kate Spade of advertising fake discounts inside its outlet stores, tricking the plaintiffs into purchasing items that they believed were substantially marked down from the original price:

[T]hese purported original "our price" prices and corresponding price reductions and savings were false and deceptive, as the prevailing retail price for the handbag during the three months immediately prior to plaintiff's purchase of such item was no more than $142.00 and not the $355.00 original 'our price' represented by Kate Spade. Plaintiff would not have purchased the handbag in the absence of Kate Spade's misrepresentations.

Michael Kors settled a similar lawsuit last year, and TJ Maxx is also facing legal action after it became clear that the store's staff was simply guessing what the items were worth at full retail and marking the discount from that estimate.

Watch the video above to learn more about the ethically murky tactics to look out for while shopping.