I have exactly the same problem with my bag.Oh no! You could try touching the handles up with a leather dye (I like Kiwi brand) and a polish. I've had really hit-or-miss experiences with the outlet purses too. I've had better luck getting secondhand pebble leather pieces on ebay; those have held up nicely after a lot of abuse! Good luck.
I bought a new KS bag from outlet in US when i went there for a trip.
When i tried the bag, it looks perfect. i was in a rush and the price was very good, i just paid and left.
Now that i am thousands of miles away from US and found out the handle is totally cracked. Believe me, much worse than yours. i think it might be because they have stored the bags in a very humid environment for too long.
It will take about 100 USD to restore it in a bag spa and the bag cost me like 150 USD.
I am in the dilemma whether to repair it now.
I do agree that the outlet quality is much worse than the boutique. Lessons learnt.