The Private Flash Sales Sites Jump the Shark

On April 19 I posted about my belief that the luxury off-price market was about to hit the wall, largely owing to a squeeze between a growing customer base seeking out great deals, and a diminishing supply of first quality branded merchandise.   I suggested that the various players in the space were going to have to evolve their winning formulas substantially to sustain their growth.

Well this seems to be playing out with the various high-end flash-sales sites (Gilt Groupe, RueLaLa, HauteLook, Ideeli and BeyondTheRack and the myriad wanna-bees).   In fact, what made these new concepts so great–and allowed them to gobble up market share–is rapidly being watered down.  Whether you call this “jumping the shark” or “nuking the fridge”, it’s a cause for concern.

All these companies have grown rapidly, attracting both legions of members and significant investment capital.  Their original value proposition was simple: offer well-known, high end brands at unbelievably low prices, and make them available in limited quantities during a short sale period.   This was an innovative re-imagining and up-scaling of QVC–or a blatant ripoff of Europe’s Vente Privee–depending on where you sit on the cynicism scale.  Regardless, during late 2008 and well into 2009, customers signed up in droves and feasted on high demand fashion brands at steep discounts.  Of course the rocket fuel during this time was the substantial amount of surplus inventory that both manufacturers and retailers were desperate to turn into cash.

A review of the flash-sale sites’ offerings today reveals quite a different story than even six months ago.

The first obvious thing is the paucity of true high demand luxury brands.  Tomorrow’s sale on RueLaLa features one true luxury brand (Pratesi), but also Andrew Marc, L. Spaace, Tailor Vintage and Cuddlestone.   BeyondTheRack has some Gucci, Prada and Robert Cavalli–though it’s sunglasses and wallets–not ready-to-wear or handbags.  The rest of their offering is Jonathan Marche, Ninety, SpyZone Exchange, CC Skye and Italgen.   Not exactly household names.  A check of Ideeli and Hautelook reveals the same smattering of brands you have heard of, while the rest is decidedly second tier or no-name.  Gilt Groupe, on the other hand, does seem to consistently have a much broader offering of true high end and fashion brands.

The second item of note is that the discounting is not nearly as extreme as last year.  And this is not surprising.  Last year, when manufacturers were stuck with mountains of unsold inventory, they were often willing to sell first quality product below their production cost.  Today, more and more product is not distressed, but rather made specifically to be sold in these channels; and that means the manufacturer needs a mark-up.  If your product acquisition cost goes up, the retail price goes up (i.e. the lower % discount to the consumer).

The other noteworthy change is the growing mix of product that is not fashion merchandise.  All these sites are starting to feature travel, wine and even bicycles.  On the one hand, this is a smart growth strategy: find more things to offer to your existing clientele.  For others, it smacks of desperation.

All this adds up to a model that, despite being barely two years old, is rapidly evolving and will likely look quite different by this time next year.  My guess is that by then several of these sites will be gone, bought out or struggling mightily, while a short list will leverage deep customer insight and new capabilities reinvent themselves and thrive.  Given that the big guys–Neiman Marcus, Saks and Nordstrom–have yet to do anything meaningful in this arena (and really why is it taking them so long?) we can only expect the competitive environment to become even more intense.

Any guesses on who will be standing tall versus who will become chum?

8 thoughts on “The Private Flash Sales Sites Jump the Shark

  1. Yes, but I don’t think the focus on these flash sites is necessarily the brands. For me, a frequent shopper via these channels, I could care less about the brands, but more about the value. I have found the value absolutely outstanding — as long as returns are possible — for these sites. I rarely shop brand, I shop style and the styles I see offered are great.

    So I am not at all concerned about the future of these sites. They are simply going to focus more on delivering value to consumer and on that they do an exceptional job. I also personally find the shopping experience very well suited to my shopping style. I am not innundated by page after page of styles. I can review a carefully edited selection, make my pick and get it delivered fast. I like these sties.

  2. The online flash sale sites are a mixed bag. Some are terribly relevant, facilitating a nice outlet for designers and allowing customers to participate without the bother of size hunting, etc in real world stores. Many do not carry authorized merchandise and while there are customers who don’t look and don’t ask, there is pain in being taken advantage of. I’ve emailed Movado, Burberry and Balenciaga and, as an example, BeyondTheRack.com is NOT authorized. I spoke to Fendi corporate headquarters yesterday and they are also not authorized (BeyondTheRack.com). It’s not ok to assume that they are buying overstock or past season authentic merchandise because, simply, there’s no authentication.

    I’ve blogged about this issue, Fashionista.com has picked up on it and if anyone looks at Christian Loubintin’s stop fakes site – well the sheer number of sites selling fakes is unbelievably high. If you google almost any of the merchandise that some of these sites (Gilt is such a fine company – one can completely trust them, period) feature you’d see that you can buy replica Balenciaga or Hermes or Chanel products for around 150.00. But they are FAKE and can be confiscated and one can get fined up to 5,000. It’s a horrible practice, this inauthentic market and simply emailing the designer’s customer service department to verify will save pain.

  3. I personally don’t shop on any of those sites anymore due to the fact that they feature the same sale prices as would be in store. I found the same top I bought on Gilt Groupe at Neiman’s for an even cheaper price (and I didn’t have to pay shipping).

  4. The key to staying power will be financial heft. One of the selling points of these sights to suppliers is that they pay COD or close to it. Last Call, Nordstrom Rack, Saks Off Fifth and others pay on more traditional retail terms, e.g. net 30 to net 60 days. Without cash, the e-com players will have no product to offer.

    RueLaLa is owned by the substantial GSI Commerce; Gilt has clearly established dominance and appears to be stable; Swirl (now in beta) is a subsidiary of Daily Candy which was recently acquired by Comcast. The other players are living equity infusion to equity infusion in hopes of an exit while the format is timely.

    Market sources say TJX is working on its own private sale platform, therefore will not be a buyer of one of these players. That leaves only Ross as a buyer and they have never been big fans of the luxury marketplace.

    Pam is right-on that brand isn’t the only selling point, but in reality, there has to be a reason for a member to click-through on that daily email and recognizable brands are the draw.

    With the pressure luxury retailers are putting on suppliers to these sights, I’d be surprised if there are a lot of counterfeits in these offerings. LVMH, Fendi and others have very active legal staffs (recent wins vs. Filene’s Basement and Burlington Coat) and would be all over them if this could be documented.

    The bottom line is that e-comm is approaching 10% of apparel sales and it’s a negligible part of the off-price apparel business. There’s room for multiple players, just like there is room for 100+ apparel retailers. The key will be customer engagement and that involves not just great SEO and web design, but great merchandise content. There’s lots of room to improve on the latter!

  5. Steve, just saw this article as part of your news letter. While the conventional wisdom says that value is all about low cost- like you said, the value proposition of “offering well-known, high end brands at unbelievably low prices, and make them available in limited quantities during a short sale period” has worked relatively well for a period of time for these high-end flash-sales sites (Gilt Groupe, RueLaLa, HauteLook, Ideeli and BeyondTheRack) – but again, have started fading away recently- as their value proposition is short sighted and – so not a sustainable one.

    To your point – who will be standing tall versus who will become chum- In my opinion, the luxury players must redefine the value equation by providing high-end value for the super premium consumers – and prove that value is also providing high quality product in a best optimal price. Within this “one size does not fit all” value context – personalization is going to be the name of the game – and so luxury players who add personalization as part of their super premium value portfolio are going to be the winners in the next decade. I will not be surprised if personalization goes to the extent of Made to Order (MTO) level for most super premium product categories as opposed to the current Mass Market Production (MMP) model.

    Another complimentary strategy to consider is “triple play” brand strategy – in which these players must come up with three variations of the same product (super premium with 100% features/attributes/experiences, Premium with 80% and value with 60% good enough attributes). The rationale is that in any product 60-80% functionality is often used by the consumers and the remaining 20-40% are the fancy functions often not experienced, but makes the super premium consumers feel good from branding stand point and so they are willing to pay the high premium price not for quality – but for the brand prestige.

    Bottom line: With the top 20% of the customers bring the maximum profit to these retailers, it is time for these luxury players to have a multi channel strategy – with the on-line channel specializing on personalization (& MTO) that is further propelled by your “customer centricity” strategy and touch point integration (i.e. channel integration) strategy – as touch point integration is very important for these big guys like Neiman Marcus, Saks and Nordstrom to be relevant in the next decade decade.

    Regards,
    Charles

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  7. insightful piece! As a fashion writer I’ve witnessed the breakneck speed of this evolution, as you describe it, from start to finish and I think you are right on the money. In addition to a reduced amount of items that are both quality and relevant to current styles, these sites have become less desirable simply BECAUSE they are popular. Early on a large part of the draw with the “invitation only” front. Even if, intellectually, you could discern that it was just a marketing tool, it felt like a special club you belonged to. Exclusivity is a huge part of the traditional fashion paradigm and once these sites started to get loose with letting everyone in, they immediately began to lose some of their value.

  8. Steven, can you do an update on this (very good) article now? Nordstrom has acquired HauteLook, Gilt raising VC cash at a $1B+ valuation, etc. In Europe it’s heating up too – lots of fashion sale sites doing big stuff and some serious acquisitions by American players: Ebay acquiring Brands4Friends/Secret Sales, Amazon & BuyVIP.

    Travel is next, as you rightly point out travel is a natural extension of the fashion guys as they evolve into lifestyle brands.

    We (www.travesse.com) are a new travel player in Europe and are seeing tremendous growth as the market explodes. I’d be interested in your feedback – feel free to get in touch with me directly.

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