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?
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