RetailSails

“Sample Sale” A phrase that can create feelings of excitement and fear simultaneously in any seasoned shopper. The long lines and crowded spaces, impulse buying, fighting over the last pair of size 7 Jimmy Choos. The adrenaline rush we get, similar to that of a gambler or lottery player, is what retailers and designers want you to feel, and bank on to sell their items. In these kinds of situations, all rational decision-making goes out the window on the quest to own a luxury item that is out of our reach…until now.

With the rapidly changing landscape of the retail marketplace, the traditional physical sample sale is becoming somewhat extinct. As shoppers increasingly turn to the web to do their buying and the recession takes its toll on retail earnings, retailers and designers left with excess inventory and lacking the ability to tap into their usual thrill-evoking in store shopping techniques, have had to come up with creative new ways to manipulate us into buying their leftover merchandise online. The result: the phenomenon of members-only online sample sale sites offering designer brand clothes and goods for a fraction of the cost.

Sites like Gilt Groupe, Ideeli, and Rue La La have become household names, and while retail sales continue to look grim across the board, these membership-only sale sites have been recording huge growth in members and revenues. Beyond the Rack, a private sample sale site in business less than 9 months, has raised $4.5 million in funding and is seeing 4 million monthly unique visitors, with revenue growing over 50 percent per month. This company is on pace to do $30 million in volume this year alone.

Gilt groupe, arguably the most well-known of the pack, was the first to bring the luxury sample sale to the US online market when they launched in 2007. Due to its outrageous success, with reported sales of more than $85 million in fiscal 2009, and expectations to generate sales of $400 million in fiscal 2010, Gilt has led the way for many copycats. Gilt is actually somewhat of a copycat itself, following the business model of France’s Vente-privee.com, the pioneer and largest of these private sales sites, which currently operates in France, Spain, Germany, Italy, and the U.K. and expects turnover in 2010 to reach $1.18 billion.

But what methods are these sites using that are allowing for so much success? While the details of each of the sites differ somewhat, most of them seem to follow the same overall model. Here, I breakdown the tactics these online retailers use to tap into our consumer psychology and get us to buy things. Since I’m actually a member of Gilt Group and a big fan of online shopping in general, I’ll also discuss how these sites benefit us as well. Note, some of these overlap, thus creating mutually beneficial relationships for the retailers, brands, and consumers. Possibly the reason for all the success?

Exclusivity & Added Value Gilt relies on its exclusivity to appeal to both the aspirational shopper and to the luxury brand who is careful about protecting their image. You wouldn’t expect Gucci to sell to Walmart and in turn if Gucci was available at Walmart it wouldn’t be such a coveted brand.

Gilt is invitation only, and membership to this private club comes with the promise of access to designer offerings at a fraction of the cost. Gilt does a great job of invoking a feeling of status in a consumer; being part of a private club, gaining entry to private designer sales, purchasing fancy designer items; Gilt makes you feel like your one of the chosen few. (With the membership mark reaching over 2 million your more like one of the chosen 2 million)

The overstock market has always been huge, but the online space poses a challenge for Luxury brands who are apprehensive about becoming available to the masses. Premier Sites like Gilt shield themselves from search engine results, so they do not pop up in response to online searches for the brands they offer, thus these sites allow for a new distribution channel for brands to distribute their overstock items to a large audience while protecting the brands image.

The Flash Sale The time limit element is one of the the most interesting aspects of these sites. We’ve seen this before on QVC and Ebay. Here, online retailers are banking on that adrenaline rush to get consumers to make purchases, and the addiction to that high feeling to get you to come back, ie consumer retention. Gilt sales start at noon ET and last 36 hours. Merchandise is on a first come first serve basis, and once an item is is in your cart you have a 10-minute countdown to complete the purchase before you lose the item. Creating a feeling of urgency and competition (if i lose the item someone else will get it) leads consumers to make impulsive buying decisions. The high you feel when you score that coveted item at 70% off and beat the clock might block out the fact that you didnt really want it. The Outnet.com, Net-a-Porter’s outlet site, exemplifies this concept well on its website when its says “Welcome to Flash Sales! A new way to shop sales fast. Don’t blink, don’t move and definitely don’t hesitate as the clock is ticking.”

Reach While expanding both geographical or customer reach is a benefit of all e-commerce in general, it works especially well in the online designer sample sale arena. Urban fashionistas have always had access to fabulous sample sales due to proximity, but those less geographically fortunate haven’t had the same luxury. Running to the latest designer warehouse sale on my lunch break was always commonplace to me living in New York City , but those shoppers living in the midwest may have never even been to a sample sale. Designers offering their items on these online sites have a real opportunity to increase their customer base, and to sell to shoppers who had no previous access to their items. That aspirational shopper comes into play here as well with sites like Gilt offering a premier and exclusive shopping experience to a customer who may not have been exposed to that luxury lifestyle before.

Convenience With sites like Gilt Groupe, Ideeli, and Rue la la offering luxury items at deeply discounted prices, shoppers can purchase items from the comfort of their own home. As I touched on in the first paragraph, a sample sale can be an ugly scene. The negatives of the sample shopping experience is enough to make even this shopper decide its sometimes not even worth the amazing bargains to even go. Bringing the sample sale to the consumer, rather than the other way around, makes for a better shopping experience for the consumer and in turn, designers could be reaching consumers like me who may have not attended the sale had it been in the store.

Email Frequency & Value With the membership only rule, Gilt has access to a database of over 2 million member emails. Gilt does a great job of keeping their members informed with the latest news and sales on the site and as a member of Gilt Groupe, I receive at least 1 email from the site daily alerting me of the upcoming sales. While I am normally annoyed by the constant influx of emails from retailers, the Gilt message is one I’m always happy to get. There’s a constant debate relating to frequency of emails and profits. While increased frequency may lead to a sudden jump in profits or site visits, in the long term frequent emails could cause annoyed consumers to unsubscribe from your customer list. On the other hand, its been proven that if the content of those emails is providing a value to the consumers , ie Gilt offering me fabulous discounts on luxury items, the consumer tends to stay on the subscriber list for longer. With sites like Gilt who offer a new sale every single day, daily emails are a vital component to their success. While retailers need to find the right balance of email frequency, they also need to measure the consumer value of those emails.

Viral Marketing These sites rely on viral and word of mouth marketing to spread the word. Invitation only means you must be invited by a friend who is already a member. Several of these sites offer some sort of compensation for members to invite friends, for example on Rue La La you get a $10 credit for each new member you invited who purchases something. In an interview with Shop.org, Gilt Groupe’s CEO Susan Lyne discussed how Gilt relies on viral marketing to gain new customers, stating that the invite a friend element is the “biggest element of marketing that our company benefits from”. Over half of Gilts new members are aquired through invite a friend. “It’s a hugely valuable marketing tool for so many reasons, not the least being that you tend to open things from a friend a lot more quickly and a lot more readily than if it’s coming from some institution”.

The results of the Vente-Privee.com Business model has proven profitable. A study from the French LH2 Institute found that Vente-Privee increased sales in the traditional retail environment. Almost four out of ten members bought an item of a particular brand in a shop after having seen it on vente-privee.com, and 39% stating that the website gave them idea to buy a brand theyd never bought before.

Seeing the huge success of upstart rivals, luxury retailers have taken notice and are exploring ways to capitalize on the opportunity. Saks began testing invitation only “private” sales back in the fall, and Neiman Marcus has discussed similar plans. These high-end chains have seen outlets significantly out-perform full-price stores, and they hope to add another channel for off-price distribution. However, they have to be careful if they want to protect the brand cache.

Adam Bernhard, CEO of Hautelook.com, said Saks’ entry into the business “reaffirms this is the new way of retail.” However, he said the move is likely to confuse fashion designers and its other suppliers. “Saks is first and foremost a full price distributor of brands,” he said. The Web test will cause suppliers to question, “Are they are full price retailer? Or a discount flash sale site?” he said

The fate of these members-only online sales sites is still yet to be seen, yet with with rumors swirling that bidders are scrambling to purchase Vente-Privee for an estimated $2-4 billion, it seems safe to say that we’re just seeing the beginning of this global e-commerce phenomenon.