While the online retail concept has been around for almost two decades, the desperation of the recession left luxury brands saddled with unsold merchandise. Thus, private sale sites offing goods at cut-rate prices began popping up.
It's not a new concept -- think of members-only big box stores like Sam's Club and Costco that have been around for decades. A large membership base, exceptional buying power, low overhead costs and buying in bulk have enabled these companies to offer their members deeply discounted prices.
Now, that same concept has been adopted online -- members join or are invited to websites that offer private sales with great prices on everything from designer clothes, to furniture, to kitchen supplies, restaurants, and flight, hotel and vacation packages. Most memberships are free, but some sites, like Ideeli, offer paid VIP membership that affords members early access to sales. In the world of private sales, it's first come, first serve, so having a head start over most people can really help. But how do these sites work? And how do they turn a profit selling a $500 dress for $150?
Block, Sell and Ship
Many sites, like Gilt, one of the most popular and successful private sale sites, operate on the "Block, Sell and Ship" model. In this model, brands send samples of their clothes to Gilt, where merchandise buyers hand pick the items they want to sell on the site. The buyers then place their orders for the amount of merchandise they'd like the brands to set aside for the sale, based on available stock.
After members pay for their goods and the sale ends, Gilt then places the confirmed purchase order with the brand for what it has sold online. Merchandise is then shipped to Gilt, where everything is packaged in Gilt-branded boxes and shipped out to customers.
This is a fairly safe model with few risks to Gilt. The most Gilt really has to worry about is the time it takes for the brand to send their purchase order, and then send it out to customers. Another risk in this model has to do with inventory. If the count isn't accurate, you could have a number of customer's receiving refunds and apologies that their order could not be filled. The risk then is that the customer becomes discouraged and will look to other sites. But it doesn't seem like Gilt is having that problem, as it's reportedly on track to rake in about $500 million in revenue this year, and that's up from $170 million the year before.
Buy and Distribute Direct
Another common way that other sites operate is to purchase and fulfill orders directly. With this model, the sites take more of a risk, but have the potential to offer customers the best discounts. If a company chooses this business model they contact brands to see how much inventory is available, and the brands will send them them their inventory reports and samples. Here is where things differ -- the more inventory the site buys, the better wholesale price they get, and the better price they can offer to their members. The risk here is that if a site orders 100 percent of a brand's inventory and it goes unsold, then that's money lost.
Why Are the Items So Cheap?
In some cases, the items sold on these sites are samples created before the item went into mass production. Samples are often created by luxury brands and high-end designers to test out design variations or to get a feel for how the market responds to their creations. These are the pieces you see in show on runways and an in magazines. In some cases, a design may never make it to production due to lack of interest from merchandising buyers. Either way, these sample items need to go somewhere after the designer has finalized their line for the season.
Other times, the designer may have made too many pieces of a particular item -- this typically occurs during mass production. In the past, if a designer was unable to sell the pieces at their normal prices, the last call was to load them off to warehouse sales and for dirt cheap. Now, sample sale sites are another option.
Whether the items are samples or overstock, the result is inexpensively priced, quality goods. Private sale sites buy these goods for cheap and then mark them up for a profit. Because the items were so deeply discounted by the designers, even a large markup by the sample site will still be a remarkable discount for the average sample site shopper.
How These Sites Appeal to Consumers
First and foremost, online sample sale sites afford customers the opportunity to buy designer items for cheap.
Another reason these sites are so popular is that they work under the guise that they are "exclusive" and "members-only." While some still require an invite from an existing member, more frequently it's possible to just sign up on your own. Of course, it's to both the website's and the brand's benefit to have as many customers as possible, but the idea of being a VIP customer is very appealing to many and will draw users to sign up or request invites.
These sites also fair well because they have great control over the product selection and can tailor it specifically to meet their target audience through the information they collect when members sign up, resulting in happy customers.
Lastly, these sites are working wonders by capitalizing on a sense of urgency and relying on the impulse of shoppers who want to make sure they get an item in their size or color before anyone else, while not missing out on a great deal. Private sale sites use the ticking pressure of the clock to encourage this impulse shopping, with no exit strategy for buyer's remorse as some items are often non-refundable and shipping for returns is often paid for by the customer.
How Can Your Business Benefit?
Private online sales are a relatively new way to successfully sell items, and small businesses should take notice. While most of the websites promote big, brand name, designer and luxury products, as this model continues to grow in popularity, there will be more opportunities for smaller businesses to offer their products as well. What started with designer clothes has quickly branched out to travel, restaurants, home decor and even kitchen wares -- meaning there is plenty of room for all sorts of products and services to be sold this way.
If your company produces samples or ever experiences overstock, sample sale sites could be a great way to get rid of those items. Instead of compromising your brand's reputation or image by selling leftover products to bargain stores like T.J.Maxx, Filene's Basement and Marshalls, your company could consider selling extra merchandise to these online private sample sales that still have that luxury touch.
Has your company sold to private sale sites? If so, how would you compare the experience with the traditional model of selling leftover samples and overstock to large bargain retailers?
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