Gilt Groupe featured in NYTimes.com: “Secret’s Out: Sample Sales Move Online”December 06, 2009
December 6, 2009
By Claire Cain Miller and Jenna Wortham
Daniela Busciglio still winces at the memory of shivering in line for hours to get into New York sample sales, then shoving her way through throngs of other shoppers looking for deals on designer clothes.
But now the mobs are moving online, to sites like Gilt, Rue La La, One Kings Lane, Ideeli and HauteLook. On the Web, the shopping is just as competitive, but it is no longer a blood sport.
“Who wants to go to sample sales with lines out the door and girls scratching to get in?” said Ms. Busciglio, 27, now a graduate student at the University of Wisconsin-Madison.
Online, she said, “I can take my time and not have to worry about people getting up in my face.”
The private-sale sites — a misnomer because most of these so-called exclusive sites are open to anyone who signs up — have become a thriving corner of online commerce. Sites using the same “while supplies last” approach have sprung up recently to sell home furnishings, beauty products and travel packages.
The business model is simple: the sites buy mostly overstocked clothing and accessories from brand-name designers, then discount them deeply. Adrenaline-pumped shoppers rush to get the deals because the items are often gone in a few hours.
The sites try to recreate the rush of a warehouse sample sale, minus the trampling and shoving, but they borrow as much from the Home Shopping Network as they do from Saks Fifth Avenue. After shoppers add an item to their cart at Gilt, for example, they get a 10-minute countdown before they lose the item.
For Matthew Rodriguez, 29, a Web marketer and Gilt shopper, the sales turn shopping into a game. “Knowing the sales start every day at noon makes me really competitive to get an item before someone else gets it,” he said. He recently bought a pair of Clae white patent leather sneakers for $38 on Gilt. They can sell for as much as $135 in retail stores.
More mainstream retailers are also adopting the idea. Saks, for example, is holding 24-hour half-price sales on brands like Hervé Léger.
Others are using the idea for holiday promotions. On the Monday after Thanksgiving, a big online shopping day known as Cyber Monday, Ashford, which sells luxury brand watches, discounted a different watch every two hours on its site. Blue Nile, the jewelry site, is offering a different deal every day until Dec. 23.
By discounting one item at a time, the retailers attract bargain-seekers and avoid the deep discounting done storewide last year, thereby protecting their profit margins. By 3:10 p.m. on Cyber Monday, Blue Nile had sold out of a five-carat diamond bracelet, marked down to $3,950 from $5,300.
One of the buyers, Dan Stanley of Falls Church, Va., said that he had not heard of private sales before and that for four days, he had been shopping for a bracelet for his wife. He bought it on the spot. “The ‘one day’ caught my eye, and I wouldn’t have risked it,” Mr. Stanley said.
Private-sale sites are attracting brand-name investors. Kleiner Perkins Caufield & Byers, the venture capital firm that backed Google and Amazon.com, invested on Wednesday in One Kings Lane, which sells home décor. Gilt Groupe raised $55 million from Matrix Partners and General Atlantic, and Rue La La’s parent company was recently acquired by GSI Commerce for $180 million.
The concept seems tailored to recessionary times. Any guilt that consumers feel over spending thousands of dollars on unnecessary items can be replaced by bragging rights for finding a killer bargain, like a $4,500 diamond necklace that was recently on sale for $2,250 at Gilt.
“We started this at the worst possible time and got traction right out of the box,” said Susan Feldman, a founder of One Kings Lane. People still want to shop, but in the privacy of their homes, she said. “They just don’t want to be seen walking down the street carrying a Bloomingdale’s or Barneys or Bergdorf bag.”
It works for the fashion industry, too, because as the economy slumped, stores deeply cut inventory, which left some designers with excess stock, depending on their production calendars. Some high-end brands view the sites as a place to unload inventory without sullying their image by having their merchandise appear on Overstock.com or on the racks at Filene’s Basement. The members-only Web sites also ensure that search engines will not locate and list the discounted products.
Juliska sells its full-price tableware, like a $625 stoneware soup tureen, at luxury department stores like Neiman Marcus. It sells off-season products on One Kings Lane, Gilt and Rue La La.
Selling those items at T. J. Maxx, as some of Juliska’s competitors do, “is suicide for a luxury brand,” said Dave Gooding, the company’s chief executive. “With flash sales, you have the beauty of it being a one-day sale that is done in a very quick, efficient, tastefully done way, as an alternative to your product sitting on a dusty shelf for six months.”
For shoppers, the sites provide a selection of items, akin to a boutique, so they do not have to wade through the thousands of items on bigger e-commerce sites.
Swirl, a private-sale site that went live on Nov. 19, is betting on the allure of a handpicked collection. It was started by DailyCandy, which publishes e-mail newsletters about fashionable activities in various cities.
The company’s reputation for pointing readers to up-and-coming designers will help differentiate its sample sale site, said Dany Levy, DailyCandy’s founder and editorial director. “They trust us, and they know we’ve done our homework,” she said.
But private-sale sites could run into trouble as manufacturers and stores cut back on inventory. “The universe of what’s overstock is not an infinite universe,” said Sucharita Mulpuru, an e-commerce analyst at Forrester.
To maintain their growth, many of the sites have recently expanded beyond high-end, overstocked apparel.
Ideeli sells spa and vacation packages in addition to clothes, and One Kings Lane has avoided clothes altogether. Gilt now sells gadgets, like a Tivoli radio and a Jawbone wireless headset, and offers products for men, children, the home and younger women with smaller budgets. Gilt also started a site called Jetsetter that sells travel deals, like a room at the Hôtel de Crillon in Paris marked down to $500, from $795.
Susan Lyne, Gilt’s chief executive, said that as long as people coveted something, they would be eager for a deal. “Gilt and these other shopping sites allow people to do the thing that gives them pleasure, without all that guilt,” she said