Online flash fashion sales less flashy

Private online flash sales of discounted luxury goods appear to have lost some of their flash. According to Reuters, flash websites such as Gilt Group, Ideeli and Rue La La mushroomed onto the fashion scene when luxury brands found themselves

with surplus stock and a lack of suitable outlets to sell goods out of season.

The flash sites capitalised during the recession selling mountains of unsold clothes, but now there is less luxury inventory and flash sales sites are bigger and more costly to operate. This has led to questions about whether they can turn growth into profits.

"The original flash sales model for the U.S. exploded during a time when there was this huge abundance of excess inventory," said Steven Dennis, founder of SageBerry Consulting and a former executive at retailer Neiman Marcus. "There's not nearly so much of this merchandise around now."

Flash-sales websites offer steeply discounted products for a limited time. The model was started by Vente Privee in France a decade ago and focused on luxury apparel and accessories.

Gilt, which started in 2007, is the largest flash sales business in the United States, followed by Rue La La, HauteLook and Ideeli, according to GreenCrest Capital analyst Anupam Palit.

Soon after these companies started, the financial crisis ravaged markets and deflated the fortunes of many newly wealthy people. Luxury goods inventory rose to about 10 times its normal level, said Dennis, giving companies "adequate supply, good pricing and brands willing to talk to them."

This lasted well into 2009, allowing flash sales sites to offer top brands at discounts of 70 percent or more, which attracted lots of new customers.

By September 2009, Gilt had 325,000 unique monthly visitors to its website, while HauteLook had 433,000. Ideeli had 312,000 and Rue La La had 206,000. A year later, unique visitors to these four websites had more than doubled, according to ComScore data.

While that growth was happening, retailers and manufacturers cut production by 10 percent to 15 percent. By early 2010, there was a lot less inventory, Dennis said. As companies grow, they can usually reduce costs by buying more in bulk. But as flash sales sites expand, they must get products from a shrinking supply, which raises costs.

Their price discounts have fallen this year, partly because companies are competing for inventory and paying higher prices, said Greencrest's Palit. Gilt discounts used to be 70 percent, but 40 percent to 50 percent is more common now, Palit added.

Gilt has branched out into travel, home decor, food, wine and daily deals. Rue La La has expanded in a similar way. "I keep expanding the things I can sell to the same people," said Gilt Groupe CEO Kevin Ryan. "Customers like shopping on Gilt, so I should offer more."

Image: Gilt flash sale Louboutin
Source: Reuters©