There has been lots of speculation lately around what to make of the M&A activity occurring in the private sales (also known as “flash sales” or “online sample sales” space).Is this industry going to consolidate, or will new sites continue to launch? And if so, will they survive?
Over 80 sample sales sites exist today, that range in focus from women’s fashion to home décor to travel. Recent transactions include:
- eBay buys brands4friends (December 2010)
- Sugar Inc buys Designer Apparel (October 2010)
- Amazon buys BuyVIP (October 2010)
- Beyond the Rack buys The Top Secret (October 2010)
- HauteLook buys BonVoyou (October 2010)
- Totsy buys bTrendie (September 2010)
- Delivery Agent buys Billion Dollar Babes (April 2010)
- Thrillist buys JackThreads (May 2010)
- GSI Commerce buys Rue La La (October 2009)
There are various reasons why consolidation has occurred in this industry. Adjacent plays such as Totsy’s acquisition of bTrendie, add to a company’s membership base through a relevant email list. Alternatively, companies like Thrillist and Sugar Inc. bought private sales sites to quickly enter the space.
HauteLook’s acquisition of BonVoyou was additive in that HauteLook wanted to add travel deals to its site. M&A will continue to occur in this industry, simply to increase a site’s inventory or to grow its member base; however, for every acquisition that occurs, several new private sales sites are also launching. The top four sites in the US right now make up only 57% of the market by visits.
One reason for the proliferation of new sites is that there are minimal barriers to entry in this space. Essentially, all one requires is a camera and inventory, the latter of which there is currently no lack of. The recession has changed the way in which people shop and consumers are not willing to pay retail prices anymore; therefore, this forces brands to discount to dispose of excess inventory.
Many brands are now also manufacturing inventory specifically for this channel. Emerging designers are using private sales sites as a curated (and more lucrative) approach to distribution. Gilt is even rumoured to be creating a Gilt by Gilt brand. Whether the items are samples or simply overstock, the results are inexpensively priced, high-quality goods.
As the first and only aggregator of private sales sites (that is, instead of signing up for 100 sales sites, come to one place and find them all here), we at MyNines have worked with partners as large as Net-A-Porter’s Outnet.com, which has a robust team of merchandisers and developers, as well as sites run by two-person teams that are simply well-connected to designers.
The sites that I find most appealing are those that focus on specific verticals or demographics. For instance, Totsy caters to the family and babywear market, while LeftLane Sports sells discounted activewear and sports apparel. Beauty Story conducts (you guessed it) beauty private sales, and Exclusively.in sells Indian-inspired luxury fashion, accessories and home décor products to the Indo-American population. The site has already built out a strong userbase, and Accel Partners recently placed a $2.8M bet on the company.
While many of the larger sites such as Gilt and Ideeli have diversified into verticals like travel, baby, art, and wines (Vente-Privee, the French pioneer in this market, offers even automotive, electronics, and real estate deals), it will be difficult for any of these sites to be strong in every vertical. This is because the large sites simply don’t offer inventory in every vertical every single day.
For instance, if I’m looking for a pair of shoes, I’d much rather shop at ShoeAficionado or Shoebuy’s private sales site, rather than wait for shoes to pop up on one of the larger sites. There are tons of sectors that haven’t yet been touched, so there is definitely room to grow—swimwear, plus sizes, bridal, art and of course, cultural demographics. Niche sites can quickly build up a loyal following.
Given that MyNines’ core business is aggregation, one might wonder if we worry about consolidation. I have two reactions to this: first, even if the number of private sales sites is reduced to 10, the value proposition of MyNines still stands—we offer you the convenience of finding all sales in one place. The shopper’s pain point is not only having to sign up to various sites, but also keeping track of all the emails.
Second, private sales sites indicate a dynamic shift in the way that people shop online, and this space will continue to proliferate, just as the local deals space has. A new study conducted by Kelton Research shows that 60% of Americans prefer to buy discounted items online, rather than purchase regular-priced items at retail stores. Private sales sites generated $2 billion in 2010, and are expected to generate $8 billion by 2014. Therefore it’s no surprise that private sales sites, which offer an average discount of 50% off retail prices, are becoming an increasingly popular way to shop.
This space will grow even larger as major retailers like Saks, Neiman Marcus, and Nordstrom get in on the private sales action, as well as designers like Kate Spade, Tory Burch, and Ella Moss, who all conduct private sales on their own sites. In 2010, 12% of Sak’s revenue came from outlets.
Saks is not just using flash sales to liquidate off-season items but also… producing fresh apparel specifically for Fashion Fix.
– Denise Incandela, President & EVP, Saks Direct
Last month, discount retailers TJ Maxx and Marshalls announced that they’re also considering adding private sales sections to their own websites. Additionally, content sites like InStyle, Elle and LuckyMag are all involved in the space organically or through partnerships. Even general e-commerce players like Bag, Borrow or Steal and Yoox are launching private sales sections on their sites. By 2014, the worldwide opportunity for private sales and local deals together will be $40B.
Although barriers to scale exist in e-commerce businesses (e.g. Amazon, Zappos), versus offline commerce where the market is more evenly distributed, consumers are not buying at regular price any more.
As such, while M&A will continue to occur and the smaller sites may never become huge players in this space, there is still room for them to compete and maintain healthy businesses. After all, there are dozens of private sales sites out there that are waiting to be discovered, and we at MyNines can help you! Some of my favourites include IvoryTrunk, Envite, 365 Hangers and eDressMe. Happy Shopping.
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