The Future of Private Sales

Source: The Business Insider, Jan 2011

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 rumored to be creating a Gilt by Gilt brand. Whether the items are samples or simply overstock, the results are inexpensively priced, high-quality goods.

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 SaksNeiman Marcus, and Nordstrom get in on the private sales action, as well as designers like Kate SpadeTory 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 InStyleElle and LuckyMag are all involved in the space organically or through partnerships. Even general e-commerce players like BagBorrow 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. AmazonZappos), versus offline commerce where the market is more evenly distributed, consumers are not buying at regular price any more.

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