Impulse Discount Ecommerce is on Fire! Part 1

2009 was the year of emergence for impulse discount ecommerce.  First of all, what is impulse discount ecommerce?  It is when a consumer buys a good or service without originally seeking it and that good or service is heavily discounted (usually more than 50%).  Three categories have emerged (1) Online Private Sale Companies (2) Local Group Savings and (3) Pay to Bid Auctions.  Each of really interesting business models and value propositions.  I will share some of my insights of these 3 categories into three different post.  Here is part 1:

Online Private Sale Companies

You probably have already heard of them: Gilt, RueLala, Ideeli and Hautelook.  These companies are trying to replicate the sample sale by putting up excess inventory of luxury good or services online.   Why have luxury brands used these sites?  Well, selling excess inventory via outlets or discount store such as TJ Max and Filene’s Basement is usually brand suicide  It sends a message to your consumer that they shouldn’t buy at regular prices because the stuff is on sale at these stores and regulary available.  These sites protect that by offering these sales for a limited time.  In fact, if you have shopped on Gilt.com you realize that a sale may be sold out in just a few minutes.  If there is scarcity in the discount experience then it protects the core retail business.

However, the past year was an incredible time for these sites.  When the economy fell off a cliff, these brands had inventory stocked for a good economy.  This gave private sale companies plenty of inventory from them to choose from and sell.  However, what do you do now that these brands have adjusted their production quantities for a tough economy?  If you can’t offer enough inventory, you create a bad user experience because there will be a lack of merchandise and consumers will stop coming back if they can’t find anything they like or they never have a real chance of buying it because there is never enough of it.  Well, one thing they are doing is going to the designers and actually not selling excess inventory.  They are actually buying wholesale just like other retailers and ordering merchandise for production.  How do they avoid conflict with the retail channel?  Well, they order changes to the collection and create a different sku just for them that way they won’t have the same items as a retail channel thus avoiding the conflict.  Will this work?  Well luxury brands have been doing this for a while via retail channels such as H&M, Target and Gap.  Luxury brands such as Stella McCartney and Jimmy Choo have created lines to be placed in H&M with much success.  In fact some of these brands are basically treating their regularly prices luxury lines as loss leaders to create their brand as high end and then creating lines or goods at lower price points whether it be the H&M collection, the $200 sunglasses or the $50 bottle of perfume as the way they make money.  Therefore, be prepared to see these online private sale companies evolve just to be another mass retail channel and there really won’t be anything “private” about them.

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