151-Fish or Fowl?

The internet has given birth to another retail concept. A new set of retail start-ups specialize in discounted designer apparel. These web site-based companies include Gilt.com, RueLaLa.com and HauteLook.com. These companies offer “private sales” to customers on a membership list. Each day the companies send an email offering “members only” sales on expensive designer goods. These goods are discounted heavily and are a year old, but these sites have been very popular. They are growing at a rate of over 20% a year. (See the Symptom & Implication “Small discounting competitors have gained a market toehold” on StrategyStreet.com.)

Now an industry leader is offering a challenge to these web-only discounters. Saks tested an online “private event” in October. This 36-hour sale invited customers, who received emails from Saks, to purchase designer goods at prices 50% below the suggested retail price. The company plans another similar online sale this month. The goods for sale are off season or specially made for the event.

The Saks model needs some significant tweaking before it can really compete with the “private sale” online discounters. First it has to establish a separate brand for this product. Not many designers are going to want to sell products through Saks at such significant discounts when their products sell at full price during the season. Customers can learn to simply wait for the “private sale” online event. As a corollary, Saks will have to do something to protect the brand name of the designer, perhaps by removing labels. A change in name and labeling would then enable Saks to use the “private sale” online events to liquidate excess inventory.

Since the online “private sale” discounters offer additional products daily, it is unlikely that the new Saks “private sale” online product will compete directly with the discounting on-line specialists (see “Audio Tip #17: The Heart of the Market” on StrategyStreet.com). The Saks initiative is much more likely to be an end-of-season service to benefit some of its loyal customers.

Posted 11/9/09

Update:

These companies are using a concept we call a Price Leader product for a Performance Leader category of products. They are selling Stripper products, normally offered at full price in luxury stores, at the end of a season at substantial discounts.

The off-price retailer, Saks Off Fifth, is the sister brand of Saks Fifth Avenue. The company has over 100 physical stores in the US and Canada and has grown successfully. The company also operates a separate website for online sales. Both the off-price retailer and Saks Fifth Avenue are owned by Hudson’s Bay Company.

RueLaLa.com is the sole surviving company of the three mentioned in the blog. Larger companies had purchased all three of these online, off-price luxury retailers, but most of the larger companies lost their taste for them. Nordstrom bought Hautelook.com and 2011. It announced a “sunsetting” of the company in 2021.  Hudson’s Bay Company bought Gilt.com in 2016 but sold it in 2018 to RueLaLa.com, which continues as an independent company.  It has had several owners over the last 10 years and is now owned by Mark Rubin. The company focuses on young affluent – brand customers by offering both high and low end products.  The company offers clothing, home decor and travel products at up to 70% off using flash sales with countdown clocks for specific designers.

Saks has responded well to the incursion of Price Leader products in its market. At the same time, RueLaLa has continued to distinguish itself by staying consistent in offering a Stripper product at very low price. See HERE for how to confront low-end competitors.
8/22

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