On a recent day on Gilt.com, shoppers could buy 10 round-trip tickets on Virgin America for $3,585, three sessions of laser hair-removal for $352 or eight Alaskan king salmon fillets for $118.95.
That’s a reflection of how the Gilt Groupe, which made online flash sales of women’s clothes popular in the United States, is trying to refashion itself as a high-end Amazon.com — a one-stop shop for luxury goods, half of which it says will be full-price within a few years.
Kevin Ryan, Gilt’s chief executive, said the company was simply repositioning as “a broader lifestyle brand, all high-end,” adding, “Whether it’s full-price or discount is a detail.” But others say the effort reveals that the much-heralded flash-sale business is hitting its limits.
“The whole raison d’être of this flash-sale business is that it was highly lucrative,” said Sucharita Mulpuru, an e-commerce analyst at Forrester Research. “That didn’t turn out to be a reality.”
Gilt was at the forefront of flash-sale sites, which sell brands’ excess inventory at deep discounts for a limited period of time, an idea modeled on France’s Vente-privee.com. Most of the sites took off in 2009, when even wealthy people severely slashed their spending. They solved a range of e-commerce business problems, particularly the risk of buying inventory upfront, because flash-sale sites generally buy on consignment.
Also, because the sales are time-sensitive, sites have an excuse to e-mail customers every day and customers are less likely to abandon their online shopping carts because they are shopping against the clock.
But in the United States, unlike in Europe where flash sales began, the competition is overwhelmingly steep, not only from similar sites like HauteLook and ideeli, but also from discount stores like Ross and T.J. Maxx and department store outlets like those of Nordstrom and Barneys.
Compounding flash-sale sites’ problems, manufacturers have cut back on production since the depths of the recession so there is less inventory available. And even as the economy sours again, sales of full-price luxury goods are booming.
Analysts said that if stocks continue to tumble, consumers might cut back on spending yet again, which would be a boon for flash-sale sites. In July, visits to flash-sale sites were double what they were a year ago, according to the research firm Hitwise.
“If the market flattens out and stays there and doesn’t recover somewhat within two and a half weeks, consumers will change their behavior,” said Marshal Cohen, chief industry analyst for apparel at the NPD Group. “Flash-sale sites are going to market it as: ‘Why worry about the stock market? You can still indulge guilt-free.’ ”
In the meantime, Gilt is resorting to traditional models.
Last Monday, Gilt introduced a full-price men’s clothing site, Park Bond, that breaks entirely with the flash-sale model. Items on Park Bond are in-season, available all the time and not discounted. Gilt also has a full-price food site as well as sites for travel, gifts, furniture and décor, children’s clothes and accessories and local business deals.
“They’re doing what was the whole danger of the retail business in the first place — investing in inventory — and that’s the part that’s a little unintuitive here,” Ms. Mulpuru said. “I wouldn’t say it smacks of desperation, but it’s definitely an attempt to figure out how they can pivot and change their business model because the first one didn’t work out as they planned.”
Mr. Ryan said that Gilt’s flash-sale sites continue to be successful. Gilt, three-and-a-half years old, brought in $500 million in gross revenue last year. “It’s impossible to say that this has not grown very quickly in a very short period of time,” he said. Inventory fluctuates, he said, but there is enough available for Gilt to host 30 sales a day.
Rather than a sign of problems with the business, he said, the move to full-price is “an opportunity to sell more things to the same person.” Though flash sales have less inventory risk and the marketing costs are lower because people visit each day, full-price commerce has higher profit margins and Gilt does not have to create a new Web site each day, he said.
Article source: http://feeds.nytimes.com/click.phdo?i=3ba2b8b47d946c931816f836cdd25009
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