Flash Sale Sites Face New Challenges as the Model Braces for Post-Recession Realities

Flash sale sites, which feature discounted luxury items from high-end retailers for hours or days at a time, peaked during the recession, when price-conscious consumers curtailed their spending, and designers and manufacturers were left with surpluses. During these difficult times, flash sale sites provided an elegant solution to connect deal-hungry buyers with the glut of luxury inventory. However, as the economy has continued to improve, consumer spending is again on the rise, and the flash sale market is primed for considerable change. 

Overall, the buzz around flash sale sites has been waning as consumer preferences shift and sellers face both intense competition and tight margins. High-end retailers learned a tough lesson from the recession and have since improved their inventory management, reducing the amount of surplus goods for flash sale sites. In addition to competing with one another over a limited pool of inventory, flash sale sites are also up against off-price giants like TJ Maxx and Marshall’s, which are now online. Further, as this recent New York Times article highlights, there is a tendency in the world of online shopping for new and innovative platforms and offerings to steal the spotlight and garner shoppers’ attention: Flash sale sites were the hot platform in 2012, whereas customizable and 3-D printed products are today’s popular offerings. In other words, this particular crossover space in e-commerce demands that companies not only compete with direct competitors, but also with the innovators that provide differentiated products and experiences to shoppers.

Moreover, this intensified competition from all fronts is driving consolidation within the flash sale market—a key trend that I noted in my last post on this topic in August 2013. At the beginning of this year, Groupon, Inc. acquired NYC-based flash-sale site Ideeli for $43 million, or roughly half of what the company had raised in funding. Meanwhile, Reuters recently reported that flash-sale site Rue La La is exploring a sale that could value the company at around $400 million.

The high level of M&A activity in the space reflects the contraction of an inundated market—one in which larger, more traditional retailers and e-tailers have integrated similar offerings into their online platforms via acquisition or the development of proprietary platforms. Still, by no means has the flash sale model become obsolete. Despite the challenges flash sale sites face around differentiation and competition, a number of companies have successfully adapted to the changing landscape and are performing steadily. For instance, women and kids’ apparel retailer Zulily Inc. has seen solid overall growth in sales, as well as strong growth in mobile sales, and recently announced plans to open a third fulfillment center. In addition to focusing on mobile, the e-tailer attributes its success to the expansion of personalized offerings, which allows it to tailor the shopping experience to its individual customers. Several flash sale sites, including Rue La La, are also experimenting with content-rich strategies such as blogging to keep their customers engaged, while Gilt has partnered with HP and Michael Bastian to design and market a luxury smart watch, which is exclusively sold through Gilt’s site.

Moving forward, this type of innovation will be critical for players in the space. As other retailers encroach on their competitive advantage of discounts and scarcity, and as consumers are faced with an abundance of choices both online and in-store, those who don’t adapt may very well be gone in a flash.