What are Flash Sales Sites and How do They Work?

Visits to Flash Sales Sites have doubled 2011 to 2012. Source: Time.com

Visits to Flash Sales Sites have doubled 2011 to 2012. Source: Time.com

Unless you’ve been living under a rock for the past 5 years you’ve probably heard about a little thing called flash sales sites. Well … maybe not so little. It seems that, according to Gilt founder and ex-CEO Kevin Ryan, the flash sales sites you’ve probably heard about, such as Gilt, Fab and Rue La La have been doing great with turnovers between $100 million and $1,69 billion.

These are all new fresh companies so how come have they managed to grow so fast? How do they work? What is the business model and who are the most prominent players on the market?

Let’s start with number one:

What are flash sales sites?

By now you may have pretty clear idea that flash sales mean generously discounted merchandise. It may be fashion, home products, electronics or others. Customers expect flash sales sites to deliver well .. cheap(er) products.

The whole idea is by no means new. Brick and mortar stores used to and still do it from time to time (usually seasonally) in order to unload overstocks. At some point someone realized that there is a business opportunity there:

Say you have a dozen retailers each having 10 products that went unsold in the previous seasons and they want to get rid of all these stocks. They can either deal with all the hassle of organizing a sales operation to unload extra stocks or someone can just buy the whole merchandise, at an even lower cost and then resell it and turn a profit.

At first companies buying these products didn’t need to sell it at a discounted value. They would just buy the whole unsold stocks and try to sell it (they were usually successful) on a different market. Example: buy discounted merchandise in the US and sell it in Eastern Europe where last year’s collection is not only “good enough” but “great”.

[Read more how retailers connect channels with Omnichannel Retail]

In time the whole “moving to a different market” operation proved to be a little too complicated, with global recession, countries getting a little more protective with their own economy and so on. So a new business model came up:

How do flash sales sites work?

Flash sales develop a large targeted potential buyers database, test these potential buyers to see which is the right product mix and then buy unsold inventory and resell it at a large discount. Sometimes – they don’t even do that. They just attract potential customers to several discount offers which become active when a certain number of buyers is reached. They ensure this way that they are able to purchase the merchandise without reporting losses.

The logistics in this business is a little tricky if you are dealing with “volatile” stocks and can sometimes turn to frustration from customers as orders sometime take weeks to arrive.

Increase in customer lifetime value.

Increase in customer lifetime value.

However, when purchases are made, flash sales sites customers are more likely to buy again, according to this study. Customer lifetime value increases 385% for flash sales sites, whereas traditional online retail shows an increase of “only” 94%.

So – business is a-booming. Buyers flock around flash sales sites, they buy more than on traditional online stores and the business model seems to be more stable than Gorupon’s.

Who are the champions and who are the contenders? Let’s start with number 5:

Which are the top largest flash sales sites?

5. Fab.com

Although Fab is moving to a no-flash-sales model, the company still features some of the sales that made them famous.

Although Fab is moving to a no-flash-sales model, the company still features some of the sales that made them famous.

4. Ruelala.com

Ruelala.com

Ruelala.com

Ruelala had a dashing growth in the previous years but few know it is part of GSI Commerce, which in turn is a subsidiary of eBay so yeah, Ruelala is part of eBay.

3. OneKingsLane.com

One Kings Lane was launched in 2009 by female entrepreneurs Susan Feldman and Alison Pincus

One Kings Lane was launched in 2009 by female entrepreneurs Susan Feldman and Alison Pincus

One Kings Lane.com is a place where customers can get a great curated product mix for home. The revenue was roughly $200 million in 2012.

2. Gilt.com

Gilt, although not turning a profit is approaching the $1 billion turnover threshold fast.

Gilt, although not turning a profit is approaching the $1 billion turnover threshold fast.

1. Vente-Privee.com

Largest and one of the oldest flash sales sites - Vente-Privee, unlike its crappy URL is actually awesome with its 2013 Euro 1.3 Billion Turnover.

Largest and one of the oldest flash sales sites – Vente-Privee, unlike its crappy URL is actually awesome with its 2013 Euro 1.3 Billion Turnover.

The award for the largest flash sales site goes to Vente-Privee, which has had a 40% increase in flash sales in 2012. Their sales went up to € 1.3 billion (aprox. $1.69 billion). They’re living large. So large that in order to celebrate this great feat they bought a theater. No, really.

How big are flash sales?

Now, if you’ve find flash sales interesting, you might head over to this link right here, where you can have a look at an infographic showing more information on the subject at hand.

flash-sales-pic

 

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