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Fab.com is dying.
The ex-gay Yelp, ex-gay Social Network, ex-gay Amazon, ex-Design Flash Sales site struggles on its death bed. The company’s spectacular rise and fall is a lesson in how to go from rags to riches and back to rags again. It is a story on how growth can sometimes make investors, founders and management oblivious to threats.
I was never a big fan of the concept of flash sales. I covered it, I studied it but I didn’t like it. It is short-sighted way of running online retail operations. It is a great way to create market demand. It may even be a good way to develop customer base. But it will not handle growth forever.
Flash sales need three things to function: good-to-great products, relatively low prices and consumers willing to try overpriced merchandise at a discount. All of these factors come at the expense of two very “un-scalable” variables:
None of these variables scale very well, because they are human-based. Fab and especially founder Jason Goldberg, the one taking most of the heat have learned this the hard way.
Of course, it easy for me and other bloggers to watch events unfold and point fingers at who done what and why the business model was wrong. It was a bit harder when Fab.com was getting millions and millions in financing and customers were anxious to find new products and buy on Fab in 2012.
But this post is not about pointing fingers. It’s about looking beyond the failure, at what lies ahead for Fab.
Fab started as a gay community service that reviewed local business. In 2011 it pivoted and went on to offer daily discounts to its users, later on connecting users in a form of social network. As the model didn’t really took off, founders Jason Goldberg and Bradford Shellhammer decided they need to pivot yet again and rethink their market.
As it seems, the duo thought the company was great at a very specific thing and decided to focus on that: design. Specifically: interior design. They re-positioned Fab.com as a source for inspiration and sales of design-related products.
One can of course notice the stereotypical positioning (being a former gay community) but it nevertheless worked. The response to this new pivot was great. The number of registered users went form 175 000 in June 2011 to 350 000 in just a month. In just 12 days the company sold more than $600k worth of merchandise.
The new Fab.com was available by invite only and when it opened more than 125 000 had already registered to receive offers. The reviews were awesome and in just a short month after the Fab relaunched, Menlo Ventures invested $8 million in the company.
Fab’s usage of social networking and social-shopping features further increased the number of users and sales for the company. In just 5 months since launch (nov. 2011) the company boasted over 1 million registered members. Then came the holiday shopping season and sales skyrocketed. As a result of fabulous sales and increasing media traction, Andreessen Horowitz invested … wait for it … $40 million.
After just 7 months since relaunch, on Dec. 7, legendary Andreessen Horowitz VC’s are chosen by Fab.com founders from 15 willing investors.
At the end of 2012 numbers are in and they show a spectacular growth fueled what went from a 4 people company to a 140 employee design force.
CEO Jason Goldberg then posted on its now gone blog “Betashop” a slideshow detailing the successful year his company had. It shows the brave startup growing from a small yet promising group of passionate people to a company selling in 26 countries, with 10 million members.
In 2012 Fab sold over 4.3 million products. During the holidays that meant a rate of 17 products sold per minute. While other companies still try to cope with the idea of mobile commerce, Fab’s sales in 2012 had 33% of all sales coming from mobile. During holidays, 56% of sales came from smartphones and tablets.
The customer lifetime was great and two out of three purchases came from repeat customers. In 2012 sales grew 600% over 2011 and Goldberg boasted that Fab’s 15.000 products were 33% more than IKEA’s. Fab was the largest design store.
In hindsight, past the astonishing numbers, some statements showed something was not exactly right. There was a sense of too much pride: everything Fab was doing was absolutely great and everybody else was just the loser left behind. Jason felt like Fab was the only company with the right attitude and operations. Even Amazon and IKEA didn’t seem like a match for them.
The company was so incredibly self-assuring that it was doing everything internally. In 2012 it employed more than 600 people across the world, it built and operated its IT systems in-house, it even built its own warehouse. How ’bout renting, man?
The 2012 presentation goes on and on about the greatness of Fab, about superstar employees, about the huge vision ahead, about how Fab has to beat IKEA and Amazon at design and deliver more than $30 billion in sales. In the end Jason shows a 6 point plan on how they’ll achieve that:
These 6 points up there – these are the reason Fab failed. What they leave untapped is just what matters. They are all great for rallying the troops but they lack substance. Amazon and IKEA’s steady growth happens from the ground up. The infrastructure these companies rely on to build, handle, ship and sell products – these are their secret weapons.
Marketing is just the illusory panacea startups reach for when hoping it would suffice in their struggle against the big guys. It doesn’t. That’s where they get their smaller competitors.
Retail, even if it happens online, is a logistics game. Walmart, IKEA and Amazon manage to stay on top with a lot of help from their supply chain. Everything moves smoothly behind the scenes and that’s what Fab failed to acknowledge. By spending too much time on social media, mobile and interviews, the management failed to see the large logistic wall that suddenly halted their growth.
In 2013 things got from great to bad and then to awful. The company did raise an additional $150 million in venture capital in July 2013 but as CEO Jason Goldberg these were definitely not great news:
“What a lot people don’t know is that we set out to raise $300 million. […] And when you set out to raise $300 million, and you raise $150 million, you have to change your business plan. And that’s what we did.”
The change of business plan meant a lot of things that hurt the company’s credibility. Layoffs throughout its offices left employees unhappy. The company had to reconsider its position. At the turning point it was burning through $14 million each month and still not reaching sales projections.
The job cuts took Fab from more than 750 employees to less than 380 at the end of 2013. It started in Europe and than spread through its offices. Every office was restructured to help the company reach a balance point. It didn’t. Even C-level executives had to take a hit. It’s unclear if they left willingly or have been laid off but Co-founder Bradford Shellhammer and COO Beth Ferreira left the company.
Meanwhile traffic came down abruptly and so did sales. The company was heavily relying on ad spending to reach customers. Its 2012 marketing costs were $40 million. In 2013, the figure dropped to $30 million. But as the chart on the right shows – that was not the only factor that lead to the drop in traffic and sales. People were just not interested in Fab’s products anymore. Buzzwords and social media didn’t cut it anymore.
All these bad news took the company by storm. A lot of people took shots directly at Goldberg for shifting focus, delaying layoffs and generally the could-be death of Fab.com. It was not surprising: he was the one taking the spotlight when Fab was growing, he would be the one taking the heat for the fall.
The media took turns at hitting Fab.com whenever it could and it was obviously an easy task. There were plenty of laid-off employees out there to leak inside info about how bad the company was being ran. They were jobless, pissed-off and needed someone to take the blame.
How could a company with $336 million in funding fail so bad? Where did the company on everyone’s lips go? What happened with all that value investors just … lost?
All these questions left out some seemingly uninteresting investments Fab was running in Europe. While dealing with layoffs, decreased sales, management layoffs and media hits, Fab acquired custom furniture companies MassivKonzept and One Nordic Furniture Co..
By doing so the company combined the MassivKonzept’s mass customization tools and One Nordic Furniture Co.’s talent and technology. The new company took over Fab’s sales in Europe and now leverages Fab’s customer base, experience and of course – cash.
Fab’s European venture received the name Hem (Swedish for “Home”) and now employs 150 employees in Berlin, Helsinki, Warsaw and Stockholm. Some of them are previous Fab employees, some are new hires.
Hem is a designer, manufacturer and retailer and it is an integrated company. It is the technology company that Jason Goldberg wanted to build for a long time.
But most importantly, Hem is something Fab never was: its own company. An unique organization that goes beyond comparing itself to others. It is not the Amazon of Europe or the IKEA of online. It is Hem. It allows its customers to build custom, beautiful furniture and products for the home and it can now deliver on this promise. It seems to be a company that may lack sales and the buzz Fab had but it has something more important: purpose and substance.
It seems that a more mature Jason Goldberg has finally decided to leave marketing and PR aside and focus on building a real company. An unique company that goes beyond buzzwords and solves real problems, in a real environment, where the team is not made of superstars but rather a group of passionate people that put the product ahead of their own egos. And it started with its leader.
I believe Hem has a bright future, unlike Fab. It is built to last, just like its products. I must say that when I set out to write this post, it was going to be yet another bashful take on Fab’s fall. But the more I read about it, the more I found about Jason and his company and the more personal it felt. And a lot of it resonated through this interview he gave at TC Disrupt. A sense of grit and humility echoed through this talk. As an entrepreneur I know what it feels to fail. I too made mistakes and I too delayed laying off people. I too mistook marketing for product and company development. I too believed sky was no limit and failed. So there is a lot of Jason’s actions that I get from being in a similar, yet smaller scale, place.
Yes, Fab is dying and it’s a great thing. Hem now takes its place and it has the potential to be a far better company. In the end this might be not a cautionary tale of entrepreneurship gone bad but a lesson in resilience and willingness to adapt.
Jason Goldberg took some courageous steps into transforming the company he’s built and it will probably pay off in the future. After all, he runs a company that is pretty close to break even, with $120 million in the bank and a large customer base. And now it has a real business model. How hard can it be?
Henry Ford said “People can have the Model T in any color – as long as it’s black”, in the early 20th century. That’s when Ford’s innovation, the assembly line, vastly improved productivity thus reducing production costs. Lower costs meant companies could manufacture cheaper products and still be profitable.
The assembly line made possible the mass production of goods. Things that were previously custom-made and unique soon became available to the now emerging middle class. Clothing, food, even cars and houses became accessible to the mass market.
Industries were built around product manufacturing. The customer was no longer the center of the universe. Companies focused on the product. Products were manufactured in large quantities, distributed and sold, with a lot of help from advertising companies. Even though advertising was around, it wasn’t the type of organized industry we now know until the television set became a part of consumers’ daily lives. By borrowing some concepts used in WWII propaganda, experimenting a lot and innovating, advertising quickly evolved in a mature tool to push mass – manufactured products to the market, globally.
After 1970 two trends started to emerge. First one – the mass-manufactured product becomes the norm. Faster assembly lines, improved productivity with better management and companies going global – it all lead to bigger manufacturing facilities and more money poured into advertising. In the western world people were spending earned and borrowed money faster than ever before to buy mass-market products.
The second trend was improving production with help from computers and networks. It all started small and kept growing. Innovation in the IT industry allowed companies to improve manufacturing productivity further. Soon cars stopped being built by people and robots took over. They were faster, better, less prone to error and cheaper in the long run. They also learned new things a lot better. With automated assembly lines, the mass produced goods could be reprogrammed to build new products fast.
The product development cycle was shortened. The fact that now BMW or Mercedes are able to launch a new model every month is possible because of advancements in management and IT. These companies can now target customer groups. Ford’s Model T was a “One Size Fits All” product but now everything’s changed. The auto companies can split their customers and they can build products for increasingly smaller niches.
The internet changed everything. When Michael Dell decided he would create a special PC for anyone willing to pay for it, he probably had no idea what his actions meant. Now Dell is a global company and one of the largest online retailers. When the company decided it was going to offer mass market customization features, it seemed like a really risky move. At that time, computer manufacturers were already engaged in a price war to market accessible computers. It didn’t seem like a good idea to turn a mass produced, mass marketed product in a customizable one.
Dell offered their customers what they wanted: the ability to choose between different options in terms of design, software and hardware. The order, assembly and shipment processes were streamlined using software designed to minimize human input and error. Today’s devices (be it desktop computers, laptops, tablets or smartphones) are available in many formats. Most of them are a hybrid between mass produced and customized products.
The future of mass customization is already here and the company that helped most with making it a reality is the largest online retailer in the world: Amazon.
First off, Amazon made possible a type of personalized experience for customers by providing personal recommendations and notifications based on purchase history. Its second biggest innovation was print on demand. With Amazon, books were no longer published en-masse for long-tail items. Rather, for a small amount of extra cost, they were made available as items printed on demand.
This innovation spawned a new breed of self-published authors, leveling the field for publishing. In turn, readers were now able to read books otherwise unavailable and writers could skip pitching to publishing houses. The effect was so dramatic that some large book retailers had to close their brick and mortar stores.
From shoes to t-shirts to art-prints it seems like anything is game when it comes to online-powered mass-customization. Many companies jumped the customization wagon, but few stand out. Have a look below at these companies:
One of the most popular platforms in the world for Built-To-Order, customized products is Zazzle. Its mission: “To Enable Every Custom, On-Demand Product in the World On Our Platform.” It is a mix between self-curated product designs that can be customized by customers, and a wide variety of products submitted by designers and entrepreneurs in the marketplace.
The company partnered with large brands to provide customizable products for companies such as Disney, Hallmark, DC Comics or even Google. It is growing fast, outpacing its competitors and bringing mass customization for the wide market.
Zazzle’s success is based on two main factors. The first is its ability to customize products that are manufactured separately and customized at the end, with input from the end consumer. This allows for a minimum slowdown in manufacturing capabilities.
The second factor helping Zazzle tackle its competitors is a patented color print technology that allows it to manufacture multicolored items, without signifiant increase in costs and manufacturing time.
It does also help that Klein Perkins Caufield & Byers, a well known Silicon Valley VC firm, backed Zazzle with $48 million. The VC’s have also backed up a couple of companies you might have heard of, such as Google, Amazon, AOL or Electronic Arts.
Ladies – ever felt like you could be the world’s best shoe designer? Felt like you’ve hadn’t had the chance to show what you’ve capable of? It turns out you are not alone. Founders Rumbert Kolkman and Judy Chin believed they could make shoe design a mass-customizable market. In 1999 they’ve built a B2B company that would allow shoe retailers and designers to access a rich supply chain with ease.
In 2013 they’ve opened this option to the public, unleashing the power of mass-customization to end buyers world wide. Prices are ranging from $230 to $1200 and Chiko Shoes allows customers to chose between 1300 material swatches.
We’ve previously listed 3D printing as one of the technologies that are disrupting online retail. Among many other companies providing 3D printing technology, Shapeways stands out as a potential market leader for 3D printed custom items.
The company was founded in 2007 in the Netherlands. It moved to NY, where it received a $5million founding from VC’s including Andressen Horowitz. It now runs a fully operational marketplace where designers can sell their 3D designs and customers can create their own.
As of June 2012 is sold over 1 million user-created objects. Production was provided by its Queens, NY 3D Printing factory that uses 50 industrial printers to manufacture millions of user designed custom projects.
Threadless started as a marketplace for t-shirt designers and quickly evolved into providing other customized merchandise. Users can purchase clothing items (such as t-shirts, hoodies or tank tops), art prints or phone cases.
Although Threadless does not allow mass customization per se it does allow users to submit designs. These designs can be featured and sold to consumers afterwards. What makes Threadless different is the fact that not all designs are accepted and marketed yet those who do are chosen by the community.
Ethreads allows customers to create their very own bags, starting with a blank model and adding options using the online design tool. The shop also offers options to see what others have designed and the ability to buy directly on Amazon.
Fab started as a flash sales online store. Its approach proved very lucrative for a while. The company decided to take another path by providing customized design options for furniture and home deco buyers. Although the change affected only its european operations, it seems the company is heavily interested in developing its customization options. It completely stopped marketing its products and flash sales options in the EU and is fully engaged in providing customized furniture.
The furniture is made-to-measure according to users’ needs. It allows customers to design their own products in 5 main categories: shelving systems, tables, sofas, beds and wall shelves. A complex yet easy to use configuration system allows potential customers-turned-designers to create the perfect match for the home. Inputs allow customization of size, materials, colors, finishing and others. A 3D visualization engine allows customers to view their newly created product before ordering.
This new pivot in the company was made possible after Fab purchased Massivkonzept, a company founders declared was already profitable and growing. It seems Germany is a great place to look for companies focused on customized furniture design. Woonio, a german ecommerce startup, offers customized furniture like tables, beds, lounge stairs.
Examples above show any industry can allow mass customization and is prone to change. Individuals need to feel empowered when purchasing and technology has made this possible. Whether is next year or 10 years from now, mass customization will become massively popular.
Unless you’ve been living under a rock for the past 5 years you’ve probably heard about these two buzz-words – “mobile” and “mcommerce” (or mobile commerce). Usually retailers use them together because hey – that’s what retailers do – sell stuff to people. Now that a new channel is here let’s just go ahead and grab it. Well – maybe that’s not the best way to go.
You see – people tend to think of their mobile phone as something quite personal. It’s always there in their hands or pockets, it holds their most private conversations and information, it’s there when they go to sleep, it’s there when they go to bed.
Not many think in the same terms about retailers or shopping. Shopping is less of an addiction (except for those shoes, ladies) and more of a mix between (1) necessity, (2) convenience and (3) marketing induced propensity to buy. Nothing really personal there so don’t expect your customers to download your app, browse the products and buy after. Oh, and mean while, if you do expect that – don’t push notifications unless they actually ask for it.
Say you’ve built an online store for your brick-and-mortar operations a couple of years ago. By now you’ve probably seen a healthy increase in sales and you’re quite confident in online retailing overall so you decide to invest in a mobile application to handle mobile users’ needs. You decide that the logical thing to do is build an mobile app to showcase your products and let your users buy from that app.
That’s what usually retailers do but not what users want – remember the personal attachment people have to their phones?
Here’s a couple of things you can do right on your online store to serve mobile shoppers (which, by the way – are on the rise as you can see here):
Now that you’ve covered the basics, while not boring or forcing your users to adapt to your store packed a native application, let’s make your mobile experience personal:
The smartphone is nothing if not useful. You can use it as a music player, email reader, browser, game console and dozens of other things. Your app should be useful. Here are a couple of examples as how companies made their apps useful to the targeted audience and changed the way customers thought of them:
Alright – Uber is not actually a retailer but we need not think in terms of black and white. What Uber handles extremely well is a customer need and delivers to that need as well as it’s expected. Note that its mobile approach is just a means to an end: customer satisfaction.
Amazon handles a huge inventory. If there’s any product out there that has a barcode attached to it, chances are you can buy it on Amazon with one click. The company makes that easy with its barcode scanning app – find a product, check the barcode and find it on Amazon. Easy and useful.
Talk about fun…
Let’s just assume that not all shoppers are inclined to buy online or rather more – some of them need to find a product quickly, in their nearby area. The want the product now and are willing to drive to the local store to buy it. Here comes Shop Nearby, by The Find.
The application makes it easy for you to find a certain product in your close area or browse through all shops nearby.
Last but not least. Make it personal. It has to be personal because mobile devices are personal items and apps should be personal also.
Gilt understood this when they launched …
“Our goal is to make it even easier for members to discover products they love while they are on the go” said Steve Jacobs, Chief Information Officer at Gilt.com
Gilt.com is, as you probably know, one of the largest fashion flash sales retailers online. With a huge database filled with customer information and purchase history they can make their approach to sales chic and personal again.
When Gilt.com was launched it served as a private venue for brands to unload their unsold inventory. It used to be private and quite a little secret for Gilt’s members. Once the store got bigger and bigger they found they were unable to cope with users need for short-stock brand clothing. Even more – they couldn’t handle selling premium brands discreetly, something their suppliers were not really happy with.
Now that the personalized shopping has been launched, users can get special (and by that I do mean special) deals, based on their purchase history.
What’s not to love about a store that handles a one-on-one relationship with millions of customers?
There are retailers and then there are super retailers. Here’s a list of some of the bravest and strongest online retailers and their super hero avatar.
Let’s start with number 5:
The Batman Super Retailer is a mighty hero – strong, determined but first of all – rich. He uses gadgets to fight off the competition and just when you think he is going down he manages to bring out a game changer out of his handy secret belt (once every year during the WWDC).
But oh my under its dark armor (designed in California, made in China) lies a hurtful secret: The Batman Super Retailer misses his dad, killed by cancer. He tries to cope with the loss by continuing in its tradition and trying to save the world from bad design. Sometimes unsuccessfully.
The Redmond Joker and Mr. Android.
The Dark Knight is everybody’s target. Everyone talks about the “the iphone killer”, “the ipad killer”, “the Apple killer”. Why? Because “he’s the hero Gotham deserves, but not the one it needs right now… and so we’ll hunt him, because he can take it.”
You know that awkward kid that no one actually cared about back when he was into, what was that – photography? Oh, no, wait – it was social networking. It seems he is not so awkward anymore. Overnight he turned into this fabulous, tights wearing, home decorator that simply just loves to help you pick that lovely new carpet for your living room (yeah, he’s also gay).
His super powers are a. his spidey senses when it comes to picking beautiful products and selling them online, b. climbing on walls and giving you ideas on how to better redecorate, and last but certainly not least his unmatched ability to adapt fast to the market. By doing things like letting you design the furniture you want to buy.
The Spiderman Super Retailer has recently moved on from the recently mainstream Flash Sales market and into this new thing he’s doing right now, that doesn’t include Flash Sales and is aaaaalll about design. Also – you’ve probably never heard about it.
Spiderman the Super Retailer catches clients in a pretty expensive marketing web. It seems that its greatest weakness is the high customer acquisition cost.
Rich, famous, bright and ready to wear some of the best suits in town. The Iron Man Super Retailer was fathered by Kevin P. Ryan, that had a history of investments in some companies you have probably heard before: Business Insider, Mongo DB, Double Click. Although his corporate siblings are definitely bright, Gilt.com seems to be the prodigal son.
The Iron Man retailer is no match for any of his enemies when it comes to building the best technology, working and managing the smartest people and just being a genuine charismatic fashion and style icon.
Although not really into astrophysics the Iron Man Super Retailer manages to learn new things on the fly, adapt and … look … he does offline retail now.
The dreaded Miss RueLaLa – rich, smart and uber-sexy. She is backed up by her corporate hotshot husband, Mr. Ebay and has so far snatched a couple of victories from Mr. Gilt.
When it comes to this Super Retailer – one thing’s for sure: you do not want to make him angry. When things go south this green retail monster will squash its competition with its low prices and national coverage. You are never too far from him and you won’t be able to hide when he gets all “Hulk, Smash!” on you.
What’s his super power? The Hulk Super Retailer has the upper hand when it comes to size, strength and endurance. The whole operation employs 1.6 million people, it’s bigger than Home Depot, K-Mart, Costco, Kroger, Target and Sears, combined and most americans (90%) live within 15 miles distance to a Walmart shop.
His online operations aren’t to shabby either: it made $4.9 billion in 2011 and that’s him not really trying. When exposed to the Big Poppa Walmart’s Green Dollar Radiation this Super Online Retailer has the potential to make its fellow competitors look like scrawny kids.
The biggest enemy this hunk of overgrown retailer has is itself. Bigger is not always better. The Hulk is either a smashing machine or the smart researcher working at Walmart Labs. He is still trying to control its size and keep its balance while growing so fast. He is not yet there but he will be. From that moment on there will be only one Super Retailer that will, maybe, be able to face it:
This Super Retailer is actually in a class of its own. He is stronger and faster than anyone else online. He has a global reach and can fly and wirelessly deliver its products to anyone, anywhere. He grows faster than anyone else and has so far proven unbeatable.
He was born in a time when people didn’t believe in its type of heroes. He struggled and after some slightly awkward teenage years (it took Amazon 9 years to turn a profit) it finally showed up at the graduation party, red cape flowing and all.
He is known for making a living of print but in time it diversified its product catalogue through a combination of digital content and marketplace products. After all – how could this Super Super Retailer finance its Fortress of Solitude other than by reporting a whooping $48 billion revenue in 2011.
General Zod, a super enemy seemingly out of this world, seems to have set up shop with AliBaba.com and is now threatening Superman’s global reach. The Hulk (mentioned earlier) is not too happy with Superman’s hegemony either and is trying to catch up but is not yet strong enough to go head – to – head with the Man of Steel.
No one has actually found the Kryptonite that is said to be the Amazon killer but rumor has it that its expanding marketplace and investment in digital sales might not be so healthy after all.
We had a look at how flash sales sites work and got into some details regarding their business model.
So, just to get a better understanding at their size and growth rate, I’ve prepared an infographic which I hope you’ll enjoy:
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?
If the idea sounds appealing to you, you can quickly start such flash sale site with tools such as Shopify. The acquisition and operational processes are a bit complicated so I suggest using the right technology.
Let’s dig into the subject with question no.1 :
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”.
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:
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.
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 Groupon’s.
Who are the champions and who are the contenders? Let’s start with number 5:
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.
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.
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.
Now that you’ve grasped the basics you can start a flash sales store yourself.
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.