• by Sarah Mahoney , October 31, 2009

Gilt

Brick-and-mortar luxury retailers may be in a slump as big as the QE2, but business is booming in the online private sale sector.

Early last week, Pennsylvania-based e-commerce and interactive services firm GSI Commerce Inc. announced it was buying Rue La La for $350 million. Just days later, The Wall Street Journal reported that none other than Saks Fifth Avenue was experimenting with a private online event, and that it would test two more before the end of the year.

"We're really entering round two of this business, as consumers become increasingly aware of this new channel, and more brands start to recognize the benefit," Paul Hurley, CEO of Ideeli, one of the largest members-only sites, tells Marketing Daily.

The concept started back in 2001 with the French Vente-privee, which is popular throughout Europe, and boasts more than 8 million members. (By contrast, Rue La La has 1.2 million members, and Ideeli just passed 1 million.) But it wasn't until 2007 that private sales sites really burst onto the U.S. e-commerce scene, led by companies like HauteLook and Gilt Groupe. (Gilt also owns Jetsetter, which uses the same model to sell upscale travel packages.)

Members-only sites provide, in effect, online versions of sample sales -- big discounts on the latest in luxury. While the sites are easy to join, most foster a little bit of an exclusive "we may not want people like you in our yacht club" vibe. Marketing, based on email and text blasts about the timing of sales, keeps that insider-y feel going.

So far, the sites have been big beneficiaries of the recession. Stores likes Saks and Neiman Marcus have suffered steep drops in sales, as many affluent consumers find themselves cutting back on luxury clothing and accessories. But the well-heeled fashionistas who flock to these sites can splurge with a clear conscience -- often, they can buy prestige clothing, jewelry and travel brands at well over 50% off.

For those consumers, it's fun. "Our customers love it because it's an innovative way to shop," Stacey Santo, Rue La La's VP/marketing communications, tells Marketing Daily. Between Facebook, Twitter, and iPhone apps, consumers can closely monitor the timing of sales, "and they like the way the boutiques start right at 11, and that there is just one interface for so many brands," she adds. "A big appeal is also that it's a lifestyle site -- you can buy travel and spa packages, for example," all at comfortable price levels.

For example, Rue La La is selling cut-rate getaway packages to Canyon Ranch; Ideeli is offering $3,000 necklaces from Subversive at $739; and Gilt shoppers are buying Alexander McQueen duds -- normally priced at $2,000 to $3,000 -- at nearly 70% off.

So far, while business is brisk is at these sites, it's relatively small. GSI, for example, expects Rue La La's sales to hit $60 million next year, and Hurley estimates the entire category at "well under a billion." He adds: "We think it will top $1 billion next year."

And while Hurley expects Saks and other retailers to continue to "try and incorporate some aspect of this model," being able to be a pure-play in this category "means doing many events a week," he says. "Some of these shoppers are asking to be notified of two and three sales a day."

Ideeli's long-term strategy, Hurley adds, is "providing value not just to the customer, but to the brand -- helping companies clear their stock in a complementary channel. It's not in anybody's best interest to be selling the exact same merchandise that's currently on store shelves at a greatly reduced price. That would hurt brands, not help them."