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In this tough economy, the fastest growing e-commerce sector is … luxury apparel? September 9, 2009

Posted by jeremyliew in Ecommerce.
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One of the most exciting trends in e-commerce over the last couple of years has been the trend towards “shopping as entertainment”. Traditionally e-commerce has been a chore type activity. Customers know what they are looking for (a digital camera, a new laptop) and are looking for the best product and best price with a very “research” based mindset.

This is quite unlike the real world, where a customer might walk around a mall without any particular purchases in mind, and perhaps opportunistically buy something that caught their eye in their wanderings. There is no real “intent to buy” in a trip to the mall.  It is more like entertainment time which may, or may not, lead to a purchase.

We’re starting to see this sort of behavior online as well. Swoopo and Gilt are two companies that are enticing consumers to come and check out “deals” without any particular intent to buy. They are injecting the entertainment factor into e-commerce. The Economist discusses the success of Gilt, Rue-La-La and HauteLook in particular:

THE racks of expensive gowns and shoes sit, serene and mostly untouched, on the floors of Saks Fifth Avenue, Bergdorf Goodman, Bloomingdale’s and almost every fancy department store. In a sign of how consumers’ newfound thrift has hurt luxury retailers, Saks Incorporated, the parent company of Saks Fifth Avenue, recently announced losses of more than $50m in the three months to July. Sales are down more than 20%. The recession, it seems, has spelt an end to Americans’ appetite for luxury—at department-store prices, at any rate.

Yet luxury e-tailers, which sell designer goods online at discounted prices, are flourishing. The slowdown has actually helped them, simultaneously producing seemingly endless supplies of unsold inventory and forcing consumers to tighten their belts. That has let American e-tailers such as Gilt Groupe, HauteLook and Rue La La, and their French rival Vente-privee.com, sell last season’s designer apparel for as much as 80% off the original price.

But low prices are not the websites’ only allure. Their sites are open only to those who have received an e-mail inviting them to join from another member. This lends them an air of exclusivity and creates the sort of buzz marketers crave, says Adam Bernhard, the boss of HauteLook. The sites also put new items on sale at the same time every day for a limited period, usually no more than 24 hours. That makes shopping an urgent and competitive daily activity for many members. (Cleverly, the sites do not say how many items of each size and colour they have, so customers feel even more pressure to buy right away, lest they miss out on the last pair of size 37 hazel Jimmy Choo pumps.)

Designers, for their part, can use the sites to get rid of stock quickly and discreetly, sparing them the disgrace of seeing their heavily discounted products lingering on sale racks in full public view. Most consumers do not even know which designers are available through luxury e-tailers until they become members. The sites shield themselves from search engines, so they do not pop up in response to online searches for the brands they offer. That has encouraged grand firms like Cartier to sell their wares through them.

The Economist notes that RueLaLa started in 2008 and expects revenues this year of around $130m, and that Gilt started in 2007 and expects $400m in revenue next year. That is remarkable growth. Compare this to Zappos which was started in 1999 and took 6-7 years to reach those gross sales levels:

These companies are rapidly growing beyond the US and beyond women’s apparel. The Economist again notes:

Rue La La recently launched an iPhone application to make it easy for members to make purchases while on the move. It has also started selling wine, spa services and travel packages in addition to clothes. Vente-privee.com has even sold yachts and apartments…

E-tailers are also looking to expand geographically. Vente-privee.com has operations in Germany, Britain and Spain as well as France. Gilt recently launched a site in Japan that has over 200,000 members.

This opportunity is not lost on other companies in the value chain. Retailers like Neiman Marcus, financial institutions like American Express and even fashion magazines are all offering limited time deep discount sales to their members and customers now. Companies like Shopittome are re-aggregating sales for consumers.

I’m very interested in watching how this space develops. Do readers know of other interesting trends in entertainment shopping?

Comments»

1. John Mecke - September 9, 2009

Spot on post. Just a little clarification of Zappos’ revenues. Their net revenues for 2008 (Gross revenues minus returns) was $635 million as reported in the S-4 filed for the deal. You can check out the details at http://www.sec.gov/Archives/edgar/data/1018724/000119312509155961/ds4.htm#toc26278_48. These numbers make RueLaLa and Gilt even more interesting.

2. CHF - September 9, 2009

I like sites such as Polyvore and Myshape, where shoping becomes a bit more personalized. In the case of entertainment shoping, Polyvore adding the ability the match items together and take in recommendations from celebrities and trends make it really interesting. Lastly, social e-commerce, where friends refer items and rec’s is a great internet mock-up of the mall where consumers tend to travel in packs, soliciting advice from one another.

3. julespieri - September 10, 2009

The fundamental drivers here are focussing busy people on very bite-sized and relevant offers and info. Most e-commerce is a flood of irrelevant info. This is the opposit–and that is the magic.

For other ideas in the space, you can check out our business–http://www.dailygrommet.com Like Gilt, we are also all about event-based commerce but we don’t deal with distressed merchandise like the sites you mention. We curate community submissions to launch new and inventive products–more defensible and particularly suited for viral sharing and lift-off. Better margins, content distribution options, and ongoing economics too.

And if you’d really like to dive deeper you can read a blog post I wrote about this differentiation. http://jules.dailygrommet.com/2009/07/12/golden-gilt-groupe/

4. Seph - September 25, 2009

Jeremy – I’ve been following your blog for awhile – nice post here.

One trend that we’re excited about at Proper Cloth is customer co-creation. Give customers the online tools to create and visualize your product as they see it. It’s particularly entertaining to change the different design inputs when the product rendering online is visually realistic. Threadless and zazzle have done will with this strategy so far, but I’d expect it could expand to all kinds of products.

5. Entertainment commerce « Lightspeed Venture Partners Blog - January 12, 2010

[…] conference tomorrow. As I’ve said before, I’m really excited about the trend towards shopping as entertainment that we’ve been starting to see recently, epitomized by companies like Gilt and HauteLook. I […]

6. Why Lightspeed invested in ShoeDazzle « Lightspeed Venture Partners Blog - April 28, 2010

[…] I am very excited about the move towards entertainment shopping, and Shoedazzle falls squarely into this category: One of the most exciting trends in e-commerce […]

7. Young Trip - October 8, 2010

But how does e-commerce Help and Hurt the world? Its really confusing because many things can happen and also be bad

8. Steve Sinclair - December 19, 2010

Well its hard the determine weather to shop in a department store or on the internet because
how ever you look at it your going to find deals in both option. Well personally some times i like the experience of having the item right there in front of me so i can see and feel it as i make my decision of purchases. On the other hand well surfing the well i some times ran in to
unbelievable deals it also give me the ability to search more that one place for what i’m looking for which save me some time as well. Really its for you to decide with works best for you.
http://thehomeofonlineshoppers.blogspot.com/
very valuable


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