Fish or Fowl?

The internet has given birth to another retail concept. A new set of retail start-ups specialize in discounted designer apparel. These web site based companies include Gilt.com, RueLaLa.com and HauteLook.com. These companies offer “private sales” to customers on a membership list. Each day the companies send an email offering “members only” sales on expensive designer goods. These goods are discounted heavily and are a year old, but these sites have been very popular. They are growing at a rate of over 20% a year. (See the Symptom & Implication “Small discounting competitors have gained a market toehold” on StrategyStreet.com.)

Now an industry leader is offering a challenge to these web-only discounters. Saks tested an online “private event” in October. This 36 hour sale invited customers, who received emails from Saks, to purchase designer goods at prices 50% below the suggested retail price. The company plans another similar online sale this month. The goods for sale are off season or specially made for the event.

The Saks model needs some significant tweaking before it can really compete with the “private sale” online discounters. First it has to establish a separate brand for this product. Not many designers are going to want to sell products through Saks at such significant discounts when their products sell at full price during the season. Customers can learn to simply wait for the “private sale” online event. As a corollary, Saks will have to do something to protect the brand name of the designer, perhaps by removing labels. A change in name and labeling would then enable Saks to use the “private sale” online events to liquidate excess inventory.

Since the online “private sale” discounters offer additional products daily, it is unlikely that the new Saks “private sale” online product will compete directly with the discounting on-line specialists (see “Audio Tip #17: The Heart of the Market” on StrategyStreet.com). The Saks initiative is much more likely to be an end-of-season service to benefit some of its loyal customers.