Why Flash Sales Are No Flash in the Pan

There’s a red-velvet-ropelike air of exclusivity around so-called “flash” Web sites that sell discounted name-brand merchandise for a limited time.

One must be invited to join (though invitations aren’t hard to get); only members can purchase their heavily discounted offerings, including jewelry from leading designers; and they don’t show up on comparison shopping tools like Froogle. Executives liken them to sample sales, which offer great deals for a short time, typically 24 to 48 hours.

But many brick-and-mortar jewelers don’t like that analogy—or the sites themselves. In fact, www.gilt.com attracts more people than your average sample sale or, for that matter, 10 average sample sales. It’s an Internet phenomenon that boasts over 2 million members. Each week, its nine jewelry and watch sales draw from over 200 brand names and have sold jewelry pieces for as much as $22,000.

Flash sites have become the latest thorn in the side of retail jewelers, who complain that they’re selling products previously available only through them, at prices they often would not be allowed to offer.

The site www.gilt.com (aka Gilt Groupe), founded in November 2007 by two Harvard business graduates, is patterned on the French site www.vente-privee.com, considered the first private shopping club on the Internet. (That site reportedly will enjoy revenues of $750 million this year and has been eyed by Amazon.)

From the beginning Gilt stocked jewelry, and the category now accounts for 15 percent of revenue, according to jewelry and watch buyer Renee Klein.

By its second year, the site was already earning over $200 million, spawning competitors like RueLaLa.com, Ideeli.com, HauteLook.com, and EditorsCloset.com. All told, this category will sell close to a billion dollars of product this year, though it’s only a few years old.

Those numbers are impressive enough, but equally noteworthy is how Gilt and its brethren have lured big designer names that don’t ordinarily sell on the Internet, never mind discounted. “Over the last year, most every label you can name has done a flash sale on one site or another,” New York magazine wrote recently. “The presence of good company has washed away some of the liquidator stigma.”

That’s true of jewelry brands as well, although Klein admits many are skittish at first. “There are initial barriers, particularly if a jewelry brand has never been discounted,” she says. “The first go-round is always scary, but they keep coming back.”

The main reason is that these sites move (and buy) product at a time when many manufacturers have excess inventory. But Klein also notes, “The biggest plus of working with us for many members is our marketing and exposure. A lot of shoppers who grew up on the Internet do not shop at fine-jewelry stores. These brands are not in the forefront of a 25-year-old mind. This lets them expose their brands to this audience.

“We have brands that were only distributed to a handful of vendors,” she continues. “As soon as they had a sale with us, they had tremendous click-through to their homepages, and other retailers ended up picking up the brand. That happens pretty regularly, especially when we are working with an up-and-coming designer.”

Manufacturers say they’re well aware that selling to these sites threatens their established relationships, and they know that many jewelers don’t like them.

One manufacturer who has sold on these sites (and requested anonymity) says: “While we need to be careful with what we put on there and how frequently we do it, it is a great opportunity for a brand to get exposure to new customers and get out of problems.”

Another wrote on JCKonline.com that selling on the sites is “a no-brainer” and noted that sometimes the only other alternative is melting the product.

“The Web sites have 2 million customers buying 60 to 70 percent of the displayed goods in the first two hours with little or no expenses or risk,” the designer wrote. “The retailer wins in the end by getting new collections from designers produced with funds derived from these sales.”

Klein advises manufacturers to be open with their customers about what they’re doing. “That is a huge concern of our vendors, and we are very sensitive to it,” she says. “We are not looking to destroy vendors’ other relationships.”

Plus she says her site offers different merchandise than most retailers. “The retailer typically gets the new and latest collections,” she says. “They should sell the latest pieces at full price. Many times we are selling discontinued product that is pulled back from retailers.”

Still, some designers are reportedly now making items just for these sites, which calls their advertised discounts into question, as there is nothing to compare them to.

Regardless, these sites are here to stay, and industry consultant and JCK columnist Ben Janowski sees them as part of a natural evolution. “First Blue Nile captured a large part of the engagement ring business,” he says. “Now you are seeing the same thing happening with the fashion jewelry business. You are going to see a bunch of different models, with different people capturing part of this space online.”

Some traditional retailers are even learning from them. The success of these sites has made department stores like Saks look at holding its own flash sales, notes Pam Danziger of Unity Marketing. “It adds an additional excitement factor to the shopping experience,” she says. “It’s the sale mindset, magnified.”