Recent news that Gilt Groupe is looking to be acquired by Hudson’s Bay Co., the parent company of Saks Fifth Avenue, is a sobering reminder that the flash sales model no longer reigns in the world of eCommerce. Gilt Groupe became popular by mimicking luxury brand sample sales and giving customers the impression of getting highly coveted products at an exclusive price. The sales only lasted for a day or two, and customers would scramble to get a good deal. Hautelook, Fab.com, One Kings Lane, and Zulily followed similar business models to great success. Gilt Groupe, Fab.com, and Zulily all got the coveted $1 billion dollar valuation. Still stinging from the recession, price-conscious consumers shopped compulsively on these kind of sites. However, as the space became more competitive, customers started to get disillusioned by sales they saw over and over again. As the market became saturated, businesses like Gilt couldn’t maintain growth or retain enough customers to justify their lofty valuations.
Once the leader in flash sales, Gilt Groupe is being sold for a fraction of its $1 billion valuation
Buyer’s fatigue was starting to set in as early as 2012; Gilt Groupe laid off 10% of their employees and closed offices just as Fab.com and Zulily were reaching their peak. 2015 saw the downfall of Fab.com and Zulily, which were both purchased at paltry sums compared to their peak valuations. It looks like Gilt is also having trouble keeping customers interested. Pairing a major retailer with a flash sales site has worked well for Nordstrom and Hautelook, and it seems like Saks Fifth Avenue is interested in following the same model by acquiring Gilt.
When customers start to believe that a good deal can be found just about anywhere, retailers will have to rely on other methods to keep customers interested. Instead of focusing only on price, customers are looking for products that deliver value. Many eCommerce businesses are turning to the subscription model, which can offer customers a highly curated and personal experience. Subscription companies like Dollar Shave Club, The Honest Company, and Birchbox have been gaining momentum as flash sites have been falling. However, not every business needs to switch to the subscription model in order to succeed.
Jackthreads has pivoted from flash sales to building its own brand
Jackthreads, the popular men’s apparel flash sales site, has moved away from the flash sales model by creating a standalone brand. More businesses will have to consider what else besides low product pricing and shipping will lure new customers to the brand, and keep customers coming back for more. Most importantly, retailers need to remember that the original appeal of flash sales sites was the ability to get something unique within a limited time or before anyone else. Flash sales sites won’t be able to attract customers by price anymore. The impression of uniqueness and exclusivity has been lost.
When customers are looking to buy from brands that offer value over a bargain, it’ll be interesting to see which businesses evolve and which ones will not be able to keep up. 2016 is set to be a major turning point for flash sales. While the business model probably won’t disappear completely, it definitely will need to become something customers haven’t seen before.