As Inventory Shrinks, Can Flash Sales Survive?

Gilt Home

Well, one solution is diversification — Gilt Groupe, the U.S. flash sale leader (Europe’s Vente Privée is credited with generally introducing the online sample sale model) just introduced Gilt Home, a standalone site for every kind of houseware and piece of furniture imaginable.

And moving more heavily into home goods might be just the ticket for Gilt and its ilk, because the unsold excess of fashion inventory just isn’t what it used to be.  Flash sale sites took off at the beginning of the recession, which created tons of leftover stock and a set of consumers forced to spend less (but not stop spending altogether) on mid-upper market style.  Flash sales generally promised 70% price reductions, and the online sample sale model became a hit.

But as online sample sales get bigger and more numerous, there’s less stock to choose from — which also means the sites have less bargaining power for the inventory they acquire.  Gilt’s discounts, for instance, have dropped from 70% to 40-50%.  When the markdown isn’t particularly different from a brand’s own seasonal sale, what does that mean for flash sales’ long-term appeal?

So far, diversification seems to be the go-to solution for keeping customers interested.  Though Gilt Groupe offers less luxury fashion than it did in 2008, another flash sale site, ideeli, has made it a permanent practice to move more downmarket, where excess stock is more plentiful.  Gilt, ideeli, and Rue La La all offer travel deals.  And ideeli and FashionFix (a Saks-owned flash sale site) have asked designers they sell to make product exclusively for them — from excess material, in order to keep costs low.

Now the question is whether these expanding business models will actually work.  Is becoming a one-stop discount shop, even if those discounts aren’t too extreme, appealing enough to keep customers coming?

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