Scratching an Expensive Niche

But things didn’t really take off in this niche market until the world economy tanked. All of a sudden less than 25 percent of luxury goods, including high end designer duds, were selling at full price, according some accounts. Designers that had been reluctant to potentially devalue their brands by doing business with a discounter,were more willing to look at the growing online sample sale marketplace.

The appeal of these sites is related, at least in part, to their supposed exclusivity. Consumers who want to have access to the day’s flash sale have to be “invited” to become members. In truth, consumers need only ask for an invitation in order for one to be extended. But in the process of requesting the invite, consumers must also convey their interests and preferences, enabling the site to narrowly tailor the offers that are sent to its members.

The ability to present members with merchandise in which they have already expressed an interest makes compelling business model. But according to Heather Freeland, chief marketing officer for Gilt City, the Gilt Groupe’s location-based experiences and services arm, the real appeal to the site’s consumers is the way in which the offerings are “curated.”

“It’s about curating a lifestyle,” said Freeland. “Not at all about being mass market or working with just any merchant in just any category.”

Where Groupon’s offerings bounce between high end and lowbrow, Gilt Groupe, Rue La La and the rest of the sites in the category have staked a claim on all things upmarket.

ShopItToMe has a slightly different business model. Rather than offering a single flash deal each day, it is a high-end sale aggregator. New consumers choose categories of interest, indicate their sizes, which designers they prefer and which retailers they like best. ShopItToMe then tailors emails so that they include sale offerings that meet those criteria. Members can decide how often they want to receive the emails, can put the emails on hold – she said many women use this option when they are pregnant — and can refine their preferences as often and as drastically as they like.

The Gilt Groupe and Rue La La have both expanded their offerings beyond women’s fashion, and big chunks of the sites’ new product offerings including home goods and travel that will, at least on paper, place them in head to head competition with Groupon and LivingSocial. Both sites will also be trying to carve out a piece of location-based territory. Although the flash sales sites are national, both companies are making heavy investments in location-based services, offering deals for local restaurants and salons. Gilt City, the Gilt Group’s site for local experiences and services is currently in six cities, but will announce its expansion into Seattle, Atlanta, Dallas and Washington, DC this week, according to Freeland. Rue La La announced last week that its four-city Rue Local brand will be expanding into Los Angeles.

All of the members only sites are making use of social media and mobile marketing in order to drill down on consumer preferences, build enthusiasm and to attract new users. “As you can imagine anything that’s local is also mobile,” said Freeland. “We have a Gilt City app for the iPhone which has been very successful and we continue to grow our presence there and grow the percentage of sales from our mobile channel.”

Many of the sites in the category are trying to find ways to balance the ability to tailor offers to their membership with the advantages, to both the site and the consumer, of discovery – ways of showing consumers new items that they might like without overwhelming their mailboxes and their attention. Both ShopItToMe and Gilt City are experimenting with methods to gently nudge consumers outside of the parameters they have established. Gilt City has recently launched new platform called Index, that includes offers available all of the time. Freeland said that because offers there are not part of the “flash sale mode,” it’s a low pressure way for consumers to “discover a new business or service they may not have tried before.” ShopItToMe has recently started including a deal of the day in its emails.

“It’s still tailored to your preferences,” said Tamara Feldman, marketing director at ShopItToMe, “It’s one item we are adding a bit more editorial behind it. It can provide a freshness and introduce [members] to a new trend or category.”

Of course, the success of the niche has not gone unnoticed and, in the same way that Groupon has engendered hundreds of imitators, there is a new crop of flash deal fashion sites, some of which have big fashion guns, including Saks Fifth Avenue, Daily Candy and Nordstroms and Neiman Marcus backing them up. But there appears to be no shortage of consumers with foie gras tastes and hamburger budgets. SO there may still be some room left in the space.