Secrets Of Private Sales eBook

The Secret to Private SalesWhat you can learn from the top 5 players.

Table of Contents

What is Private Sales, and why is it so hot right now?……………….…pg. 3-9

Who are the leaders?…………………………………………………………………..pg. 10-14

Key elements of top Private Sales sites ….…………………….……….….pg. 15-

21

A peek at what’s next.…………………………………….…………………..………pg. 22-27

Is Private Sales a fit for your business?.…………………………….……..pg. 28-30

Contributor biographies……………………………………….…………….……….pg. 31-33

Thank you…………………………………………………………………………….….……….pg. 34

What is Private Sales, and why is it so hot right now?

Private Sales is an emerging retail concept through which luxury retailers and brands sell merchandise on an exclusive, online platform to an exclusive and brands sell merchandise on an exclusive, online platform to an exclusive customer base. Though there are several variations to the model, Private Sales sites are generally defined by the following:

• Invite-Only — access requires an invitation from the brand, or a member friend.

• Name-Brand Merchandise — sale items are quality, not cheap or out-of-date.

• Discounts — items are compellingly priced to drive impulse purchases and loyalty.

• Selling Event — sales are timed events, during which the merchandise is offered either until it sells out or a set deadline is reached.


Invite-Only

A key element of successful retailers is successful marketing. Private Sales sites use mostly viral email marketing, where friends invite each other to join the site. These messages have a much higher open rate than standard email campaigns because they come from

4© 2009 Optaros, Inc. All rights reserved.

campaigns because they come from someone the recipient knows.

And the conversion — a registered user — is also much higher than a standard email blast can achieve.

Image credit: purpletwinkie


Name-Brand Merchandise

For brands and retailers that have the product assortment to support the

model (products with a sense of exclusivity, that are premium and/or

expensive), Private Sales sites offer a unique venue for distributing


excess product when demand has been miscalculated.


Overstock is unavoidable in manufactured goods, thanks to

everything from fashion misses to production planning

mistakes to unexpected weather...

“The way we are dealing with overstock is a revolution for

branded products," [Xavier] Court [vente-privee co-


branded products," [Xavier] Court [vente-privee co-

founder] says. "It is extremely efficient, protects the image

of the brand, and brings in new customers on- and off-

line.”

Jennifer Schenker, BusinessWeek

Vente-privee.com Refashions Closeouts


Discounts and Timed Sales

The holy grail of online retailing has been the impulse purchase. Impulse

purchases are what drive profitability for brick-and-mortar stores. For

example, a shopper may come in for one item, and walk out with three.

The ecommerce world has had difficulty translating this experience online.

Often, a shopper will come to an online store for one item and leave with

that one item — or even nothing, given an industry average cart

abandonment rate of 60%.


abandonment rate of 60%.

Online retailers needed to find a way to drive impulse purchases,

and Private Sales is the first online retail concept that has proven its ability

to do so, and on a massive scale.

Shoppers are buying items not because they specifically intended to

purchase them, but because they are offered deals that feel too good to

pass up, and the time is running out. And, for this experience, they keep

coming back.


Private sales is a very attractive online retail concept, largely due to the following:

• Rapid revenue growth — Vente-privee went from 0-$1 billion in revenue in 6 years; Gilt Groupe went from 0-$500 million in 3 years.

• Extremely attractive financials, such as low customer acquisition cost due to viral invitations.


due to viral invitations.

• Larger players buying in — GSI Commerce acquired Rue La La for $350 million in October 2009, and there are perpetual rumors of Amazon planning to buying Vente-privee for up to $3 billion.

• Incumbents adding private sales to their sites, including Neiman Marcus, Saks and Comcast.

• VCs funding new entrants, such as BuyVIP, Secret Sales and Private Outlet.


Saddled with overstock from the retail recession, makers of

luxury apparel, home furnishings, and other high-end

goods are selling their wares at reduced prices through…

private shopping sites. Many of these companies help fuel

pent-up demand by limiting membership…


Luxury brands can use these members-only sites to hide

markdown prices from retail shoppers willing to pay the full

amount, while attracting scores of wannabe fashionistas

willing to wait for haute couture at a low price.

Douglas MacMillan, BusinessWeek

Psst! Private-Sale Shopping Sites Are Hot

Who are the leaders?

Though the market is dynamic, the following companies have

emerged as early leaders in the Private Sales space; therefore, they

represent the most likely sources of tested best practices.


vente-privee

Founded in 2001, vente-privee is the originator of the Private Sales concept,

offering daily sales events to members that feature international designer

brand merchandise. The company has seen rapid growth, with over $1

billion in revenue in 2010 and projections to grow 22% each year. Vente-

privee operates in France, Germany, UK, Italy and Spain.

Gilt Groupe

Founded in 2007, Gilt Groupe provides invitation-only access to fashion and


Founded in 2007, Gilt Groupe provides invitation-only access to fashion and

luxury-brand sales events lasting 36 hours. Gilt is a major player, with $500

million in revenue in 2010.

ideeli

ideeli was the first members-only shopping community in the U.S., founded

in 2006. Ideeli offers limited-time sales events to more than 1.3 million

members, featuring top brands in fashion, home and beauty. The company

recently received $20 million VC funding.


Rue La La

Founded in 2008, Rue La La is a division of Retail Convergence, Inc., a

portfolio of ecommerce companies that use a common technology platform,

customer database and management team to create a luxury Private Sales

experience. Rue La La was acquired by GSI Commerce for $350 million in

October 2009.


Hautelook

HauteLook, founded in 2007, operates a marketplace through which

premium fashion and lifestyle brands host 24-48 hour private sales events.

The company achieved $90 million in revenue last year.


The chart below shows the dramatic gains in unique visitor trafficfor these companies* over the last year — roughly a 300% increase total, with each seeing at least +100% yearly change.


*Vente-privee not included due to insufficient data availability.


For those looking to develop Private Sales businesses, there is a great

opportunity to learn from the leaders.

Therefore, we reviewed these sites for key business model design elements

that drive their success, as well as some unique elements to watch as

trends going forward.


Specifically, we wanted to find:

• What are the best practices that can be learned from the leaders?

• What are predictions for future capabilities that the leaders will offer?

Key elements of top Private Sales sites

A successful Private Sales model requires the creation of an exclusive A successful Private Sales model requires the creation of an exclusive

club, a viral invitation-only machine, a highly loyal repeat

customer base and a powerful demand for impulse purchases.

Several key design elements have become best practices to achieve

these objectives:


Viral Invitations

New customer acquisition is driven primarily through people inviting

their friends. This dramatically reduces the traditional customer

acquisition costs of advertising, direct mail marketing, SEO, paid

search and affiliates.

The average incentive is $10


The average incentive is $10

to the friend of each invitee that

makes a purchase. Each site makes

it easy to invite friends to, often

either through Facebook Connect

or adding contacts through Plaxo.

Image credit: Olive Oil Lady


Cart Reservation

One of the biggest complaints from Private Sales shoppers is that an item

will sell out in the time it takes them to move an item placed in a cart to

checkout.

The most common approach to address this issue is to provide a reservation

time buffer once an item is placed in the cart, thus allowing enough time


time buffer once an item is placed in the cart, thus allowing enough time

to checkout. Some of the sites extend this time when another item is placed

in the cart.

A notable difference between key players is whether or not the reservation time

is shown — a consideration between notifying the customer that they may

continue shopping to drive up average order volume, versus the risk that

they will horde merchandise in their cart.


Absence of Site-Search Functionality

Most ecommerce sites offer search or guided-search functionality to help

visitors find products of interest. Conversely, most Private Sales sights do

not.

The goal with this tactic is to create a window-shopping experience,

where a shopper spends time looking at each event, thus creating an

impulse to buy.


(Shoppers are not coming to

the site with an intent to

purchase a specific item.)

However, most of the sites

do offer a variant filter for

items of interest, such as

size and color.


One-Page Event List

A traditional ecommerce retailer may have thousands of SKUs

in a hierarchical product catalog, broken down by category,

sub-category, and product page.

Large Private Sales sites may have dozens or even a hundred

simultaneous events, but they are listed on a single page. The


simultaneous events, but they are listed on a single page. The

emphasis is on encouraging browsing to create the urge for an

impulse purchase.


Sales Events Always Start at the Same Time

It is important to encourage customers to come to your site at the same

time, by having a standard start time for each sales event. This maximizes

impulse purchases, the rate of product sellout and conversion rates for

return visitors.

However, this tactic can also create a huge challenge for IT in supporting


However, this tactic can also create a huge challenge for IT in supporting

extreme spikes in traffic. Though your IT team would much prefer to spread

the start time of sales events throughout the day to ease the operations,

the business benefits of having customers that know what time to

come to the site every day greatly outweighs the additional IT costs

and performance challenges.

Note: Cloud-based auto-scaling platforms are ideally suited to address this

spiky demand.


Order Stays Open for a Few Hours

Compared to traditional shopping, a Private Sales shopper is motivated to

checkout before the inventory depletes or her reservation runs out on her

cart. This creates a situation where a shopper is forced to checkout soon

after adding an item to the cart.

For this reason, buying many items may require several checkouts, inevitably


For this reason, buying many items may require several checkouts, inevitably

leading to call-center complaints about multiple shipping charges for same-

day purchases. Advertising that free shipping is available for additional

items purchased within a given number of hours builds goodwill, increases

order volume, and most importantly does not create disgruntled shoppers.

A peek at what’s next

Private Sales is still a young retail Private Sales is still a young retail

concept, and rapid innovation in the

user experience is to be expected.

Following are some of the advances

we expect to see on leading sites

over the next year.

Image credit: alicia rae


Fashion content

Private Sales sites have the opportunity to influence

shoppers through richer content around the

available products. Many of the sites provide

little-to-no content around the items.

Why are they compelling? Why is the price such a

deal? Which items could be combined with others

for an outfit? This type of content could increase the


for an outfit? This type of content could increase the

number of shoppers interested in a specific sales

event, and drive greater return traffic.

For example, Rue La La has partnered with Bravo to sponsor the show,

Launch My Line.

We predict tighter content integration into Private Sales sites as they

already drive tremendous daily traffic from loyal customers. Providing

“exclusive” daily content such as fashion articles is a logical next step.

Image credit: John Carleton


Club for Top Invitee Networks

The most valuable shoppers are not the ones that buy the most, but the

ones that have invited groups of people that buy the most.

These networked influencers should be addressed separately to keep them

loyal to the brand. (If they switched to a competitor, they could take a lot of

people with them).


people with them).

Private Sales sites could market to these consumers directly with special

offers, increased incentives to extend invitations or competitive leader

boards to see who is the biggest influencer.


Customer Idea Community

Which brands are the shoppers most interested in

seeing? What site improvements are most desired?

Private Sales sites have many loyal customers

that are deeply engaged, but none that we’ve

seen are fully leveraging the potential value of this

community.


Poll questions or blogs with comments would

be a good start to tap into the open innovation

potential of the clientele. This also allows for

effective use of social networks to extend reach.

Image credit: BWorthey


Crowd Visualization

Part of the power of Private

Sales sites is the rush of the

crowd at the start of an event,

which generates impulse

purchases.


Currently, none of the top sites

provide a visual representation of this crowd to shoppers. This

feature, especially if turned on during the high-traffic first hour of an

event, could help to build a community feel and drive impulse

purchases due to the visual “competition” for products.

Image credit: edwebproject.org


Social Analytics

This is a nascent area, but as Private Event sites learn how to mine

and analyze social graph information, a new level of

personalization can be explored where “customers like you” can

truly be identified.


With this data, marketing efforts can not only be focused on

conversion, but also on influencers.

Is Private Sales a fit for your business?

Private Sales has become one of the fastest growing new retail

concepts. Many companies are looking to offer Private

Sales to tap into this trend, but how do you know if it

makes sense for your business?


For an existing retailer to make a Private Sales model work there are a few

key elements to consider:

� Consumers must feel a sense of exclusive access to convince them that the pricing is really compelling and worth inviting their friends. To achieve this usually requires a separate brand or at least a brand extension (e.g. Saks Private Sales).


� An existing customer’s database can be leveraged to jumpstart a Private Sales site, but only the top 10% of the customer base should be invited to start (based on purchases over the last 12 months).

� The functional and technical requirements for a Private Sales site are very different from a traditional ecommerce store, and generally require a specialized platform.


Overall my point of view is the “private sale experience” is

fantastic and should be part of most eCommerce or multi-

channel companies. It is another way to shop and to bring

excitement to your customer…eCommerce is moving into


excitement to your customer…eCommerce is moving into

a new phase (and it makes money).

Bob Schwartz, Schwartz Group

Analysis of the Private Sale Market — Note Very “Private” Sale

Contributor biographies

This e-book was developed using the intelligence and

insight of Marc Osofsky and Adam Michelson.


Marc Osofsky

Marc Osofsky is the vice president of marketing for Optaros and

leads the company’s go-to-market efforts and solution

development. Marc has more than 15 years of experience in helping

businesses leverage new technologies to achieve their business


businesses leverage new technologies to achieve their business

objectives.


Adam Michelson

Adam Michelson serves as the director of ecommerce at Optaros.

He works with clients to leverage next generation internet

technologies for ecommerce re-platforming, new online retail


technologies for ecommerce re-platforming, new online retail

concepts and multi-channel efforts.

Thank you for your time!

We hope you enjoyed The Secret to Private Sales.

Please connect with us on Twitter, Facebook, LinkedIn or our

Ecommerce Blog to let us know your thoughts.

Or, to discuss launching a Private Sales site for your

business, contact Optaros today:

Phone: (617) 227-1855

Email: [email protected]

Documents

Secrets Of Private Sales eBook