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How to Break Into the Flash Deals Space

Sites such as Ideeli, Lot18, Gilt Groupe, and Rue La La are offering carefully curated deals at reduced prices. The business is no more than a few years old, but some of the sites are already drawing impressively huge revenues.

When Ideeli, a flash deals site, launched in late 2007, mainstream retail observers didn't quite what to make of it. A New York Times article from November of that year described the fashion-sales site as a sort of virtual Kmart. By 2009, fashion bloggers were hot on the scent of the day's sales, and The Boston Globe broke down this and other flash-sale sites strategies: they acquire "slow-selling or overstocked inventory from high-end retailers" and offer "it at reduced prices to members." It was the birth of a whole new e-commerce ecosystem.

Ideeli is not the only young company that helped carve out—and is now thriving in—the flash deals space. Philip James founded online wine retailer Snooth before moving on to his latest venture, Lot18. James prefers the term "private sales" to flash deals, and downplays the importance of the actual deal to his business model. Lot18 has been in operation for eight months, and the company reported its first million dollars in sales in March, according to James. Lot18 is growing fast—today it's up to 80 employees.

And consider Doug Mack, CEO of home decorating flash sales site One Kings Lane. He says that last year his company grew 500 percent over the previous year, and that this year it's is on track to see similar growth of several hundred percent. "That's driven by consumers who love this business model," Mack says.

What consumers seem to love is the mixture of exclusivity, reduced prices, and carefully curated products that characterizes flash deals sites. The fact that they offer deals for a limited time—usually about forty-eight hours—doesn't hurt. In fact, it adds an eBay-esque competitive nature to the sales. Want to break into the lucrative flash sales space? Here's how.

1. Understand the allure of exclusivity.

The first feature users will notice on a flash-deal site is that one must log in to access to the deals. Many, including Ideeli, Lot18, and One Kings Lane, allow new users to sign up themselves, but Rue La La, which now has about four million members, has stuck to a model that requires a new users to receive an invitation from a registered user of the site.

"We have strategic relations with people like Elle magazine that allow people a gateway into our experience," says Mark McWeeny, cofounder of Rue La La and president of the site's Rue Local branch. But he says that the exclusivity involved with becoming a member of the site has always been at the heart of Rue La La's business model.

Both Mack and James say their sites are careful about protecting members' privacy. "During the registration process, we ask members to opt-in to receive emails from One Kings Lane," Mack said. "Our members always have the option to unsubscribe to our emails, but still continue to shop our site." James said Lot18 collects information like a member's IP address and state of residence in addition to contact information. They then pair this information with demonstrated purchasing preferences to improve each member's experience on the site. "We do not share this information with other organizations for commercial purposes without the member's consent," James said.

One Kings Lane only requires that new members register. Lot18 allows people who would like to become members to register for an invitation. Membership codes are then sent out at Lot18's discretion. 

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2. Know your target customer.

Knowing who your customers are and what they want is perhaps the single most important part of any flash space business. Mack says that One Kings Lane, which was founded by Alison Pincus and Susan Feldman in 2009, keeps its focus firmly on a target demographic that has directed the company for the past two years. "We focus largely on women in their 30s, 40s, 50s, typically middle to upper income levels," Mack says. They’re really into home and entertaining. They really want their home to be a place where they can create memories with their family."

On a given day, One Kings Lane may be offering sales on a velvet-upholstered chair with a price knocked down to $459 from $900, a set of six clear latte mugs for half their retail price, and a Joan Miro print for $799. What One Kings Lane hopes to do, Mack says, is change the way women shop for their home. There's no need to think in terms of making big investments, such as refurnishing an entire room in one sweep, if one makes smaller purchases on a more regular basis. "We’re shifting the consumer mindset to more of a fashion mentality," Mack says.

Rue La La was founded with its target customer in mind as well. McWeeny says that it has been this target customer that has guided the business as it has grown over the last four years. "The vision for that core customer is someone who wants to live a life of style. We serve both men and women, but our core customer is this woman who's 32 years old, she wants to live a life of style, and she wants someone to help her with that," McWeeny says.

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3. Choose from among the best.

Mack says that the buying team at One Kings Lane thinks long and hard about the products that will be going up on its site. The process often begins by reviewing the many proposals that have been sent by vendors. "In any given quarter, we'll work with around 1,000 vendors for putting products up on the site," Mack says. These vendors want to find markets for their products, but One Kings Lane will only be interested if they think the products will appeal to its target clients. "Do we want to do artwork? Rugs? Pillows? Soft goods? Kitchenware? And then we say which vendors haven't we worked with recently, because we don't want to have repeats happen too frequently."

Curating the site's daily content comprises a significant portion of the company's resources.

"The largest single portion of our company is our buying team, which is based in New York," Mack says. "We often pull people from a traditional marketing background, a place like Barneys or maybe a boutique retailer, and then we have to bring them in and train them on our model."

Wine is a big business—$40 billion a year—but it is also intensely personal. Questions of taste, vintage, and provenance intimidate many amateur wine drinkers, so Lot18 puts considerable effort into ensuring that products it features are the good quality. 

"Our procurement team is 20 strong at this point. We have a really high failure rate—or really low acceptance rate—of what makes it on the site," says Philip James, cofounder of Lot18. James says that buyers who find wine online lose the insight that can come from going into a small local store and speaking with the shop owner. Even that's not really enough for someone who wants to learn about wine. "Obviously that pales in comparison to going to Napa and hanging out with the winemaker," James says. So that is exactly what Lot18's buyers do.

Lot18's employees are in daily contact with wine producers, which means not just deals for the site's members, but access to products that might not ordinarily be available at all on the wider market. James recounted a recent deal in which a winery that usually has a three-year waiting list for its products worked with Lot18 and organized an auction for members.

For Rue Local, getting the best deals first is all about having an ear to the ground and employees on site.

"When we launched Rue New York, we hired a local team in Rue New York," McWeeny says. "To know what's next you can't rely on the Internet. You have to be in that market."

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4. Be poised to grow, but keep your focus
.

Customer loyalty at One Kings Lane is strong, Mack said, with 70-80% of monthly sales coming from repeat customers. Half of Lot18's membership buys from the site monthly. Both of these sites are young, and customers may prove more fickle than they now seem. But Lot18, One Kings Lane, and Rue La La are all looking for ways to expand. 

The flash space business rests on the philosophy that a site can offer more by offering less. Flash-deal sites don't aspire to be all thing to all people, as does Amazon. Rather, members seem to favor flash-deal sites because they know the site will always offer carefully curated brands. This singular focus may be difficult for some startup flash sites to remember as business picks up.

For Rue La La, providing the localized services now overseen by Rue Local was always a priority. The site currently offers deals in Boston, Seattle, Philadelphia, and New York.

McWeeny says that Rue Local has plans to expand into new locations, but wouldn't say where. "By this fall you'll see us in the largest cities in the country," McWeeny says.

Lot18 has begun to offer some gourmet food deals, a product line that is in its very early stages, James says. The company has recently explored offering agricultural and food- and wine-related travel packages. James says that Lot18 is able to do this easily because of the relationships the company already has with winemakers. "What helps us is all day we’re speaking to producers," James says. "We know the artisanal producers on the ground, and wrapping the rest of the travel around it is easy."

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Last updated: Jul 21, 2011




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