Flash sale sites lead to full-price purchases

Feb. 23, 2012

The following is an excerpt from a recent conversation on RetailWire, reproduced here with kind permission.

Haven't these people heard of comparison-shopping apps? While a larger number of consumers have been drawn to luxury fashion courtesy of flash sale sites, new research from American Express Business Insights shows that consumers, Gen Yers in particular, are spending more of their dollars on full-price sites such as Neiman Marcus, Nordstrom and others.

According to the research, flash sales sites experienced a 92 percent increase in dollar sales in 2010 and then a more modest 21 percent jump last year. At the same time, full-priced sites saw 2011 sales improve 25 percent on top of the 20 percent lift in 2010.

Despite being the smallest demographic group among luxury consumers, Gen Yers are leading the increase in the full-priced segment, up 31 percent in 2011 versus the year prior. Gen X consumers increased full-price purchasing by 23 percent over the same period, following by Boomers (up 19 percent) and Seniors (up six percent).

Interestingly, the research suggests that many new luxury consumers are entering the category via flash sales sites.

"The new focus on full-priced online fashion shows that giving consumers a taste of luxury will undoubtedly help build brand loyalty over time," said Ed Jay, senior vice president of American Express Business Insights, in a press release. "With Gen Y leading the way — and even Seniors' growing interest in flash sales — online retail is certainly becoming a critical touch point for customer acquisition."

RetailWire BrainTrust comments:

Flash sites like Gilt can grab attention when their emails land in your inbox. Flash sales like the Jason Wu for Target can grab media attention when they hit the stores. But when you look through Gilt and find most of the stuff isn't what you'd want anyways, you stop browsing (pun intentional).

When shoppers show up at a Target for the flash sale to be disappointed, the brand loses equity and customers.

Gilt and Rue La La have laid off people and the furor over daily discount sites seems to be ebbing. The serious shoppers showing up in your bricks and mortar stores are there to buy something they can't live without, not respond like rats to the cheese for the deal. Premium luxury brands should take heart from that. - Bob Phibbs, President/CEO, The Retail Doctor & Associates

The data presented in the article leads me to believe that flash sales of luxury items could help lift full price luxury over time. When a customer gets a taste of a luxury brand, they want more. The key to flash sale marketing is moderation and a mix of marketing approaches. Flash sales can be used as part of the solution for a luxury brand to grow their user base and acceptance, but needs to be mixed with other approaches.

I would be interested in understanding how luxury brands follow up with flash sale buyers. Do they promote another sale, or do they promote the luxury brand as an experience and drive consumers to full price web sites? The later is the approach I would use. - John Boccuzzi, Jr., SVP National Retail Sales, Affinion Group

This research indicates that sales are up; little more. In 2009 and 2010, flash sales sites burst onto the scene, drawing great consumer interest. Those sites could not sustain 100% year over year growth. At the same time, sales were down, if not depressed, at Nordstrom and Neiman Marcus. Consumers have been trained to look for deals. That does not mean that they won't buy at full price.

It's overall good news that consumers seem to be spending again. Let's see how retailers adapt their promotional strategies. - Max Goldberg, Founding Partner, The Radical Clarity Group

The meteoric growth of luxury flash sale sites like Gilt was the direct result of the perfect storm that occurred fourth quarter 2008. Too much supply and too little demand resulted in a whole bunch of cheap, high-end goods sold at fire sale prices. The normal brick and mortar overstock discount retailers couldn't handle the load and the internet entrepreneurs were there to take up the slack.

Luxury retailers took a shellacking on margins and a lot of luxury buyers started questioning the value behind the high prices they were paying at full retail. It seemed like full retail luxury was dead and the discount flash site was on a straight line trajectory up.

But, like most straight line thinking, it just hasn't panned out. Turns out the real luxury consumer still values quality and will pay for it. Add a little scarcity into the mix and, voila, it's a little bit of 2007 again; luxury consumers buying luxury goods at full price.

So, while online flash sites will continue to exist and even grow in some cases, their success will be more the result of the fact that they are giving the luxury brands another channel to sell off their overstocks than an entry point for the true luxury consumer. - Marge Laney, President, Alert Technologies, Inc.

My uncle owned a Chevy dealership for 30 years. His business mantra was: "If I can get you here, I can get you." This marketing philosophy goes doubly for luxury/indulgence categories. People already know they want the merchandise but they also know they don't need it, so they try to stay out of harm's way. But those flash sale sites (or anything else that screams "but you can get such a good deal on me today!") lowers those barriers. And once the fish swims into the net ... - Ben Ball, Senior Vice President, Dechert-Hampe

Topics: Consumer Behavior , Marketing , Omnichannel / Multichannel , Online Retailing

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