As flash Sales sites profit from retailers struggling to clear stock after another season of unfavourable weather, Drapers asks whether the model is sustainable.
When Amazon decided to close its members-only flash Sales site MyHabit in May, you could have been forgiven for thinking the market was on the wane. A few months earlier, Australian site MySale, which had backing from prominent British retailers such as Sir Philip Green and Mike Ashley, had only just returned to profit after a challenging couple of years, and the future of the sector looked uncertain.
But, last week, MySale triumphantly revealed that its revenue increased by 7% to A$252m (£142.4m) in the year to June 30, boosted by a 140% uplift in the UK. The site made an underlying EBITDA of A$5m (£2.8m), its latest trading update shows. And other flash Sales sites are reporting a successful summer.
SecretSales has had a good season after attracting a wave of new brands, says CEO and co-founder Nish Kukadia: “We’re working with brands that we’ve never worked with before, including a very large yoga brand and a prominent high street jewellery brand,” he tells Drapers. “We also had pretty much the same volume of member sign-ups but on a much tighter budget.”
Rob Feldmann, CEO of BrandAlley UK, reports that trade has been “really strong”.
He points out that many high street retailers have been left with surplus stock as a result of the unseasonable weather, which has benefited flash Sales sites: “The climate has been swinging around widely and people have held off on buying summer clothing, so there’s been a build-up of summer stock. High street footfall is on the decline as well, which also leads to more stock available at the end of the season, which for us is very strong.
“Shopping in high street Sales can be a very unattractive experience. It’s hot, there are queues and customers end up thinking, ‘I can’t be bothered.’ There’s still very strong business for flash Sales sites in Sale months.”
MySale, too, has previously gained from retailers holding excess stock after stagnant seasons – for example, in the warm weather in the run-up to Christmas 2015.
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However, Sally Scott, UK managing director of Vente-Privee, argues that, although flash Sale sites may have started out as a way to help retailers to shift excess stock, the model has since become more sophisticated.
“If we were just about selling excess stock, we wouldn’t be the €2bn (£1.7bn) business we are today. Retailers are always going to have excess stock and we started out as helping businesses get rid of it, but it’s morphed into a marketing tool. We can offer brands a cost-effective way to explore European markets they’re not already in and go in under the radar to see how they might perform.”
Scott says that, despite the deep discounts on offer from traditional retailers, flash Sales sites are often able to go one better: “We always attempt to offer the best in class when it comes to discounting. If customers can find a brand in a shop for a discount, we always want to go better.”
Flash Sales sites can also withstand discounting in a way other retailers cannot, adds Kukadia.
“We’re built to share discounted products. Everything we do, from our operations to our marketing, is set up around being able to sell at a discount and it is a volume business.
“When you see other retailers starting to move from full price to discounts, it can be very damaging because it conditions customers to expect discounts. This hit home with Black Friday last year, when the subsequent weeks were quite damaged.”
Flash Sales sites are able to meet customer demand for an “experience” when shopping, adds Lucy Mansdorf Hirom, head of luxury and premium at retail consultancy Practicology.
“The appeal is based on spontaneity and surprise, which plays well with what experts are calling the experience economy. Retailers are trying to set themselves apart, and customers feeling they might be able to find a hidden gem is an experience in and of itself. Flash Sales sites are able to offer the best brands and the on-trend products that customers are really interested in.”
However, Mansdorf Hirom warns that advances in technology designed to help retailers anticipate consumer demand could burst the flash Sales bubble.
“Technology and data that allows retailers to buy smarter is going to evolve a lot over the next few years, allowing them to anticipate trends, so they won’t have so much excess stock at the end of the season. In the US, we’ve seen bigger retailers buying flash Sale sites because they want to do it themselves and control their brands.”