As MySale sells flash Sale site Cocosa to rival BrandAlley, Drapers analyses the opportunities and unique challenges presented by this market.
The revival of Cocosa by MySale Group in 2014 fired the starting gun for a bullish strategy to enter the UK’s discount flash Sale sector. However, five years later MySale, which operates 22 websites in seven countries, is effectively exiting the UK after selling Cocosa to rival BrandAlley, and refocusing on its core markets in Australia and New Zealand.
The UK’s main players are now BrandAlley, SecretSales and Vente-Privee, and the Cocosa sale heralds a consolidation of sorts. Brands seeking to dispose of stock through these channels now find themselves with fewer options. However, many still consider working with flash Sale sites worthwhile, as it allows for disposal of old stock without impinging on brand identity or exclusivity.
Launched in 2008 by Bauer Media, Cocosa has had mixed fortunes. Once owned by former Harrods boss Mohamed Al-Fayed, the site was in the process of being wound down in 2014 before MySale purchased it. BrandAlley bought the Cocosa website, trademarks and database of around 2 million members for £1.5m on 3 May.
Rob Feldmann, BrandAlley chief executive, said the deal would help his company to achieve its strategic goals: “We already have fantastic fashion and home partners, so it’s widening the marketing reach in the UK and selling more product through our logistics operation to an affluent but savvy UK customer.”
BrandAlley is no stranger to acquisitions. Before snapping up Cocosa from MySale this month, it paid £600,000 to buy homeware and beauty etailer Achica from Dunelm Group in February 2018. The Achica acquisition boosted BrandAlley’s top line. Revenue grew by 122% to £46m in the year to 31 December 2018. Profit figures have yet to be disclosed.
In recent years, however, the broader flash Sale market has faced several challenges.
MySale’s disposal of Cocosa follows a series of profit warnings from the Anglo-Australian company. It was hit by changes on 1 July 2018 to general sales tax regulations in Australia, which increased its costs. Its share price fell by more than 50% to 17.40p after its most recent profit warning in December 2018.
In the wider flash Sale market, increased competition from online players, greater levels of discounting from high street brands and rising costs have been identified as pressure points.
Retail analyst Nick Bubb believes flash Sale retailers have lost their shine in recent years: “It’s hard to say whether the problem is flash Sale sites specifically, which would imply that there is too much competition from Amazon, or that consumers are cynical about time-limited offers, or just a lack of scale.
“Either way, the derisory valuation of Cocosa could be evidence that online fast fashion is not a licence to print money, and that social media reach and marketing clout do matter.”
However, Feldmann dismisses the idea that rivals such as Amazon have been stealing market share: “Amazon currently isn’t really a threat to us in fashion, as they don’t do fashion particularly well, their website isn’t conducive to fashion buying and their algorithms operate to never be out of stock, which doesn’t work well with seasonal fashions.
“However, when they do turn their mind to something, they are so strong they can take a massive position very quickly.”
The CEO of one womenswear retailer that uses flash Sale sites said the model is useful but the process is often complicated and pay-offs can be small: “I think they are a useful part of a terminal stock exit strategy, but they need to be managed with eyes wide open as they’re not a simple panacea either commercially or practically.
“Many of them do a great job of partnering to create the best outcome. But it’s not as straightforward or lucrative as any of them make out.”
Back to basics
One industry expert says the issues at some flash Sale sites can be down to the simple basics of running an operation: “I think some companies in the sector are badly run and don’t have the right brand relationships or the right stock, and have not offered a good experience for consumers.
“Those companies have struggled to make a mark – and to have a successful growing business, you need every part of the business operating properly. You need good IT and customer service and refunds have to be paid on time. If you don’t do those things, then it’s tough as the margins aren’t as high and you can lose a lot of money.”
Shoppers of flash Sale businesses enjoy the urgency and gratification of the shopping experience
Sach Kukadia, SecretSales
Another issue that has affected flash Sale sites has been the endemic discounting by many retailers.
Retail analyst Richard Hyman believes that the point of differentiation for many flash Sale sites has been watered down as a result of retailers taking promotions into their own hands: “I think it’s really difficult to be a flash Sale site when the market is so promotional. The issue is that there’s so much noise out there that promotions have become a zero-sum game – almost everybody is on Sale most of the time, so the fact that you have a special offer has become a run-of-the-mill announcement.”
BrandAlley’s Feldmann emphasises that the appeal of sites such as his own is for retailers that do not want their own brand diluted by being too closely associated with discounts: “If you are a brand owner and are discounting too often, you are going to really hurt your full-price business, both in store and online. The more savvy brands limit their discounting to certain agreed periods, they focus on full price, and then move out excess stock to partners like us so they can really focus on selling their full-price product.”
Sach Kukadia, co-founder and chief executive of Secret Sales, says there is still an appetite for flash Sale sites: “It’s important to note that shoppers of flash Sale businesses enjoy the urgency and gratification of the shopping experience, which sets it apart from regular etail shopping.
“Brands currently utilise both flash Sale and outlets. However we understand that a time-limited campaign is far better for a brand’s equity value than opening up an outlet store.
“We believe it’s important to not condition customers into buying Sale items only, and that brands should separate their clearance channels from their main sites, to keep full-price sales as high as possible. The market is still very exposed, and there is a huge amount of opportunity to be had in terms of growth and market share.”
The Drapers verdict
In a crowded online market, have many flash Sale etailers lost their raison d’être? Increased discounting from struggling high street players has had an impact and eaten into flash Sale sites’ market share. Meanwhile, the threat of Amazon truly setting its sights on fashion looms. However, as many retailers struggle with excess stock and a Brexit slowdown, off-price remains a channel to claw back some value from their products that limits the damage done by continually discounting in store.
In the current market, it is an option many brands may not be able to do without. However, off-price sites need to innovate to ensure their proposition is as fresh today as it was when they appeared a decade ago. Otherwise, consumers will move on to the next big thing.