The Economist, Money.com and Business Week had interesting articles on the emergence of luxury member-only e-tailers, such as Gilt Groupe and HauteLook (“When cheap is exclusive”, “Luxe sample sales move online” and “Fashion Week in New York and Fashion’s Role in Innovation”).
The idea behind these sites is simple:
The latest twist is having private, invitation-only one-day or even one-hour sales for expensive goods. Gilt Group has pioneered this concept. Gilt doesn’t hold any inventory; it just sells what is offered, momentarily, by fashion companies. It allows the fashion companies to cut prices–but keep the price-cutting within a self-selecting small group of people.
This model clearly works great at times like these, when fewer and fewer people buy at luxury department stores such as Saks Fifth Avenue (reporting 20% decline in its sales). On one hand, there is plenty of excess inventory from luxury designers, and on the other hand, people have less disposable income and are willing to bargain-hunt. The fact that these websites are for member-only allows the designers to get rid of excess inventory by cutting prices, but without alienating their core customers who buy at full price. Making the sales last for only a day or two puts pressure on customers to buy quickly, and thus allows the websites to sell excess inventory even faster.
There are many questions about the viability of such a model when the economy improves. These websites strive on the excess inventory of designers and the willingness of customers to spend time bargain hunting; both of these may change with an improved economic outlook, but time will tell.