The Groupon Effect, and How to Fight It: Meet the Evolution of Flash– and Economic Consciousness– Online|
Groupon. LivingSocial. RueLaLa. Gilt.
What have come to be known as “flash sale” websites have come up like flies on a hot summer day in the years since the advent of ShopItToMe and similar sale sites in 2006. Paco Underhill, author of Why We Buy: The Science of Shopping, says of the flash sale model that its infectiveness arises from what could be described as “an aspirational population obsessed with getting things at discount. In our culture, where we are pressed for time and hungry for excitement, it’s tasty, convenient, and satisfying all at once.”
And while Gilt and Groupon have enjoyed extremely positive press and have garnered record usership-even ushering in the mindset in the tech world of “go viral or go home”-since its IPO in November 2011, Groupon has slipped to far less than half of its originally issued valuation. Critics of the Groupon business model denounced its IPO valuation as overblown and overhyped, and it appears as if their prophecies have come true, to a certain extent.
All good things must come to a new beginning
What’s the flaw with the Groupon business model? What made it so initially attractive, and then made it so quick to lose its fad status? The obvious answer is the fact that the barriers to market entry for a company like Groupon-and in a way, even for companies like Gilt-are, at the heart of it, minimal. With a few connections and a decent design team, anyone can start a website that offers discounted merchandise. The question is whether the flash sales offered by a website are selling something that users really want. And recently, sites like Gilt have found recurring sales– or offered prime designers without the discount.
We’ve seen multiple iterations of the same basic idea in the past six years. Gilt is a flash sale site for retail products, and especially fashion. Groupon sells both good and services at discount by partnering with local companies and sharing the profit with them. Birchbox and lookalikes sell randomized boxes of beauty products, intending to increase the discovery process for beauty product consumers while minimizing their own inventory costs.
These sites are many things (imitable, relevant, irrelevant, and so on)-but at the end of the day, they’re middlemen. Gilt brokers sales between designers and consumers. Birchbox brokers samples in the same way. Groupon, LivingSocial, RueLaLa, Hautelook, ShopItToMe-they’re all capitalizing on the same wave of e-commerce.
The Groupon era has, for many, drawn to at least a temporary close. These days Gilt sales are more likely to include “accessible luxury” brands like Cynthia Rowley than wares from the likes of Christian Louboutin or Narciso Rodriguez.
The age of the high/low shopper
So what’s next? What’s the next iteration of business model for flash sales?
Some believe that the next generation of flash sale involves a whole lot more editorial curation than sites like Gilt and Groupon offer. There’s been a recent cropping up of sites that put a curatorial spin on the flash sale site model-and in many ways, are giving the old model a shove towards the magazine world.
Jessica C. Lee, of newcomer STYLE/STALK, has a different take on the potential of flash sale sites. “I see the duty of a site like Style/Stalk as being that of superimposing a curatorial lens-and while sites like Gilt are getting shy about taking risks, there’s room to market to users, rather than to labels.” Jessica, who served as a business development strategist for Gap, markets to “high/low” customers-women who are open to buying a $300 handbag, but also pick up $20 blouses and lower-price items. As a younger entrepreneur, Miss Lee has chosen a business model that focuses on the opinions of younger, edgier fashion bloggers (“tastemakers,” as Ms. Lee calls them) than Gilt caters to-and she features their curations on the site.
The extreme curator approach-a school of e-commerce that has caught on in the form of sites like Ahalife.com and OpenSky.com-is one that’s met with some degree of success, though it hasn’t proven a viral success yet. And while there are instances where having Tom Colicchio recommend products-stemware, for instance-can be helpful, having a super-celeb slap their name on a few product recommendations can feel overbearingly QVC-esque.
Then there’s the problem of sustainability. “Designers that choose the incumbent flash-sale site often suffer from the ‘Groupon effect’-that they end up taking a loss on merchandise sales that don’t offer significant conversions to loyal customers,” Ms. Lee told me in a recent telephone conversation.
“STYLE/STALK offers discounts up to 40% off on new arrivals and in-season products, with a focus on brands and boutiques with price points that are both high and low,” she continued. Lee gives significant latitude to the tastemakers curating sales on STYLE/STALK-and the result is that during any given week, the general strata of prices can vary widely based on variation in curator preference. The newness of each tastemaker’s picks is also crucial to Ms. Lee’s model; while she believes that Groupon suffers from “the self-fulfilling prophecy of inventory,” where small businesses stop working with flash sites because returns are too low, and flash-sale sites move to feature the same mid-range designers over and over. She believes that the market for the traditional flash model is saturated.
Bringing jobs stateside
Another take on the flash sale site comes in the form of a local-focused New York startup, TrendSeeder. Headed by young designer-turned-entrepreneur Avani Patel, TrendSeeder takes the “excess merchandise” premise of the traditional flash sale site and flips it. Ms. Patel pre-sells individual items from designers she favors, then young designers put out a limited run of the items that are pre-sold. The production process is documented by TrendSeeder, and the experience goes from a nameless, faceless flash-sale to a sale that both promotes the growth of the manufacturing industry on the East Coast and personalizes the pieces that are sold online.
“The designers I work with all manufacture their goods on the East Coast,” she told me. “Creating jobs here at home-and cutting fair terms with designers along the way- is crucial to whether I think TrendSeeder is successful or not.”
Whether these new iterations will meet with significant success remains to be seen. But it is encouraging that there are startups that are taking a more personalized view of the flash sale model that’s had such astronomical success, and attempting to turn it into something that truly reflects the personal style of a generation-both aesthetically and economically.