Monday, November 22, 2010

The Rise of the Private Sales Websites

Towards the end of the last quarter of 2009, India witnessed a sudden surge of shopping websites like Fashion and You, 99labels and ThePrivateSales which sell high-street fashionable apparel and accessories at major discounts. These types of websites are not mere novices in the webosphere. In fact, the concept has been around for almost two decades. One major reason for this suddenly crowded space was the recession which left luxury brands saddled with unsold merchandise. This, in turn, led to the entry of the private sale sites offering goods at cut-rate prices.

Private sales sites have become popular for many reasons. First and foremost, these sites, which are targeted at the upper middle class, give the customers an opportunity to buy designer items at quite reasonable prices. Another reason is that these sites work under the guise of ‘exclusive’ and ‘members-only’ which appeals to the customers. The sites also have great control over the product selection and often tailor it specifically to meet their target audience through the information collected when members sign up, resulting in more precise sales and happy customers. Lastly, these sites work on the customer’s psychology by capitalizing on a sense of urgency and relying on the impulse of shoppers. Since the products are often available in limited number and sizes, customers rush to buy the product to get an item in their size or colour before anyone else, while not missing out on a great deal. These sites often use the effective technique of the ticking pressure of the clock to encourage impulse shopping among their customers. Further, there is no exit strategy for buyer’s remorse as some items are often non-refundable and shipping for returns is often paid for by the customer.

These sites are a relatively new way to successfully sell and promote items. In some cases, the items sold on these sites are samples created before the item went into mass production. In the fashion industry, samples are often referred to as apparel that have been created by luxury brands and high-end designers to test design variations or to get a feel of how the market responds to their creations. These creations are often seen in magazines and runways. There are also many situations when these designs often do not make it to production due to the lack of interest from merchandising buyers. In other situations, designers may have manufactured too many pieces of a particular item, which often occurs during mass production. However, with the emergence of private sales websites, designers now have another option to load off the excess productions instead of sending them for dirt-cheap warehouse sales. In the end, the customers are the ones who reap benefits as they can buy high street fashion at inexpensive prices.

While this business model continues to grow in popularity, more opportunities are likely to emerge for smaller businesses to offer their products as well. In fact, sites like Fashion and You and 99labels often offer household decoration items and gifting items on their websites other than designer clothes. Thus, what started with designer clothes has quickly branched out to travel, restaurants, home decor and even kitchenware, indicating that there is plenty of room for all sorts of products and services to be sold this way.

These websites primarily follow two different types of business models:

Block, Sell and Ship: Many sites operate on the ‘Block, Sell and Ship’ model. In this model, brands send samples of their clothes to the company, where merchandise buyers handpick the items they want to sell on the site. The buyers then place their orders for the amount of merchandise they’d like the brands to set aside for the sale, based on available stock.

After members pay for their goods and the sale ends, the website then places the confirmed purchase order with the brand for what it has sold online. Merchandise is then shipped to the website’s office, where everything is packaged in the company’s branded boxes and shipped out to customers.

This is a fairly safe model with few risks to the company. The most the company really has to worry about is the time taken for the brand to send its purchase order, which is then send out to customers. Another risk in this model has to do with inventory. If the count is inaccurate, the website would be compelled to issue refunds and render apologies that orders could not be completed. The discouraged customers would be forced to look at other sites to fulfil his needs.

Buy and Directly Distribute: Another common way by which other sites operate is purchasing and fulfilling orders directly. This model brings with it relative risk but has the potential to offer customers the best discounts. With this business model, the company contacts brands to check how much inventory is available and the brands will send their inventory reports and samples. Here is where things differ – the more inventory the site buys, the better the wholesale price, and the better price it can offer to members. The risk here is that if a site orders 100 percent of a brand’s inventory and it goes unsold, then that is money lost.

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