Why Large Retailers Are Acquiring Flash Sale Sites

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Large retailers acquiring major flash sale sites are slowly becoming the norm in today’s retail landscape.  Major retailers like QVC, Hudson’s Bay Co., and more recently Bed Bath & Beyond have all taken the plunge in making already established flash sale sites part of their brand families.

The question is why?  What’s in it for these major retailers to make such moves?  Are standalone flash sale sites becoming a thing of the past?  Does it allow major retailers to gain a broader reach of customers it may not be able to without these acquisitions?

Just last week, Bed Bath & Beyond announced it was acquiring home décor and design flash sale site One Kings Lane in an effort to provide “additional support and exposure to promote their brand,” said Steven H. Temares, Chief Executive Officer and Member of the Board of Directors of Bed Bath & Beyond Inc.

Earlier this year, Hudson’s Bay Co. announced the acquisition of Gilt Groupe Holdings for $250 million in cash with a focus to advance its all-channel model while continuing to grow its successful off-price business through the integration of Gilt with Saks OFF 5TH locations.

In 2015, QVC acquired flash sale site zulily for $2.4 billion.  Since its inception in 2010, zulily has emerged as a destination brand for millennials. The acquisition allows QVC to reach an audience of young mothers who love to shop and accelerate its mobile leadership.

“Larger retailers are hitting their ceiling with their current demographics and struggling to acquire younger customers,” said Daren Hill, CEO and co-founder of commerce platform provider WebLinc.  “To retain the market share, retailers need to either build new brands or acquire ones that have their target customer base.”

Hill said flash sites offer modern technology for retailers that enable them to expand into an outlet channel for markdowns and old inventory.

Stuart Rose, managing director of retail-focused investment banking firm Tully & Holland Inc., said ecommerce is growing by double digits and brick-and-mortar is not.

“You fish where you fish,” he said.

Rose said the benefits of acquiring flash sale sites begin with millennials finding brands online and not in print.  It is also a way to dispose of excess inventory and quickly gauge the desirability of inventory.

According to research by Tully & Holland Inc., flash sale sites serve as a forum for brand marketing and inventory turnover.  Flash deals allow an aggressive strategy of email and social media daily bursts.

Compared to in-store sales, flash deals allow consumers to connect instantly and buy.   In the wake of the last recession, these types of business models exploded in popularity designer brands were desperate to sell excess inventory.

Flash sale sites have the overall goal to cope with fellow luxury retailers like Nordstrom, Neiman Marcus, and Bloomingdales, but as their sector of the market saturates, more and more sites are struggling to differentiate themselves.  Offering deals on a variety of products, sites lack the powerful brand recognition of their peers, according to the research.

The research revealed that this business model were herald as “financial unicorns”  these startups including One Kings Lane, Gilt, Fab.com, HauteLook, MyHabit and Ideeli were valued at around $1 billion each.

Flash sites incentivized customers to buy now, much like early couponing.  Product sold fast and moved out of storage, as the economy bounced back, there was less excess inventory and brand became smarter in how much inventory they produced, according to the Tully & Holland Inc. research.

In 2014, this was certainly the case, when Rue La La announced it was looking for a buyer, and hired JP Morgan Chase to seek alternatives with Gilt Groupe being a possible suitor in a market that was already saturated with flash sales sites.

Hill said flash sale sites enables retailers to sell through dated inventory quickly, while appealing to a younger demographic that are more price conscious.

“The customer acquisition strategy is key for a large retailer looking to grow their market share,” said Hill.

Owning flash sales sites allow larger retailers to control both their own company’s marketing/ product sales and those of smaller businesses, according to the research by Tully & Holland Inc.  It means business in an environment where large forums equate to greater brand awareness control of these ecommerce spaces.

Rose said owning a flash sale site can work it into other marketing and sales strategies by being able to test new products and disposing of old ones.

“It can definitely help established retailers better segment their customers and push price- conscious customer to a flash sale site, and leave the primary brand free of deal marketing,” said Hill.

The research revealed that in terms of larger retailers, flash sale sites have similar dynamic with small businesses as supermarkets have with wholesalers.  To promote the product, large retailers grant the businesses a forum and their businesses incur any loss not recovered from their percentage of the profits.

On the small scale, flash sale sites cannot reach the adequate expanse of customers; they cannot justify the profit loss for the limited market exposure.   Demanding deep discounts – 50% or more off regular prices – flash sale sites need to justify the potential benefit to their wholesalers in lieu of the risk.

Are there any challenges for major retailers to own a flash sale site?  Hill said the selection is key.  Most of the flash sale sites offer products that appeal to the younger demographic.

“If the established retailers acquire and offload their static inventory on the acquired flash sale site without the curation that is currently in play, they risk [losing] the customer,” said Hill.

Rose said the only challenge that exists is keeping ideas fresh and maintain momentum.

“Some of these have been flashes in the pan, so it is a model which has long term growth or have just peaked,” asked Rose.

Daniela Forte is Multichannel Merchant’s Associate Editor.

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