Scott Collins isn’t the kind of guy who wakes up early to shop. But when he heard that Tumi travel bags were being sold online at 70% off the retail price, he just couldn’t resist.
“I had to wake up at 7 or they would have sold out,” he says.
Collins is one of millions of consumers flocking to private sale sites to snap up bargains on luxury items ranging from designer clothing to jewelry to home décor. But Collins is more than just your average shopper looking for a great deal. He’s also a managing director at
“If you are not fast, the best stuff is gone quickly, so you’ve got to get there early to have a better chance of getting what you want,” he notes.
Collins could just as easily be talking about his investment in Vente-privee. After all, venture capitalists are piling into private shopping space, having invested more than $200 million in at least 14 members-only shopping sites over the past few years, including more than $97 million in eight companies in 2009 alone, according to Thomson Reuters (publisher of PE Week) and press reports.
Sites such as Gilt Groupe, HauteLook, Ideeli, One Kings Lane and Rue La La have quickly become a major force, attracting millions of shoppers, generating billions of dollars in sales, and netting huge valuations by VCs eager to capitalize on the latest e-commerce trend.
To date, at least one of the private shopping sites has been acquired, producing a hefty return to its venture backers. Meanwhile, another is rumored to be negotiating a multi-billion sale.
Vente-privee, which is reportedly in acquisition talks with Amazon.com, has displayed remarkable growth over the past few years, reaching sales of 650 million euros this year, boasts Collins. Summit invested an undisclosed amount for a 20% stake in the Saint-Denis, France-based company in 2007. That deal valued the company at $1 billion, according to BusinessWeek.
“We saw a business with a huge amount of head room and the ability to dominate in France, as well as the opportunity to expand to other major countries in Europe, and even beyond that,” says Collins. “The overall market size is really, really big.”
Private sale sites have shot to prominence during the global recession. They are benefiting from the perfect storm of consumers desperately searching for discounts, and major brands anxious to unload excess inventory that would otherwise sit idle on retail shelves. The sites buy overstocked goods from top brands, and then slash prices like crazy. They send out email blasts to their members announcing the sales, and then sit back as frenzied shoppers descend on their sites.
“I think what makes these sites work is the element of social shopping combined with a game-like quality that adds immediacy to the entire experience,” says Chip Meakem, a general partner at
Ideeli, which raised a Series B round of $20 million in December, now boasts 1.3 million members.
Analysts say that there are two main reasons these private sales sites are able to offer such steep discounts. First, they are selling excess inventory that brands are more than happy to get rid of. Second, the sites rely on word of mouth, so they don’t have to spend significant money on marketing and advertising.
“In 2009, brands were left with all this excess inventory, and along came Gilt and Rue La La that helped them get rid of it,” says Sucharita Mulpuru, an e-commerce analyst at Forrester Research. “But what will happen this year? It’s likely these same brands will decrease their manufacturing lots and be able to sell out at retail, which means private sale sites will be challenged to get quality inventory.”
Collins of Summit Partners says that a good relationship with brands is the key ingredient to building a successful private shopping business. He says that at Vente-privee the real customers are the brands, not the buying public.
“You really need to be concerned about access to brands and getting the best products at the right time,” he says. “Our business works precisely because brands believe Vente-privee does a good job in helping them represent and liquidate their excess stock.”
Vente-privee has 18 photography studios at its French headquarters and professionally shoots every item displayed on its site. It also produces its own music trailers for each sale, ensuring that products are presented in a sophisticated way to preserve their designer image.
By contrast, Collins wonders how new, U.S.-based sites, such as Gilt, HauteLook and One Kings Lane will fare. He points out that these sites face huge competition not just from each other, but from a well-established overstock infrastructure that includes outlet malls, sample sales and consignment shops TJ Maxx and Filene’s Basement.
Nick Beim, a general partner at
But, like everyone else, Beim is slightly uneasy about the plethora of private sale companies launched over the past two years.
“It will be interesting to see how many the market can sustain,” he says. “Given the venture capital overhang, I think the market will likely become oversaturated pretty quickly, but I think the opportunity for the winners is substantial.”
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