Ok so after spending so many hours at the Barney’s Sample Sale twice a year – battling my way through crazy amount of people, trying a suit pant in the middle of the room while keeping an eye on these John Varvatos pants so I’d secured later – the emergence of the online-only sample sales sounded like a great revolution. Nothing new there though since it’s been going on already for close to 10 years in France: for example, check out the absolute leader there (close to 90% market share) at www.vente-privee.com. With an estimated valuation over 800m euros (above $1bn), the company was doing close to $500m revenues in 2007 and, given its business model, is clearly cash flow positive.  Following the appealing model, a couple of startups were created in the US, most of them distincts from each other in terms of market positionnement or marketing tactics. Still an early stage market here, it’s obviously the right time given what’s happening on the economy (after all, one of the best current marketing tactic for KMart and now for Sears is to push a refreshed version of the layaway business model – check out http://tinyurl.com/5fxt5h).  The market Before we actually take a look at the competition outlook, I want to define clearly what I’m meaning by online sample sale: it’s the business of selling online only apparel (clothes, accessories etc.) at discounted prices. The items sold can be part of current or past collections, from well-known or less-known designers and for men, women or childrens. It’s different from the business of using online as a marketing tool for physical sample sales (think any newletter alert for physical sale or any advertisement on websites). It is also different from the business of selling discounted goods on retailers sites (Barneys.com, Saks etc.) or the occasional 20 to 30% off at the end of the collections.  The companies that are currently struggling to eat each other market shares are (by order of importance / size / credibility Gilt Groupe – backed by Kevin Ryan‘s Alleycorp and Matrix Partners and now headed by ex-Marta Stewart Susan Lyne. See a full description of the site by Miss Olive there) Rue La La – backed by the guys behind SmartBargains.com (Retail Convergence) Hautelook – no funding info ideeli – currently funded by the founder and CEO Paul Hurley and Kodiak Ventures The Top Secret – no funding info Editor’s Closet – no funding ingo Regent’s Secret – no funding info There’s other providers that are smaller but these are the main ones. Key levers to success Obviously, the first one is the inventory. How to secure highly desirable inventory (think blue-chip names) at low prices so that you can attract people on the promises of 50 to 70% discounts. Securing the right inventory is both a guarantee of wiping out the competition, positionning your emerging brand at the right level and the promise of securing new designers by becoming reliable. The second one is the logistic. Again here, the audience is coming for the discounts but you’ll get them addicted if you can provide the closest to instant gratification.  The third one is refunds / returns and any other after sale services. Since you’re going to end up returning 50% of what you bought, either because it was too small, too expensive or you just changed your mind, this part is playing a large role on the return usage metrics. Far behind are the interface and the website since people don’t care too much about shopping in a beautiful environment when they’re looking for these $50 sweaters from James Perse. The role of the first 2 criteria is highlighted by the fact that most of the people behind these companies usually have a background around physical sample sale (or ecommerce) and/or logistic expertise. For example, Alexis Maybank from Gilt Groupe, comes from eBay. Regent’s Secret company has been founded through the alliance of a physical sample sale provider and the head of a logistic company etc. Segmentation The key potential segments are going to be: Upscale / Low end: where do you position your store. That assumption will very quickly determine the type of inventory you want to secure, the total potential market size and your own projections in terms of sales, revenue per user etc. Customer: to who are you selling. That’s clearly a moving target since most of the actors actually started on the women side (highest probability of scoring sales) to men, accessories, jewelry, travel goods etc. Vente-Privee in France now also sell electronic, wine etc. On these two segments, see the attached Powerpoint slide showing how these guys are vs each others. What’s the future? A couple of heavy hitters are starting to understand the potential of the market. I heard that Net a Porter was working on a project currently called TheOutnet to start a sample sale service for their already upscale audience in UK and the US. Also, Vente-Privee might be looking at the US market as a potential for additional growth since they are close to saturation in France and already pursuing growth opportunities in Europe. It’s going to be interested to see the founder and CEO speaking later this month at the french LeWeb 08 conference (see the program here).  Finally, another big threat is obviously the possibility for either the brands or their key retailers, to directly handle this sale channel. Could be by creating dedicated sections on their sites or by creating new brands but if the business is growing steadiliy, they’ll probably start thinking that giving away 50% of the margin is a bit high… The key issue for the Gilt Groupe of the world is going to be the growth in terms of users. Most of them are reaching to larger media companies to tap their audiences and lower their cost of acquisition. So probably more to come in terms of partnerships for these companies (my guess is that’s the main reason of the appointment of Susan Lyne at the head of Gilt Groupe). Also heard that Fabrice Grinda was looking into launching such a service for some countries in Southern America (starting with Brasil). In the meantime, start shopping there and testing, it’s a fun landscape…