One of the challenges for such a business model is procurement.
Two years ago, Gilt did 3 sales a week and now it does about 70 sales in each week. When Gilt started, its aim was to just move the sample or private sales to the virtual world; they soon found that these were few and far – flung. They lucked out due to the financial crisis that hit the US (and the world) in 2008-2009 when loads of designer goods remained unsold and fashion houses were more than willing to liquidate their inventory.
But now, with the economy bouncing back, Gilt has adopted a new approach for procurement, utilising the relationships they have built. Now that there is far less overstock to go around for all these flash sales, it’s obvious that liquidation alone won’t suffice for the business growth. So while last season goods and liquidation stock makes up about 60% of the merchandise sold, 35-40% of the merchandise sold is acquired through specially commissioning or manufacturing merchandise to be sold through this route.
As membership keeps growing, the companies have had to work frantically to keep pace with new appetites, and to come up with creative ways to expand their pipeline. So now, Gilt acquires its merchandise directly from the fashion houses instead of buying from wholesalers (as most discounters do). For instance, the company is now sending buyers to place orders with designers at the beginning of the season. Closer home, ‘Fashion and You’ has partnered with Lakme Fashion Week, where they propose to sell the prêt lines of participating designers “fresh off the ramp”.
Some designers are reported to be creating special lower cost lines for such websites by using slightly poorer quality fabrics, locally sourced fabrics, less detailing, lesser stitching, and leftover or sample fabrics from earlier seasons. Typically, neither designers nor flash sale sites disclose that there are certain products have been made especially for the websites since this would dilute the retail price that is quoted on the products and the feeling of getting a steal. (Source: New York Magazine)
That said, this is a win-win situation for both the flash sale sites and the designers because when designers reach a certain production threshold, their cost per unit goes down, while the sale price remains the same. Therefore, they make relatively higher margins on the merchandise that sells at retail and make up for the margins lost on the merchandise sold through flash sales.
Other advantages it provides to designers and manufacturers is larger geographical presence, liquidation of last season stocks without diluting the brand, increased brand presence, alternative sales channel with minimal marketing and holding costs as well as opportunity to interact more closely with customers through blogs and advice sessions on such websites.
(Sources : News Reports – Indian Express, Outlook India, NYT, etc)