The Secret to Private Sales

What you can learn from the top 5 players.

 Table of Contents

What is Private Sales, and why is it so hot right now?……………….…pg. 3-9

Who are the leaders?…………………………………………………………………..pg. 10-14

Key elements of top Private Sales sites ….…………………….……….….pg. 15-

21

A peek at what’s next.…………………………………….…………………..………pg. 22-27

Is Private Sales a fit for your business?.…………………………….……..pg. 28-30

Contributor biographies……………………………………….…………….……….pg. 31-33

Thank you…………………………………………………………………………….….……….pg. 34
 What is Private Sales, and why is it so hot
right now?

Private Sales is an emerging retail concept through which luxury retailers

and brands sell merchandise on an exclusive, online platform to an exclusive
customer base. Though there are several variations to the model, Private
Sales sites are generally defined by the following:

• Invite-Only — access requires an invitation from the brand, or a

member friend.
• Name-Brand Merchandise — sale items are quality, not cheap or
out-of-date.
• Discounts — items are compellingly priced to drive impulse purchases
and loyalty.
• Selling Event — sales are timed events, during which the merchandise
is offered either until it sells out or a set deadline is reached.
What is Private Sales, and why is it so hot right now?

Invite-Only
A key element of successful retailers is
successful marketing. Private Sales sites
use mostly viral email marketing,
where friends invite each other to join
the site. These messages have a much
higher open rate than standard email
campaigns because they come from
someone the recipient knows.

And the conversion — a registered

user — is also much higher than a
standard email blast can achieve.

Image credit: purpletwinkie

© 2009 Optaros, Inc. All rights reserved. 4

What is Private Sales, and why is it so hot right now?

Name-Brand Merchandise
For brands and retailers that have the product assortment to support the
model (products with a sense of exclusivity, that are premium and/or
expensive), Private Sales sites offer a unique venue for distributing
excess product when demand has been miscalculated.

© 2009 Optaros, Inc. All rights reserved. 5

What is Private Sales, and why is it so hot right now?

Overstock is unavoidable in manufactured goods, thanks to

everything from fashion misses to production planning
mistakes to unexpected weather...

“The way we are dealing with overstock is a revolution for

branded products," [Xavier] Court [vente-privee co-
founder] says. "It is extremely efficient, protects the image
of the brand, and brings in new customers on- and off-
line.”

Jennifer Schenker, BusinessWeek

Vente-privee.com Refashions Closeouts

© 2009 Optaros, Inc. All rights reserved. 6

What is Private Sales, and why is it so hot right now?

Discounts and Timed Sales

The holy grail of online retailing has been the impulse purchase. Impulse
purchases are what drive profitability for brick-and-mortar stores. For
example, a shopper may come in for one item, and walk out with three.

The ecommerce world has had difficulty translating this experience online.
Often, a shopper will come to an online store for one item and leave with
that one item — or even nothing, given an industry average cart
abandonment rate of 60%.

Online retailers needed to find a way to drive impulse purchases,

and Private Sales is the first online retail concept that has proven its ability
to do so, and on a massive scale.

Shoppers are buying items not because they specifically intended to

purchase them, but because they are offered deals that feel too good to
pass up, and the time is running out. And, for this experience, they keep
coming back.

© 2009 Optaros, Inc. All rights reserved. 7

What is Private Sales, and why is it so hot right now?

Private sales is a very attractive online retail concept, largely due to the
following:

• Rapid revenue growth — Vente-privee went from 0-$1 billion in

revenue in 6 years; Gilt Groupe went from 0-$500 million in 3 years.

• Extremely attractive financials, such as low customer acquisition cost

due to viral invitations.

• Larger players buying in — GSI Commerce acquired Rue La La for

$350 million in October 2009, and there are perpetual rumors of
Amazon planning to buying Vente-privee for up to $3 billion.

• Incumbents adding private sales to their sites, including Neiman

Marcus, Saks and Comcast.

• VCs funding new entrants, such as BuyVIP, Secret Sales and Private
Outlet.

© 2009 Optaros, Inc. All rights reserved. 8

What is Private Sales, and why is it so hot right now?

Saddled with overstock from the retail recession, makers of

luxury apparel, home furnishings, and other high-end
goods are selling their wares at reduced prices through…
private shopping sites. Many of these companies help fuel
pent-up demand by limiting membership…

Luxury brands can use these members-only sites to hide

markdown prices from retail shoppers willing to pay the full
amount, while attracting scores of wannabe fashionistas
willing to wait for haute couture at a low price.

Douglas MacMillan, BusinessWeek

Psst! Private-Sale Shopping Sites Are Hot

© 2009 Optaros, Inc. All rights reserved. 9

 Who are the leaders?

Though the market is dynamic, the following companies have

emerged as early leaders in the Private Sales space; therefore, they
represent the most likely sources of tested best practices.
Who are the leaders?

vente-privee
Founded in 2001, vente-privee is the originator of the Private Sales concept,
offering daily sales events to members that feature international designer
brand merchandise. The company has seen rapid growth, with over $1
billion in revenue in 2010 and projections to grow 22% each year. Vente-
privee operates in France, Germany, UK, Italy and Spain.

Gilt Groupe
Founded in 2007, Gilt Groupe provides invitation-only access to fashion and
luxury-brand sales events lasting 36 hours. Gilt is a major player, with $500
million in revenue in 2010.

ideeli
ideeli was the first members-only shopping community in the U.S., founded
in 2006. Ideeli offers limited-time sales events to more than 1.3 million
members, featuring top brands in fashion, home and beauty. The company
recently received $20 million VC funding.

© 2009 Optaros, Inc. All rights reserved. 11

Who are the leaders?

Rue La La
Founded in 2008, Rue La La is a division of Retail Convergence, Inc., a
portfolio of ecommerce companies that use a common technology platform,
customer database and management team to create a luxury Private Sales
experience. Rue La La was acquired by GSI Commerce for $350 million in
October 2009.

Hautelook
HauteLook, founded in 2007, operates a marketplace through which
premium fashion and lifestyle brands host 24-48 hour private sales events.
The company achieved $90 million in revenue last year.

© 2009 Optaros, Inc. All rights reserved. 12

Who are the leaders?

The chart below shows the dramatic gains in unique visitor traffic
for these companies* over the last year — roughly a 300% increase
total, with each seeing at least +100% yearly change.

*Vente-privee not included due to insufficient data availability.

© 2009 Optaros, Inc. All rights reserved. 13

Who are the leaders?

For those looking to develop Private Sales businesses, there is a great

opportunity to learn from the leaders.

Therefore, we reviewed these sites for key business model design elements
that drive their success, as well as some unique elements to watch as
trends going forward.

Specifically, we wanted to find:

• What are the best practices that can be learned from the leaders?

• What are predictions for future capabilities that the leaders will
offer?

© 2009 Optaros, Inc. All rights reserved. 14

 Key elements of top Private Sales sites

A successful Private Sales model requires the creation of an exclusive

club, a viral invitation-only machine, a highly loyal repeat
customer base and a powerful demand for impulse purchases.

Several key design elements have become best practices to achieve

these objectives:
Key elements of top Private Sales sites

Viral Invitations
New customer acquisition is driven primarily through people inviting
their friends. This dramatically reduces the traditional customer
acquisition costs of advertising, direct mail marketing, SEO, paid
search and affiliates.

The average incentive is $10

to the friend of each invitee that
makes a purchase. Each site makes
it easy to invite friends to, often
either through Facebook Connect
or adding contacts through Plaxo.

Image credit: Olive Oil Lady

© 2009 Optaros, Inc. All rights reserved. 16

Key elements of top Private Sales sites

Cart Reservation
One of the biggest complaints from Private Sales shoppers is that an item
will sell out in the time it takes them to move an item placed in a cart to
checkout.

The most common approach to address this issue is to provide a reservation

time buffer once an item is placed in the cart, thus allowing enough time
to checkout. Some of the sites extend this time when another item is placed
in the cart.

A notable difference between key players is whether or not the reservation time
is shown — a consideration between notifying the customer that they may
continue shopping to drive up average order volume, versus the risk that
they will horde merchandise in their cart.

© 2009 Optaros, Inc. All rights reserved. 17

Key elements of top Private Sales sites

Absence of Site-Search Functionality

Most ecommerce sites offer search or guided-search functionality to help
visitors find products of interest. Conversely, most Private Sales sights do
not.

The goal with this tactic is to create a window-shopping experience,

where a shopper spends time looking at each event, thus creating an
impulse to buy.

(Shoppers are not coming to

the site with an intent to
purchase a specific item.)

However, most of the sites

do offer a variant filter for
items of interest, such as
size and color.

© 2009 Optaros, Inc. All rights reserved. 18

Key elements of top Private Sales sites

One-Page Event List

A traditional ecommerce retailer may have thousands of SKUs
in a hierarchical product catalog, broken down by category,
sub-category, and product page.

Large Private Sales sites may have dozens or even a hundred

simultaneous events, but they are listed on a single page. The
emphasis is on encouraging browsing to create the urge for an
impulse purchase.

© 2009 Optaros, Inc. All rights reserved. 19

Key elements of top Private Sales sites

Sales Events Always Start at the Same Time

It is important to encourage customers to come to your site at the same
time, by having a standard start time for each sales event. This maximizes
impulse purchases, the rate of product sellout and conversion rates for
return visitors.

However, this tactic can also create a huge challenge for IT in supporting
extreme spikes in traffic. Though your IT team would much prefer to spread
the start time of sales events throughout the day to ease the operations,
the business benefits of having customers that know what time to
come to the site every day greatly outweighs the additional IT costs
and performance challenges.

Note: Cloud-based auto-scaling platforms are ideally suited to address this

spiky demand.

© 2009 Optaros, Inc. All rights reserved. 20

Key elements of top Private Sales sites

Order Stays Open for a Few Hours

Compared to traditional shopping, a Private Sales shopper is motivated to
checkout before the inventory depletes or her reservation runs out on her
cart. This creates a situation where a shopper is forced to checkout soon
after adding an item to the cart.

For this reason, buying many items may require several checkouts, inevitably
leading to call-center complaints about multiple shipping charges for same-
day purchases. Advertising that free shipping is available for additional
items purchased within a given number of hours builds goodwill, increases
order volume, and most importantly does not create disgruntled shoppers.

© 2009 Optaros, Inc. All rights reserved. 21

 A peek at what’s next

Private Sales is still a young retail

concept, and rapid innovation in the
user experience is to be expected.
Following are some of the advances
we expect to see on leading sites
over the next year.

Image credit: alicia rae

A peek at what’s next

Fashion content
Private Sales sites have the opportunity to influence
shoppers through richer content around the
available products. Many of the sites provide
little-to-no content around the items.

Why are they compelling? Why is the price such a

deal? Which items could be combined with others
for an outfit? This type of content could increase the
number of shoppers interested in a specific sales
event, and drive greater return traffic.

For example, Rue La La has partnered with Bravo to sponsor the show,
Launch My Line.

We predict tighter content integration into Private Sales sites as they

already drive tremendous daily traffic from loyal customers. Providing
“exclusive” daily content such as fashion articles is a logical next step.

Image credit: John Carleton

© 2009 Optaros, Inc. All rights reserved. 23

A peek at what’s next

Club for Top Invitee Networks

The most valuable shoppers are not the ones that buy the most, but the
ones that have invited groups of people that buy the most.

These networked influencers should be addressed separately to keep them

loyal to the brand. (If they switched to a competitor, they could take a lot of
people with them).

Private Sales sites could market to these consumers directly with special
offers, increased incentives to extend invitations or competitive leader
boards to see who is the biggest influencer.

© 2009 Optaros, Inc. All rights reserved. 24

A peek at what’s next

Customer Idea Community

Which brands are the shoppers most interested in
seeing? What site improvements are most desired?
Private Sales sites have many loyal customers
that are deeply engaged, but none that we’ve
seen are fully leveraging the potential value of this
community.

Poll questions or blogs with comments would

be a good start to tap into the open innovation
potential of the clientele. This also allows for
effective use of social networks to extend reach.

Image credit: BWorthey

© 2009 Optaros, Inc. All rights reserved. 25

A peek at what’s next

Crowd Visualization
Part of the power of Private
Sales sites is the rush of the
crowd at the start of an event,
which generates impulse
purchases.

Currently, none of the top sites

provide a visual representation of this crowd to shoppers. This
feature, especially if turned on during the high-traffic first hour of an
event, could help to build a community feel and drive impulse
purchases due to the visual “competition” for products.

Image credit: edwebproject.org

© 2009 Optaros, Inc. All rights reserved. 26

A peek at what’s next

Social Analytics
This is a nascent area, but as Private Event sites learn how to mine
and analyze social graph information, a new level of
personalization can be explored where “customers like you” can
truly be identified.

With this data, marketing efforts can not only be focused on

conversion, but also on influencers.

© 2009 Optaros, Inc. All rights reserved. 27

 Is Private Sales a fit for your business?

Private Sales has become one of the fastest growing new retail
concepts. Many companies are looking to offer Private
Sales to tap into this trend, but how do you know if it
makes sense for your business?
Is Private Sales a fit for your business?

For an existing retailer to make a Private Sales model work there are a few
key elements to consider:

Consumers must feel a sense of exclusive access to convince them

that the pricing is really compelling and worth inviting their friends. To
achieve this usually requires a separate brand or at least a brand
extension (e.g. Saks Private Sales).

An existing customer’s database can be leveraged to jumpstart a Private

Sales site, but only the top 10% of the customer base should be
invited to start (based on purchases over the last 12 months).

The functional and technical requirements for a Private Sales site

are very different from a traditional ecommerce store, and generally
require a specialized platform.

© 2009 Optaros, Inc. All rights reserved. 29

Is Private Sales a fit for your business?

Overall my point of view is the “private sale experience” is

fantastic and should be part of most eCommerce or multi-
channel companies. It is another way to shop and to bring
excitement to your customer…eCommerce is moving into
a new phase (and it makes money).

Bob Schwartz, Schwartz Group

Analysis of the Private Sale Market — Note Very “Private” Sale

© 2009 Optaros, Inc. All rights reserved. 30

Contributor biographies

This e-book was developed using the intelligence and

insight of Marc Osofsky and Adam Michelson.
Contributor biographies

Marc Osofsky
Marc Osofsky is the vice president of marketing for Optaros and
leads the company’s go-to-market efforts and solution
development. Marc has more than 15 years of experience in helping
businesses leverage new technologies to achieve their business
objectives.

© 2009 Optaros, Inc. All rights reserved. 32

Contributor biographies

Adam Michelson
Adam Michelson serves as the director of ecommerce at Optaros.
He works with clients to leverage next generation internet
technologies for ecommerce re-platforming, new online retail
concepts and multi-channel efforts.

© 2009 Optaros, Inc. All rights reserved. 33

Thank you for your time!

We hope you enjoyed The Secret to Private Sales.

Please connect with us on Twitter, Facebook, LinkedIn or our

Ecommerce Blog to let us know your thoughts.

Or, to discuss launching a Private Sales site for your

business, contact Optaros today:

Phone: (617) 227-1855

Email: Info@Optaros.com