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Privacy clearly has its attractions.

While online discounters such as Bluefly and Overstock have been around for years without impressive results, the online sample sale format known as a “private sale” has caught on worldwide like Champagne at a wedding, showing impressive growth and attracting venture funding. The hype and froth over firms such as Vente-Privee, Gilt Groupe, Rue La La and Ideeli are reminiscent of the dot-com bubble.

This story first appeared in the August 11, 2009 issue of WWD. Subscribe Today.

On the one hand, it seems too good — or too gimmicky — to be true. On the other hand, the off-price market has been estimated at $29 billion a year, according to analyst Brian Tunick of J.P. Morgan, and it stands to reason at least some percentage of that could move online. (In the apparel world, online retail accounts for about 10 percent of sales.)

The magic words seem to be “private” and “sale.” The bargains are hidden behind a firewall where only members can see them — although becoming a member is usually not difficult. (Some sites are invitation only, and others will accept anyone who registers.) The sales are up for a limited time, usually 36 hours, and generally focus on only one brand. Returns and exchanges tend to be limited. Discounts can run as high as 70 percent off.

Because nonmembers (and search engines) can’t see what labels are for sale, even luxury and designer brands such as Gucci, Zac Posen and Carolina Herrera don’t mind clearing their excess inventory this way. The deep discounts, the aura of exclusivity and the convenience of shopping online appeal to consumers — who are signing up in the millions to join the sites.

The results? Many items sell out within minutes.

“This is an elegant and efficient solution,” said Ben Fischman, chief executive of private sale Rue La La, which is the first private sale company to offer access via mobile phone. Manufacturers sell direct to the private-sale companies and get a better return on their dollar than if they waited until the end of the season, he said.

“Anytime you put ‘sale’ together with ‘brand,’ it’s going to resonate with people,” said Forrester Research retail analyst Sucharita Mulpuru.

The success and fast growth of many of the companies has taken the industry by surprise. Gilt Groupe and Rue La La have racked up impressive growth and millions of members in very little time, spawning imitators and inspiring even established retailers such as Neiman Marcus, Revolve and Net-a-porter to experiment with the limited-time format. Burberry has also held sales on its online shop advertised only to a select group of “friends and family.”

Gilt Groupe, which has received a total of $45 million of venture funding, says it expects to do $400 million in sales this fiscal year and will be profitable in a few months. Rue La La, which has received $25 million in backing, has more than $100 million in revenues and has been profitable for the last three quarters, said Fischman. In France, Vente-Privee, which pioneered the concept, pulled in 491 million pounds, or $812 million at current exchange rates, in 2008 and is on track to generate sales of about 600 million pounds, or $992 million, this year, according to the company, which sells everything from designer apparel to cars and refrigerators. It has more than 7 million members, is one of the largest e-commerce sites in France and is expanding into other European countries and the U.K. At the moment, Vente-Privee has no plans to open in the U.S., said a spokeswoman.

And there are more entrants flooding in. Comcast’s DailyCandy, the newsletter for retail launches and sample sales, plans to introduce its own private sale site soon and has been hiring in Los Angeles. The site will feature both established and emerging brands, with an emphasis on fashion-forward looks, said a want ad from the company. Comcast, which also owns the E and Style networks, bought DailyCandy in 2008 for about $125 million. (The company did not return calls.)

Net-a-porter’s off-price site, The Outnet, holds occasional limited-time sales with no returns on Fridays. Last month, online contemporary boutique Revolve launched a private-sale site called Rewind (at

Other private sale companies include HauteLook, Ideeli and Editor’s Closet. Woot, open to the public, offers limited time sales on all kinds of closeouts, not usually apparel.

Nor are the sites limited to pure plays. Now brick-and-mortar retailers are adopting the format as well. Since March, Neiman Marcus has experimented with a handful of limited time sales it calls “Midday Dash.” For a few hours last Thursday, the retailer offered a few dozen men’s shoes and accessories from Gucci, Dolce & Gabbana and others at 50 percent off. An

e-mail about the sale was sent only to a select group of Neiman Marcus customers. Neiman’s is testing demographics and buying patterns, said spokeswoman Ginger Reeder, who demurred when asked how shoppers have responded to the format, citing competitive concerns.

“I think the steroid was the recession,” said John Tomich, founder of e-commerce provider One Stop, which recently bought well-known offline sample sale company Billion Dollar Babes and built out its online private sale business. The company has been profitable for years but recently took $13.3 million in funding to expand. “If it were 2005, [private sales] wouldn’t have grown so fast. Everything’s 50 to 70 percent off. It’s going to be interesting to see how brands that aren’t discounting guide their way through this. The behavioral patterns of the customers are changing.”

In general, the off-price business is doing well right now, whereas luxury is not, with companies such as TJ Maxx reporting growth, while sales at some luxury firms are down 20 to 30 percent.

It seems logical to expect off-pricers such as Nordstrom Rack, Ross, TJ Maxx and Loehmann’s to get into the business, but so far at least they have revealed no such plans. (TJ Maxx did not return a phone call seeking comment.) While these off-pricers buy from both middlemen and directly from manufacturers, in the past agreements with brands have prevented them from selling online.

The success of the format may hinge on offering better deals than the traditional off-price format. Gilt Groupe, for example, usually offers 60 percent off, and much of the time the goods are end-of-season, so still available in stores. The site offers a deeper and broader selection of designer brands than traditional off-pricers such as Bluefly. A recent Travota sale, for example, offered spring merchandise at 60 percent off at the same time department stores started their spring sales. A recent Rag & Bone sale offered overstock from the current end-of-season as well as past seasons that had previously been for sale at Rag & Bone’s own sample sales in its showroom. Most prices were about the same as Rag & Bone’s own sample sales. For example, the Boyfriend jean was $98, marked down from $242.

Bluefly typically offers 40 percent off regular merchandise and 20 percent off luxury brands such as Gucci and Prada. Merchandise tends to be one year old. The site also has frequent one-day “take 10 percent off” sales. Like Gilt, Bluefly charges for shipping.

Last year, the company produced $95 million in sales, with a loss of $11 million.

Bluefly has said it has no plans to adopt the new format because the no-returns policy would not be in keeping with its customer service, but the company has staged private sales with Circa, a wholesale estate jewelry company.

Yoox has bucked the trend and is doing well, perhaps because it offers Italian brands and new non-discounted merchandise. It plans to go public this year. The company had 101 million euros, or $148.6 million, in revenues last year, and more than doubled its earnings to 9.2 million euros, or $13.5 million. The company also runs e-commerce sites for brands such as Diesel, Pucci, Marni, Emporio Armani and Moschino. It also offers vintage and new merchandise through exclusive designer collaborations.

But while the private sale sector might be booming now, with so many companies entering the segment, there’s sure to be a shakeout ahead, predicted One Stop’s Tomich. “Clearly you can’t have 15 people doing this,” he said. “Our strategy is not to worry about it. As long as our list is growing, sales are growing, our off-line events are growing, we will continue to focus on that,” he said.

The biggest challenge seems to be finding enough merchandise. “There’s a real fight right now for product,” said Tomich. “For interesting, compelling goods and services for people to buy. Everyone wants Marc Jacobs and Seven jeans, you’ve got all these guys fighting for the same product.”

“That’s what keeps me up the most at night,” said Alexandra Wilkis Wilson, Gilt’s co-founder and chief merchandising officer. “A lot of designers have cut back on production.”

Gilt Groupe’s stylish presentation also limits what they can sell. “Our photo costs are high, we use models and have hair and makeup,” said Wilkis Wilson. “We can’t sell brands that don’t have deep quantity and inventory, so that limits who we can feature.”

The strategy at most companies is to expand into new categories. Most private sale firms have quickly gone beyond women’s clothing to men’s and infants, then into beauty and home. Rue La La is like a Macy’s, with toasters and blankets, whereas Gilt Groupe takes more of a Barneys New York approach, with sheets from Frette, vases from Jonathan Adler and Odegard rugs.

Certain sales move more quickly than others. For example, Hervé Léger, Christian Louboutin and Laura Mercier were some of the fastest-disappearing sales in recent memory, said Wilkis Wilson. Gilt also does a large business in fine jewelry, which cannot be returned, but the inventory moves more slowly. “People take their time with fine jewelry. The sell-throughs are very high, it does incredibly well, but the speed is not the same. Maybe they’re doing research,” she said.

The highest price point Gilt has sold is $12,000. The company offered a bracelet for $23,000, but it did not sell. “We’ll try again,” said Wilkis Wilson. “It’s all about testing.”

Gilt now is expanding both on the geographical and product fronts. In March, the company launched a Japanese site and is looking into other locations. On Wednesday, Gilt will open its contemporary shop Fuse, similar to Barneys Co-op, with labels such as Generra and C&C California. Some of Gilt’s 1.2 million members log on each day to look but don’t buy because the prices and styles are too high for them. Fuse will target customers outside of New York, particularly college students.

“We want to get the word out with a younger audience that loves fashion and doesn’t have access to sample sales,” said Wilkis Wilson.

And Gilt isn’t stopping there. In the fall, the company plans to introduce a travel site with luxury and niche hotels and getaways, ski chalets and summer rentals. Wine is on the to-do list.

Rue La La is also no stranger to the creative buy, offering Father’s Day gift packages such as a gift certificate to Palm Springs, Calif., a Palm cookbook and a delivery of Palm steaks.

But with all the new entrants and expansion into new markets, the question remains whether these sites can sustain decent margins and generate a sizable profit rather than just breaking even, said Forrester’s Mulpuru. In other words, are they a or an Amazon? The key will be volume, she said.

As far as Rue La La’s Fischman is concerned, the sky is the limit.

“We believe the opportunity in the United States is enormous,” he said.