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Private Sales Burgeon on the Web

The hype and froth over firms such as Vente-Privee, Gilt Groupe, Rue La La and Ideeli are reminiscent of the dot-com bubble.

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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.

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.)

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