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Marc Caltabiano, vice president of products and marketing at Cartera Commerce, noted that an inherent flaw in the daily deal model is the reliance on a voucher, which essentially operates on a “hands-off relationship” basis.
For Mo Yehia, co-founder of daily deal site API Sqoot, the deal model works primarily where there is power in the local community. “Eighty percent of the discounts are spent [near where] you live, or in Manhattan within 10 blocks,” said Yehia.
With respect to flash-sale sites such as Gilt Groupe, however, Mulpuru has found that brands and manufacturers — versus a retailer, for example — will reap the most benefits. This is because merchandise can come directly from where it’s sourced, and there is often a large amount of product or overstock readily available, which isn’t always the case for a retailer or independent, neighborhood boutique, where a local deal might be the only viable sale option.
“Even if something is 50 percent off, the manufacturer is still making some money because they are part of the value chain where there is the greatest margin to start with. There is a huge markup that manufacturers charge the retailers, and then the retailer usually doubles the price,” Mulpuru said.
For example, if a pair of jeans retails for $200, this means it probably costs less than $50 to make — so if the manufacturer charges anything more than $50 it will still turn a profit, even if the consumer is able to snag a pair at nearly 75 percent off. Mulpuru said this is a great deal for Gilt, and flash-sale sites have the ability to “liquidate with a sense or urgency to affluent customers who like brands — if there is that much leftover merchandise to sell.”
Jyothi Rao, Gilt Groupe’s general manager, women’s, contends that although the company has seen success in the apparel category both with its original flash-sale format and local-sale counterpart Gilt City, the fashion business is “far greater” on Gilt Groupe.
“Gilt City’s focus is primarily on experiences and services, and ours tend to be more focused on product and that’s generally how we position our business. I know when they’ve sold certificates for apparel products, they have had success with them, and we work in concert with each other. We have some strong partnerships with brands and we generally go in together and strategize what will make the most sense,” Rao said.
She cited Theory’s upcoming sample sale as illustrating this notion. Gilt City will offer tickets for early access to the physical sale in New York City and Gilt Groupe will run a digital, flash version of the sale.
“In terms of city and more local deals, I think it [Gilt City] lends itself more to a more considered purchase, if you can imagine that in our space. It allows members to have more time to make the decision on whatever they’re buying, even if it’s a certificate,” Rao said, noting that with Gilt City deals, the discounts aren’t as deep (as they are on Gilt Groupe) and certificates are nonrefundable.
Flash sales are a “much more immediate gratification business” for Rao, who believes the reason this model works so well for appeal is due to a heightened sense of urgency and a competitive element, “which a lot of women really enjoy.”