Investors Salivate Over Private Sample-Sale Sites

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Photo: giltgroupe.com

Investors are eager to pour millions into private online sample sale sites like Gilt Groupe, HauteLook and RueLaLa. They're a better investment than fashion companies whose bread and butter are sales made in stodgy physical stores. With these sites, operating costs are low, and it's tough for them to over-buy inventory since each sale is only comprised of a small selection of exclusive merchandise. The sites also excite consumers — in theory — by making them feel like insiders. If you really want a pair of Christian Louboutins for $250 and the sale starts at midnight, you're logging on at midnight with a nervous yet excited feeling. The thrill of the chase is — again, in theory — half the fun. And if you succeed in purchasing that pair of patent Loub pumps in a size 9 at 12:05 in the morning, you get not only a fabulous pair of shoes, but a story to tell your friends about how fashion savvy you are. "You don't know about Gilt Groupe? Hm. [Insert sidelong judgmental gaze]."

But that process is also exactly why we find these sites frustrating: When popular sales start, it's impossible to access the site until all the good stuff is gone. Also, some of the merchandise is seasons-upon-seasons old. With certain labels you might find newer stuff at better prices in secondhand shops. In any case, these sites are raking in cash. Gilt Groupe made $80 million last fiscal year. This fiscal year, they expect to make $400 million. They just received a $40 million investment in a two-year deal that values the company at $400 million. It's unclear whether these sites will have longevity — all too often, we lose patience with them. But, if we had millions to dump on a clothing venture, they sure are a better option than the Gap.

Designer Bargains, for the Invited [WSJ]