Online Frenzy for Flash Sales

April 10, 2010— -- Everyday at noon Nicolas Mullen, a student at Fordham Law School, was noticing a trend in the study room, a hush would take over and everyone seemed to be clicking frantically on the same Web site on their laptops.

After asking around he learned that people were logging on to Gilt.com -- a members only luxury online shopping site that offers deep discounts for a short amount of time, known as flash sales.

For Mullen and his wife Hayley, this was a great way to get the designer brands at great prices.

"It's the excitement of getting a good deal and knowing that you are getting a quarter of the price that someone else paid for the same thing on a brand that you really like," said Nicolas Mullen. "And after we had our first purchase and we knew the quality was there and we knew that there wasn't really a risk that we were taking, we definitely made it a more common occurrence."

These kind of sites sometimes offer up to 70 percent or more off on designer brands like Calvin Klein, Zac Posen and Christian Louboutin.

In the past year the Mullens say they spent $2,393 on Gilt, they purchased everything from wine to galoshes, handbags and dresses. Had they made their purchases in retail stores it could have cost them upwards of $5,000.

In this slumping economy, the retail market has been hit hard, often leaving millions of dollars worth of inventory unsold.

Flash sites like Gilt, owned by theGilt Groupe, HauteLook and Rue La La are amongst the pioneers who help designers unload unsold erchandise, but recently more established companies like eBay are getting in on the game. In April, eBay launched their version of the flash site called the Fashion Vault.

Flash Sale Sites Boom, Big Companies Eye Market

"I think that eBay probably poses more of a threat to the existing players than anything," according to Sucharita Mulpurunim, a retail analyst at Forrester. "I actually think that they are going to grow this market and they'll in a lot of ways introduce this concept of the flash sale to people that may have not already been familiar with it."

Ebay's venture into the flash sale market is something that CEO of Gilt Groupe Susan Lyne is keeping a close eye on but she's not worried.

"Ebay is a great company and I would never dismiss the fact that they are getting into the market. But it's operationally very challenging and that's really not something eBay ever did before. They are a great platform company but this is a complex operational model," says Lyne.

According to retail analysts, in the past year flash sale sites have generated revenue between $300 to $600 million. So what does this mean for struggling department stores and independent boutiques?

"I think this is a big threat because any time you are selling or purportedly sell the same merchandise for less expensive or that the consumer gets to pay less for that what is purportedly the same merchandise that absolutely is a threat to anyone trying to sell at full price," says Mulpurunim.

It could also be an opportunity, industry analysts point out, as larger companies already with outlets, like Neiman Marcus and Nordstrom could jump on this "sample sale" band wagon- using it as an extension of their outlets.

An even bigger question is whether these sites are driving shoppers to make purchases just for the adrenaline rush of competing with others, or if they are purchasing items they actually want and need.

"It's like a game, it's like you know you it's going to be on there, you're on, you put in your card, did you get it? Did you get it? There's been a lot of fist pumps thrown in the house," Hayley Mullen said.

The Mullen's agree that these sites do make shopping fun and save you the hassle of going to the store and, but the acknowledge that this doesn't mean they will stop going to an actual store.

"Oh never," says Hayley Mullen with a grin. "I love to shop in stores, I will always continue to do that, this is just a supplement."