Psst! Private-Sale Shopping Sites Are Hot

Saddled with unsold merchandise amid the recession, makers of luxury goods are selling their wares through members-only shopping sites

By Douglas MacMillan

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During last year's bleak holiday shopping season, fashion designer Lauren Merkin greatly overestimated the number of handbags she'd sell in upscale retail stores such as Neiman Marcus and Bloomingdale's.

She found a good way to sell them elsewhere without consigning them to a bargain-basement rack that might tarnish the brand in the eyes of would-be customers. All year, she's been selling the excess goods for half-price on the members-only Web site Gilt Groupe, during 36-hour sales that are hidden from the view of the general public. "What we're selling is first-rung, but if it sits around at a sale I think the consumer gets the wrong impressions about the product," Merkin says.

Saddled with overstock from the retail recession, makers of luxury apparel, home furnishings, and other high-end goods are selling their wares at reduced prices through Gilt Groupe and other private shopping sites. Many of these companies help fuel pent-up demand by limiting membership, forcing would-be clients to park on a waiting list or be referred by existing members.

Lure for Bargain-Hunting Fashionistas

Luxury brands can use these members-only sites to hide markdown prices from retail shoppers willing to pay the full amount, while attracting scores of wannabe fashionistas willing to wait for haute couture at a low price. "The brands they offer are of such high quality, and because they're at discount prices it makes them much more attainable," says Meghan Donovan, a 24-year-old San Francisco resident who shops on Gilt.com.

The private-sale model also makes sense for Gilt Groupe and other sites that act as middlemen, because they carry no inventory and earn a wide margin on sales. Combined revenue at Gilt Groupe, Rue La La, and Ideeli, three of the top four players in the U.S., is expected to exceed $300 million this year. That, along with sales at other private-sale sites, makes up a significant portion of the estimated $1 billion a year in online sales of luxury apparel, says Sucharita Malpuru, e-commerce analyst at Forrester Research (FORR).

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