The secret's out

When he acquired discount-fashion etailer Koodos late last year, chief executive Harvey Sinclair said he wanted to transform the business into a members-only, secret-sales website. Six months later, his vision is close to being realised as, at press time, Koodos was preparing to unveil its new proposition.

Still a relatively young concept, the popularity of secret-sales sites is quickly gathering momentum. In a nutshell, secret-sales sites can be defined as websites that sell branded merchandise exclusively to site members via limited period, timed events. Usually, consumers can only sign up via invitation from a friend who is already a member. In contrast to traditional online shops that allow the passing web user to browse their wares, the offering on a secret-sales website is hidden from the general public.

According to Sinclair, “being able to access an uncluttered branded offering is a pretty compelling proposition [for the consumer]. The UK is a little slow to adopt this trend due to a strain on supply, however, we are now catching on. This is a great time for secret-sales websites.” He’s not wrong. The main players in the UK are usually identified as Vente-Privee.com, Secretsales.com, BrandAlley, and Cocosa. Leading the charge is Vente-Privee. Founded in France in 2001, Vente-Privee has since launched in the UK, Germany, Spain, and Italy. In 2009, Vente-Privee reported a turnover of £610 million, for 2010 it is predicting a growth of 25 percent.

Vente-Privee has 9.7 million European members in total, of whom 300,000 are UK-based—up 200 percent from this time last year. The UK business is one of Vente-Privee’s star performers in terms of growth—it is predicted to deliver a sales increase of 167 percent this year and reach turnover of £7.2 million. Bunty Stokes, Vente-Privee’s UK country sales manager, is modest about the concept’s success, “online is still in growth anyway, so we have to put some of the popularity down to the increased acceptance of shopping online. That said, what ‘private sales’ offer is an opportunity for the customer to have access to deals which are not likely to exist through other channels”.

Another example is Secretsales.com. Founded in the UK in 2007, it attracted a “multimillion pound investment” from German rival Brands4Friends.de in February. “Since the start of 2010 we’re seeing a huge uplift in both consumer confidence and their understanding of the benefits of this model,” says Secretsales.com’s chief executive Nish Kukadia. To facilitate its growth plans following the acquisition, the business is recruiting more UK-based staff and is pushing ahead with a brand and press campaign to promote the site.

Luxury for less
The attraction for consumers is obvious—members can buy luxury merchandise at considerably lower prices without having to travel to outlets or wait in line at sample sales. The “secret” element of belonging to a members-only club has an appeal too in that consumers are getting access to something exclusive. Some sites, like Vente-Privee for example, allow anyone to sign up to their deals. Others, like Cocosa, are strictly invitation-only. Secretsales.com currently allows anyone to sign up, but “we will be looking to close the membership gates at some point in the future to improve the exclusive private environment,” says Kukadia.

And it’s not just luxury items that can work in a members-only environment. Harvey Sinclair plans to make Koodos a private-sales club focusing on the lifestyle and leisure sector—Koodos will sell branded country and activewear, hotel breaks, and experiences like golfing breaks. Bunty Stokes says, “ultimately, it you are a brand with a customer following, then the private-sale method is definitely a discrete way to dispose of excess inventory”.

“The exclusivity element is often more for the sake of the brands, who want to keep discounting quiet,” says retail consultant Leon Bailey-Green of the Online Fashion Agency. For consumers, “it’s socially acceptable to actively seek out bargains”.

DIY secret sales
Bailey-Green believes that the UK’s “big four” have the market covered and that there won’t be many more new entrants into this sector. However, that’s not to say retailers can’t set up their own secret-sales vehicles. Marc Osofsky, vice president of marketing at US-based ecommerce services provider Optaros, notes that in the US, retailers Saks, Neiman Marcus, and Nordstrom have already added secret-sales outlets to their sites. In the UK, we have seen examples from apparel cataloguer Wall, and preppy clothing retailer Jack Wills, using invite-only sections of their websites to promote limited-time sales.

A final word of warning: Think long and hard about your return policy before you forge ahead with secret sales. “Secret-sales sites tend not to accept returns unless the merchandise is faulty,” says Osofsky. “Mainline retailers have a hard time telling their customers that they cannot return an item. If allowed, secret-sales sites can generate some very high return rates due to items not fitting correctly once received.” In most cases though, the secret-sales model can be highly attractive to your customers as well as an efficient means of liquidating overstock at a decent margin.


The DNA of secret-sales sites
According to Optaros’s Marc Osofsky, private-sales clubs share many common traits that have become best practice. They include:
• Viral invitations—customer acquisition is driven through people inviting their friends, reducing “the traditional customer acquisition cost of SEO, paid search and affiliates,” writes Osofsky on Optaros’s blog.
• Cart reservation—secret-sales sites must weigh up the pros and cons of allowing users to save baskets and increase average order values, versus the risk that users will hoard product in their baskets depriving other customers.
• Order stays open for a few hours—similar to the point above, if users are forced to check out quickly, retailers face the prospect of complaints due to multiple same-day delivery charges. “Advertising that free shipping is available for additional items purchased within a given number of hours builds goodwill, increases order volume, and most importantly, does not create disgruntled shoppers,” suggests Osofsky.
• No site search—secret-sales sites don’t usually have a site-search facility, though they may have filters for size or colour.
• One page event list—secret-sales sites tend to list all their sales events on one page whereas a traditional retailer would make use of a number of pages, categories, and subcategories to display its merchandise.
• Sales events always start at the same time—“it is important to train customers to come to your site at the same time for each sale to start. This maximises the impulse purchases, the rate of product sellout and converting return visitors,” advises Osofsky. This puts a strain on the IT department, however, which would much prefer traffic to be staggered over a period a of time.