It wasn't that long ago that flash sales were deemed a flash in the pan — an e-commerce model that may have worked around the time of the Great Recession when a glut of brand-name inventory languished, ripe for off-price retailers and flash-sale sites to sell off at lower prices.
The model was said to falter, beset by high costs and an unwieldy supply chain that often sent orders late and made returns expensive and difficult.
Rue La La on Monday said that it has agreed to acquire rival flash sale company Gilt from Hudson's Bay Co. for an undisclosed amount, forming a new entity, Rue Gilt Groupe. The transaction is expected to close in July, according to a company press release emailed to Retail Dive.
The two brands will continue to operate as distinct companies, with Gilt focused on its more luxury, urban segment and Rue La La continuing with a more whimsical approach, Rue La La CEO Mark McWeeny told Retail Dive in an interview.
About four years ago it was Gilt said to be eyeing Rue La La as an acquisition. Then in 2016, Hudson's Bay bought Gilt for $250 million in cash and has run it as a unit of Saks since.
Gilt was sold for a fraction of its valuation to Hudson's Bay two years ago. In March, new HBC CEO Helena Foulkes told analysts that things had to change, noting potential in driving growth on the company's digital side and in off-price, but said that missteps would have to be addressed, particularly at Saks' Gilt unit. It's clear now that meant unloading it altogether.
But McWeeny said on Tuesday that the model was fine all along — it's just that all players couldn't execute. Both Gilt and Rue La La were founded about a decade ago, within months of each other, and together are capable of "quickly surpassing" $1 billion in sales, they said in a press release. "Like most things in the dot com space, there's always been boom and bust," he said in an interview. "Our internal metrics were always better than what the press was painting."
For Gilt, the deal will mean a move back to digital-only operations. HBC had established the brand not just as an online flash-sales opportunity but also a brick-and-mortar one, with shops within Saks locations, stylist appointments in New York City and European stores.
In fact, McWeeny hardly seems tempted by brick and mortar and didn't agree with the notion that physical stores are inevitable for pure-play e-retailers. "I'll never say never, but the opportunity is just so large in e-commerce," he said. "Brick and mortar is not our current focus."
That's the opposite tack taken by legacy off-price retailers, where physical stores are the mainstay and e-commerce is an afterthought, courtesy of the notion that physical stores better enable a treasure hunt atmosphere. "The brick and mortar guys, you have to go into the store and find your treasure, and that's a kind of discovery for sure," McWeeny said. "Our model is all about discovery — certainly storytelling is core to what we do. It's great storytelling and great use of data and analytics."
The latter allows Rue La La to meet their customers where they are — in the 10-minute or so moments when they check in, often on their phones, with the merchandise they're after. The retailer's average buyer is under 40, "quite affluent" and "super engaged," according to the company. More than 50% visit every week and many more visit over 20 times a month, with mobile driving much of that, he said.
"The cultural DNA at both Gilt and Rue La la is about speed and nimbleness, and that is exactly the culture that will allow Gilt to grow into the brand that it can be," McWeeny noted. "Gilt is still an extraordinarily strong brand."
While Draconian return policies hurt other flash sale sites, Rue La la has always had a pretty generous return policy, McWeeny also said. Virtually everything, aside from items like swim, is returnable and ships back free. "Customers that buy and return are some of our best customers," he said, noting one of retail's fundamentals — customer service — is key to successful flash sites as well. "They're willing to take risks. Any store needs to be extraordinary around customer service. We don't shy away from that. We're fortunate to now be the fourth largest player on the world stage in the still very strong flash sales model."