emarketer flash sales

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Digital Intelligence Copyright ©2010 eMarketer, Inc. All rights reserved. December 2010 Executive Summary: Members-only flash sales, structured around limited time and availability of merchandise, grew out of the recession and have continued to flourish over the past three years.The four leading flash-sales sites—HauteLook, ideeli, Gilt Groupe and Rue La La—are predicted to generate $900 million in revenues in 2010 and double the number of visits to the category over the previous year. Multichannel retailers are also starting to adopt flash-sales techniques, but first they need to understand the consumer and how to make scarcity and exclusivity work for them. 122057 While flash sales are generally associated with discounted higher-end apparel and accessories, this is changing. Consumers are becoming more accustomed to the members-only shopping concept. Consequently, the audience is shifting from affluent to middle-income consumers and from younger early adopters to older users, creating a market for more mainstream goods. The constant is that shoppers want to feel as if they are special and getting a better price for becoming a member. Whether it’s hiking gear or frying pans, flash-sales sites featuring new product types have been appearing to fill every niche imaginable. And this is where established retailers have an advantage. With an existing customer base, access to inventory and expertise in their category, they already have many advantages over newcomers. Key Questions What are flash sales and how are they being used? Who is the typical flash-sales shopper? What do retailers need to know about flash sales? What is the future of flash sales? thousands and % change vs. same month of prior year US Unique Visitors to Select Flash-Sales Sites, Oct 2010 HauteLook 953 (53%) Ideeli 932 (75%) Gilt 583 (58%) Rue La La 530 (54%) Note: ages 2+; home, work and university locations Source: comScore Media Metrix, provided to eMarketer, Nov 18, 2010 122057 www.eMarketer.com The eMarketer View 2 Anatomy of a Flash Sale 3 The Leading PLayers 5 Who Shops Flash Sales 6 How Flash Sales Are Evolving 7 How Retailers Have Adopted Flash Sales 9 Experts Answer Questions About Flash Sales 11 Conclusions 14 Related Information and Links 15 Krista Garcia [email protected] Report Contributors Tobi Elkin, Jeffrey Grau Flash Sales: What Retailers Need to Know

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Page 1: eMarketer Flash Sales

Digital Intelligence Copyright ©2010 eMarketer, Inc. All rights reserved.

December2010

Executive Summary: Members-onlyflashsales,structuredaroundlimitedtimeandavailabilityof

merchandise,grewoutoftherecessionandhavecontinuedtoflourishoverthepastthreeyears.The

fourleadingflash-salessites—HauteLook,ideeli,GiltGroupeandRueLaLa—arepredictedtogenerate

$900millioninrevenuesin2010anddoublethenumberofvisitstothecategoryoverthepreviousyear.

Multichannelretailersarealsostartingtoadoptflash-salestechniques,butfirsttheyneedtounderstand

theconsumerandhowtomakescarcityandexclusivityworkforthem.122057

Whileflashsalesaregenerallyassociatedwithdiscountedhigher-endapparelandaccessories,thisischanging.Consumersarebecomingmoreaccustomedtothemembers-onlyshoppingconcept.Consequently,theaudienceisshiftingfromaffluenttomiddle-incomeconsumersandfromyoungerearlyadopterstoolderusers,creatingamarketformoremainstreamgoods.Theconstantisthatshopperswanttofeelasiftheyarespecialandgettingabetterpriceforbecomingamember.

Whetherit’shikinggearorfryingpans,flash-salessitesfeaturingnewproducttypeshavebeenappearingtofilleverynicheimaginable.Andthisiswhereestablishedretailershaveanadvantage.Withanexistingcustomerbase,accesstoinventoryandexpertiseintheircategory,theyalreadyhavemanyadvantagesovernewcomers.

Key Questions

■■ Whatareflashsalesandhowaretheybeingused?

■■ Whoisthetypicalflash-salesshopper?

■■ Whatdoretailersneedtoknowaboutflashsales?

■■ Whatisthefutureofflashsales?

thousands and % change vs. same month of prior year

US Unique Visitors to Select Flash-Sales Sites, Oct2010

HauteLook 953 (53%)

Ideeli 932 (75%)

Gilt 583 (58%)

Rue La La 530 (54%)

Note: ages 2+; home, work and university locationsSource: comScore Media Metrix, provided to eMarketer, Nov 18, 2010122057 www.eMarketer.com

The eMarketer View 2

Anatomy of a Flash Sale 3

The Leading PLayers 5

Who Shops Flash Sales 6

How Flash Sales Are Evolving 7

How Retailers Have Adopted Flash Sales 9

Experts Answer Questions About Flash Sales 11

Conclusions 14

Related Information and Links 15

Krista [email protected]

Report ContributorsTobi Elkin, Jeffrey Grau

Flash Sales:What Retailers Need to Know

Page 2: eMarketer Flash Sales

Flash Sales 2

The eMarketer View

Flashsalesareasubsetofonlineretailthat

involvealimitedamountoftimeandmerchandise.

Thetermisoftenusedinterchangeablywith

“members-only”or“private”salesbecausemany

ofthesitesthatrelyonthistime-sensitivemodel

requireuserstosignupforfreemembershipor

joinbyinvitation.Havingsales—oftenfocusedon

luxurygoods—closedtothepubliccreatesasense

ofexclusivity.

Group-buyingsiteslikeGrouponarebuiltarounddealsofthedayandrelyonflash-salestechniques.Thedifferencesarethatgroup-buyingsitestendtoofferservicesandlower-endproducts,donotrequiremembershipforaccessandtendtobelocalratherthannational.Inthefuture,thelinesbetweenmembers-onlyshoppingandgroupbuyingwillblur.

Flash sales represent a fast-growing category that retailers should consider.Intheirshortexistence,members-onlyshoppingsiteshaveamassedanenviableincreaseinusersandsales.Forexample,ideeli’s2010visitshavegrownmorethan150%overlastyear,andGiltexpectstogeneratebetween$400millionand$500millionthroughflashsalesin2010.Thereisanopportunityforretailers—particularlythosewithexcessinventorytoliquidate—totapintothismarketbyreachingouttoconsumersinunderserveddemographics,branchingintounexploredcategoriesandcreatinganentertainingshoppingexperiencetoguaranteerepeatvisits.

Flash sales were born out of the recession and will have a lasting influence even after the economy improves.In2007,luxurybrandsandretailerswereleftwithexcessinventoryjustasconsumersbegantoreinintheirspending.Flash-salespioneersroseoutofthisenvironmenttotakeadvantageofthesedynamics.Originallyamethodofsellingoverstockdiscreetlytolabel-starvedshopperswithouthavingtoresorttodiscounterssuchasT.J.Maxx,flashsaleshavebecomeanacceptedecommercevehicleintheirownright.Therecessionhaspermanentlychangedthewaypeopleshop,soevenwhendisposableincomerises,consumerswillbereluctanttopayfullprice.

Retailers adopting flash-sales techniques are in a special position.Multichannelretailersmaynotbeasnimbleassmallerpure-playflash-salesbusinessesorhavestaffwhollyfocusedonproducingdailysalesevents,buttheyhavetheadvantageofnamerecognition,establishedrelationshipswithvendorsanddetailedcustomerdata.Retailerscanfindsuccessfromvaryinglevelsofcommitment,whetherstagingsurpriseflashsalesforemailsubscriberslikeBananaRepublic’s“three-hourlunchbreak,”teamingupwithanexistingmembers-onlysitelikeTargetdidtopromotethreefallcollectionsonGilt.comorbuildinganonlineweekend-onlyfactoryoutlet.

Mobile is a natural fit for flash sales and the potential is big.Privatesales,whichbeginatasettimeeachday,havethriveddespitepracticallimitations.Armedwithsmartphones,shopperscanmakepurchaseswhilethey’recommutingorsittinginawaitingroom.Unliketraditionalecommercesites,flashsalesdonotrequireextensiveproductdescription,multiplepagestoscrollthroughortheneedtosearch.Theyareanidealcandidateforhandhelddevices,andthesitesthatalreadyhaveamobilepresencearepredictingrevenuesfromthatchanneltobeinthedoubledigitsfor2011.

Flash sales are expanding into new categories.Eventhoughthereisstillanemphasisonluxurygoodsandapparel,privatesaleshavebegundiversifyingintohomedecor,babyproductsandtravel,aswellasserviceslikebeautytreatmentsanddining.Whiletheremaybehighdemandforitemssuchasmarked-downGuccibags,thereisafiniteamountofpremiummerchandisetogoaround,andoverstockislikelytoshrinkwhendesignersdiscountless.Thereisalsothechanceofbuyerfatigueaftertheyseethesamebrandsadvertisedacrossmultipleflash-salessites.Thereisstillroomforcompetition,andretailersshouldtaketheopportunitytoclaimaniche.Thismakessenseformerchantsthatalreadyhaveanarrowfocus.Wine.com,forexample,hasparlayeditsexpertiseintoaprivate-salessiteatWineShopper.com,andShoebuy.comhascreatedamembers-onlysitewithShoebuyEvents.

Page 3: eMarketer Flash Sales

Flash Sales 3

Anatomy of a Flash Sale

11:58,11:59,noon—andthey’reoff!Sobegins

thedashtoidentifycoveteditems,addthemto

acartandmakeittocheckoutbeforeseeing

themostdreadedtwowordsinashopper’s

vocabulary:soldout.

Meanttomimicthefrenzyofadesignersamplesale,onlineflashsaleshavebeenabrightspotintheretaillandscapeduringtherecession.WhileFrenchvente-privee.com,thegrandedameofallprivate-shoppingsites,startedin2001,theconceptoflimited-timedailydealsintheUSwaspopularizedbythedecidedlylessglamorousWoot,acquiredbyAmazoninJune2010for$110million.

InOctober2010,Amazoncontinuedonthisexpansionwiththe$96.5millionpurchaseofBuyVIP,aSpanishmembers-onlyretailclubwithmembersinsevencountriesinEurope.Clearly,Amazonseespotentialvalueinflashsales.

Othersareseizingopportunitieswithflashsalestoo.RetailerssuchasNeimanMarcusandSaksFifthAvenuehavebegunofferinglimited-timeonlinesales,andGiltGroupe,alreadyestablishedinflashsales,boughtBergine,aluxurygroup-buyingsiteinOctober2010.

The Timing Is Right

ThearrivalofcompanieslikeGiltGroupein2007andRueLaLain2008coincidedwiththedowneconomy,creatingaplethoraofopportunitiesforbothconsumersanddesigners.Inanerawheneventhewealthyclipcoupons,bargainhuntinghasbecomethenorm.Manybrandsthatwerepreviouslyaspirationaltomiddle-incomeshoppershavebeenmadeaccessiblethroughflashsales.Atthesametime,discountingmerchandisehaslostsomeofitsstigmaamongdesignerswithexcessinventory—aslongasitismarketeddiscreetly,ofcourse.

“The flash segment started because the recession hit. Everyone had extra merchandise and we sold it. It’s very similar to how outlet malls started 20 years ago, or how QVC and HSN were 25 years ago.” —Greg Bettinelli, SVP of marketing at HauteLook, in an interview with eMarketer, October 2010

Consumersbeganchangingtheirshoppingbehaviorin2008andhavecontinuedcuttingexpensesoverthepasttwoyears.Nearlyathird(32%)areshoppingonlinetofinddeals,and44%areshoppingonlyduringsales,accordingtoaJuly2010comScoresurvey.

% of US consumers

Strategies to Decrease Shopping Expenses, July 2008& July 2010

Shopping less frequently

Using coupons more often when making purchases

Only shopping for basic necessities

Buying different brands (including generic brands)

Reducing gift spending

Shopping only when there are sales (e.g., one-day sales)

Shopping at secondhand stores, garage sales, etc.

Shopping online for deals

Shopping at different retailers

Signing up for retail point programs or customer loyalty programs

Buying in bulk at warehouse/discount retailers like Costco, Sam's Club, BJ's, etc.

Shopping at auction sites such as eBay

July 2008

68%

59%

66%

52%

41%

40%

30%

24%

20%

22%

27%

13%

July 2010

69%

66%

65%

62%

56%

44%

33%

32%

32%

29%

28%

13%

Source: comScore, "State of the U.S. Online Retail Economy in Q2 2010,"Aug 19, 2010121364 www.eMarketer.com

121364

Thisisasubstantialaudienceforonlinelimited-timediscounts,andconsumers’attitudesarenotlikelytochangeanytimesoon.AccordingtoanOctober2010BIGresearchpoll,anoverwhelming80.9%ofAmericansdonotbelievethattherecessionisover,and78.6%reporthavinglostwealthinthepasttwoyears.

How Flash Sales Spur Shoppers

Thefirstwaveofflashsalesfocusedonfashionandhigh-endgoods,aboontoshoppersinsmallercitieswhohadbeenshutoutofbrick-and-mortardesignersamplesales.

“People in New York and LA are a little bit spoiled because they have access to a bunch of stuff. But most of the world has never seen some of these discounts—like 7 Jeans at 50% off—and that’s compelling.” —Greg Bettinelli, SVP of marketing at HauteLook, in an interview with eMarketer, October 2010

Page 4: eMarketer Flash Sales

Flash Sales 4

Today,onlinesamplesalesmaintainaninsideraurabyrequiringmembership.Freeforanyonewhosignsup—sometimesthereisawaitingperiod—orisinvitedbyafriend,selectivityisoftenmerelyanillusion.Mostsitesofferdiscountstomembersforreferringnewpurchasers.Becauseofthisincentive,nearlyallonlinearticlesaboutflashsalesarefulloflinksinthecommentssectionfrommembershopingtocashinonnewrecruits.

Whilemembershiponlyappearstobeselective,thesales’limiteddurationandstockisveryreal.ApproachesincludeWoot’soneitemfor24hours(oruntilit’ssoldout)andideeli’s72-hourwindowandconcurrentsalesfromsevenbrandswithmultiplepagesofmerchandise.

Evenifshoppersknowthesesitesarenotselectiveaboutwhomtheyletin,theurgencyandscarcitypropelsdeal-seekersintoaction.Tryingtobeattheclockandothershopperscreatesasenseofcompetitiveness—andoftenawantwhentherereallywasn’taneed.

Someflash-salessitessuchasGiltbuildupthispressurebydisplayingitemsthathavesoldoutoraregoingfast.RueLaLahasnumerouscountdownsscatteredacrossitshomepage,tickingdownthesecondsuntileachsaleends.Thesevisualcuesremindshoppersthatthey’revyingforafinitenumberofproductsandmustactfast.

More Than Just Search Marketing

Attheircore,flash-salessitesarereliantontraditionalemailmarketingandword-of-mouth.Asanymemberknows,oncetheyhavegainedaccess,emailsteasingsalesbeginfillingtheirinbox.Theonlyinformationgivenisdesignerandproductcategory;detailsaboutselectionandpricingareunavailableuntilthesalekicksoff.

Becauseofthesehush-hushrequirements,marketingveersfromtypicalSEO-focusedtactics.Insteadofattemptingtopushresultstothetopofthepage,merchandiseishiddenfromwebspidersandpreventedfromcomingupininternetsearches.Userscannotcomparisonshopinadvancetofindbetterpriceselsewhere,andbrandsmaintainabitofcachebykeepingtheirmarked-downitemsoutofpagesofsearchresults.

“Flash sales represent what I call retail 2.0, where there’s much less reliance on search-engine-based marketing and much more on viral marketing, which helps, from an ROI perspective, to drive down the cost of customer acquisition.” —Adam Michelson, director of ecommerce at Optaros, in an interview with eMarketer, October 2010

Consequently,flashsalesreceivemostoftheirtrafficfromemailsinsteadofsearch,theusualmethodfortheretailcategory.Search,typicallyoneofthemostefficienttoolstospurecommerce,comesinfourthplacefordrivingtraffictoflash-salessites,accordingtoJuly2010Experianresearch,withemailleadingatcloseto20%.Socialmediaisalsohighonthelistandthefastest-growingcategory,upnearly7percentagepointsfromthepreviousyear.

% of total clicks

Top 5 Website Categories Visited by US Internet UsersBefore Visiting Flash-Sales Sites, July 2010

1. Email services 19.50%

2. Social networking and forums 18.68%

3. Apparel and accessories 12.38%

4. Search engines 12.10%

5. Rewards and directories4.00%

Source: Experian, "Flash Sales and Group Buying: New trends in onlineretail," Aug 1, 2010120468 www.eMarketer.com

120468

Allthemajorflash-salessiteshaveFacebookpages,andmostprovideinformationoncurrentsales.None,however,functionintransactionalecommerceways.Linkstakeusersdirectlytotheindividualmembers-onlyshoppingsitestomakepurchases.Thisformofsocialcommerceisrelativelynewandwillcontinuetodrivemoretrafficasconsumersbecomemoreaccustomedtoit.

Page 5: eMarketer Flash Sales

Flash Sales 5

The Leading Players

Googleestimatesthatthebigfourprivate-sales

siteswillgenerate$900millioninrevenuein

2010andvisitswilldoubleover2009.Experian

hasfoundthatyear-over-yearvisitshavealready

increased188%fromAugust2009toAugust2010.

comScorereportedthatOctober2010visitstotheleadingflash-salessiteshavegrownmuchfasterthantheoverallinternetaudience,with50%ormoreforall.

thousands and % change

US Unique Visitors to Select Flash-Sales Sites, Oct 2009 & Oct 2010

Oct2009

Oct2010

%change

HauteLook 622 953 53%

Ideeli 532 932 75%

Gilt 369 583 58%

Rue La La 244 530 54%

Total US internet audience 198,218 212,788 7%Note: ages 2+; home, work and university locationsSource: comScore Media Metrix, provided to eMarketer, Nov 18, 2010122044 www.eMarketer.com

122044

AccordingtoJuly2010Experianresearch,fashionstilldominatestheflash-salescategory,takingthetopsixslotsforthatmonth.Theremainingfoursitesreflectthediversifiedfutureofmember-onlysites:zulilyandTotsyofferproductsformomsandchildren,OneKingsLanesellshomedecorandJetsetterisGiltGroupe’stravelsite.SomanyflashsiteshavepoppedupthataggregatorslikeMyNinesarenowofferingtotameinboxclutterbygroupingmembers’myriadsalesalertsintoasingleemail.

Top 10 Flash-Sales Sites in the US, Ranked by MarketShare of Visits, July 2010

1. HauteLook 18.59%

2. Beyond the Rack 17.34%

3. ideeli 16.94%

4. Gilt 13.06%

5. Rue La La 8.05%

6. eBay Fashion Vault4.92%

7. zulily 4.57%

8. One Kings Lane4.43%

9. Totsy2.11%

10. Jetsetter1.75%

Source: Experian, "Flash Sales and Group Buying: New trends in onlineretail," Aug 1, 2010120460 www.eMarketer.com

120460

Expecttoseemorediversityastheflash-salescategorymatures.Oncethemarketbecomessaturatedandtheeconomypicksup,itcouldbemoredifficultforsitestosourcesamplesandoverstock.Ratherthancompeteforthesameshoesanddresses,itmakessenseforsitestomoveintonewverticals.

Smallersiteshavebeenspringinguptofilleverynicheimaginable,andinvestorsaretakingnotice.Forexample,Exclusively.In,amembers-onlysiteforhigh-endIndianhousewares,apparelandtravelpackages,recentlyraised$2.8millioninventurecapital.InMay2010,JackThreads,astreetwearprivate-shoppingclub,waspurchasedbyThrillist,adailyemailnewsletterwithayoungmaleaudience.

Page 6: eMarketer Flash Sales

Flash Sales 6

Who Shops Flash Sales?

Foracategorydominatedbywomen’sappareland

accessories,theshoppers’gendersplitwasnot

wildlydisproportionate.Experianfoundthat57.5%of

visitorstothesesiteswerefemale,whichmirrored

onlinebuyinggenerally;comScorereportedthat

femalesmadeup57.9%ofinternetuserswhomade

anytypeofpurchaseonlineandmales42.1%.Men’s

clothingandgender-neutralproductsliketraveland

housewaresmadeupasmallernumberofmany

flash-salessites’dailyofferings.(Thereasonthere

weresomanymalesrepresentedwasthatExperian

categorizedconsumer-electronics-heavyWootasa

flash-salessite.)

Shoppersages25to34madeupthelargestshareofvisitorstoflashsales,atnearly27%.Thenumberofbuyersonbothendsoftheagespectrumhasshiftedmostyearoveryear:Shoppers55andolderincreased6.8%,whilethose18to24shrankby7.7%.

Thelargestshareofshoppershadahouseholdincomeofbetween$30,000and$60,000,a7.8%increaseover2009.Bothsegmentsearningmorethan$100,000shrank;thebiggestdecrease(8.2%)camefromthegroupearning$150,000ormore.

% of total

Demographic Profile of US Visitors to Flash-SalesSites, Four weeks ending Aug 7, 2010

GenderMale 42.49%

Female 57.51%

Age18-24 14.25%

25-34 26.96%

35-44 18.74%

45-54 18.62%

55+ 21.42%

Income<$30K 21.20%

$30K-$60K 31.74%

$60K-$100K 23.67%

$100K-$150K 13.27%

$150K+ 10.12%

Source: Experian, "Flash Sales and Group Buying: New trends in onlineretail," Aug 1, 2010120800 www.eMarketer.com

120800

Asonlinesamplesaleshavebecomemorecommon,thenumberofyoungerearlyadoptershasflattenedout,andoldershoppershavebeendiscoveringtheconcept.Thismainstreamingisreflectedintheshiftingofshoppers’incomefromhighertolower.Asthesesitesbecomelessfocusedonluxurygoods,theaudienceshavebecomemorediverse.Whilethemiddle-andlower-incomehouseholdsarestillbeingpinched,thewealthierconsumerscouldbelooseninguptheirpursestringsandreturningtopre-recessionbuyinghabits.

Yeteachsitemaintainsitsstrictsenseofidentityevenwithinaburgeoningcategorylikechildren’sitems.Onasingleday,forinstance,Giltwasofferingan$80RockabyerockingfrogwhileHauteLookhad$15Kalooplushbunnies—twoverydifferentclassesoftoys.

AccordingtocomScore,allthemajorflash-salessitesattractuserswithastronginclinationtobuyonline.InQ12010,RueLaLashopperswerenearlyfourtimesaslikelytomakeanonlinepurchasethaninternetusersonaverage.

index*

Select US Flash-Sales Sites, Ranked by Buying Power,Q1 2010

Rue La La 383

Gilt 288

Ideeli 260

HauteLook 259

Total retail category 125

Note: *propensity of a user to purchase online; a score of 100 representsthe average internet userSource: comScore, "State of the US Online Retail Economy in Q1 2010,"May 27, 2010115957 www.eMarketer.com

115957

Page 7: eMarketer Flash Sales

Flash Sales 7

How Flash Sales Are Evolving

Aslimited-timesalesbecomemorenumerous,

thewaytheyworkisalsochanging.Signingup

formembership,receivingemailannouncements,

thenloggingonfromacomputertoshopisthe

standardprocess—butitmightnotbeforlong.

Going Local

Takingacuefromthesuccessofgroup-buyingsites,members-onlyflash-salessitesaremovingintolocalareaswithhigh-endproducts,servicesandexperiences.

Gilt GrouperecentlylaunchedGiltCityinBoston,Chicago,LosAngeles,Miami,NewYorkCityandSanFrancisco.

ideelidebutedideelACCESSinOctober2010,startingwithspecialsfocusedonNewYorkCity.Twomorecitiesareplannedbyyear’send.

Grouponhasusedthishighlylocalizedapproachsuccessfully.Itfeaturesdealsinover150cities.ContrastedwithGilt’ssixcitiesandideeli’seventualthree,thereisclearlyroomforflashsalestoexpand.

Becoming Mobile

Forflash-salessites,mobileofferingsmakepracticalsense.Withtimebeingacriticalcomponent,amobileusercanparticipatewherevertheyarewithoutbeingtiedtoacomputerscreen.

TheiPadhasfacilitatedflashsales.Withitslargecolorscreenandabilityforuserstointeractwithproducts—easilypinchingandzoomingforalternateviews—tabletscanfunctionlikeahighlyengagingprintcatalog.

Smartphonesarestillmorepopularwithwealthierconsumers.Nielsenfoundthat71%ofsmartphoneownersmakemorethan$50,000whileathirdearnover$100,000.Itonlymakessensetocreatemobileexperiencesgearedtowardshopperswithmoretospend.

GilthasstagedspecialsalesjustforiPhoneandiPadusers.WhenGiltpremiereditsiPadappinApril2010,2.4%ofitssalesthefollowingdaycamefromthedevice.Aweekandahalflater,63%ofsalesthroughtheiPadwereformen’sproducts,whichmadesenseconsidering65%ofiPadusersweremale,accordingtoNielsen.Itiswellworthtargetingthisgroup,then,asitistypicallyunderservedbymembers-onlysites.

Rue La La’sappsandmobilesiteaccountfor13%ofitssales,andthecompanyestimatedthatcouldjumpto20%bynextyear.Ithasalsoenabledimmediateface-to-facefriendreferrals.Byintegrating“bump”technologyintoitsapp,smartphoneownerscaninstantlysendaninvitetoanotherbybumpingphonesinatoast-likemanner.

“In addition to shopping, we knew they wanted to share—they earn $10 credits with new members. So we knew if we could connect social and shopping we’d have a winning app.” —Stephanie Brocoum, VP of member marketing at Rue La La, quoted in Internet Retailer, October 2010

HauteLookannounceditsiPhoneappinOctober2010andisworkingoncreatingaversionfortheiPadandAndroid.BecauseofthelimitednumberofSKUs,flashsaleslendthemselvestoanabbreviatedmobileformat.Advancedsearchingisnotneeded,andproductphotosareemphasizedovercopy.

“The sales are activated by the mobile channel, but the transactions themselves aren’t happening yet. We anticipate that within the next 12 months, far more than 10% of our transactions will be directly from the mobile device.” —Greg Bettinelli, SVP of marketing at HauteLook, in an October 2010 interview with eMarketer

Editorialized Content

Someflash-salessitesarestartingtoactmorelikemagazineswhileothersareteamingupwithglossies.

Ideeliisdoingboth,showcasingpicksfromO,TheOprahMagazineonasectionofitssite,aswellaspullingtogetherlooksforitsusersbasedonthemesratherthangroupedbybrand.

“We’re going to be the editors and tell you what’s unique for winter. ‘So it’s this black riding boot—and you need a turtleneck cashmere sweater, one statement necklace and a certain handbag.’ We put them together in a curated sale.” —Tamara Rosenthal, executive director of brand marketing at ideeli, in an interview with eMarketer, October 2010

Page 8: eMarketer Flash Sales

Flash Sales 8

InSeptember2010,GiltlaunchedGiltMANual,ablogtocomplementitsmen’ssection.Unlikeitsotherblogsthatgiveabehind-the-sceneslookatsalesorproducts,MANualfeaturesinterviewswithdesigners,lifestylearticlesandsartorialadvice.Itstoneisclosertoayounger,hipperEsquirethananadvertorial.

Driving In-Store Sales

Grouponfamouslysold441,000dealsinitsfirstnationalpartnershipwithGapinAugust2010.The$25-for-$50-worth-of-merchandisediscountwasforin-storepurchasesonly,andflashsaleshavefollowedsuit,withsalesthathaveallowedretailerstoincreasebothfoottrafficandbasketsize.

Rue La LaandGNCheldasaleoffering$25vouchersfor$50worthofin-storeitemsinOctober2010.Thedealsoldoutinonemorning.

HauteLookandThe Body ShopsimilarlycollaboratedinSeptember2010usingatwo-prongedapproach.Thefirstdaytheyheldatraditionalonlineproductsale,followedtheseconddaybyasalewherememberscouldbuy$50ofgoodsin-storeoronlinefor$29upfront.

“Online to offline activation is the idea of moving online ecommerce traffic into the stores. The ability to do a sale and also sell something that drives foot traffic back to the stores is a big business opportunity.” —Greg Bettinelli, SVP of marketing at HauteLook, in an interview with eMarketer, October 2010

Rewarding Loyalty

Loyaltyprogramshavealwaysbeenawaytoretaincustomerswithoutresortingtodiscounts.Inthemembers-onlyshoppingworld,accessandspecialtreatmentcanmeanmorethansavingafewdollars.Andretailersareteamingupwithprivate-salessitestocreateexclusivityincreativeways.

GiltpartneredwithStarbucksinAugust2010toofferalimited-editioncoffeetoMyStarbucksRewardsmembers.TherareGalápagosSanCristóbalStarbucksReservebeanwasn’tofferedatadiscountedprice,butitwasmadeavailabletoStarbuckscard-holdersbeforethegeneralpublic.Theonlineeventshowcasedthe$12.50bagofcoffeeaswellasa$1,265expeditiontotheGalápagos.

SimilartothemythicalAmericanExpressblackcard,GiltdiscreetlyoffersGiltNoir,aselectivetrueinvitation-onlysiteformemberswhospendmorethan$10,000ayear.Thispamperedgroupgetsa15-minutejump-startonsales,accesstocouturecollectionsandinvitationstospecialevents.

ideeliprovidesperksinamoredemocraticfashion.Memberswhopay$6.99amonthwillbeupgradedtoSecondRowstatus,whichgivesthemaccesstoexclusivesalesandletsthemshopanhourearlierthanstandardmembers.

Mintboxisamembers-onlyshoppingsitethatoffersfinancialincentives.Ithostsluxurygoodsflashsaleswith5%cash-backrewardswhenusingaregisteredcreditcard.Thecreditcardalsoactsamembershipcardthatshopperscanuseforonlineandin-storeinvitation-onlysales.InadditiontoreceivinginvitationstoshopatstoressuchasSaksFifthAvenueandSephora,membersgettoattendrunwayshowsandpartieshostedbydesigners.

Getting Social

Whileshoppingintherealworldisoftenasocialactivity,it’snotalwayseasytoreplicatethatexperienceonline.Flash-salessiteshavetriedoutavarietyofwaystoencourageshopperstoengagewithbrandsandoneanother.

Threeofthebigfourmembers-onlysites—ideeli,GiltandRueLaLa—haveblogswithvaryinglevelsofuserparticipation.Somefocusonindividualsaleseventswhileothersgivefashionadviceorabehind-the-scenespeekathowthecompanyoperates.Shopperscansharewithoneanother,andtheircommentscanbevaluabletothesitesasmarketresearchforfuturesales.Forinstance,commonrequestsamongusersareformoreplussizesandpetites.

“We’re building a community. We listen to our membership in the sense that every sale has a discussion board, so people can comment and talk to one another. They can really get involved in the sale and ask each other how items fit.” —Tamara Rosenthal, executive director of brand marketing at ideeli, in an interview with eMarketer, October 2010

Gilt,whosesalesstartatnoon,hasbeenallowingsneakpeeksatselectsalesanhourearlythroughatabonitsFacebookpage.ShoppersdonotneedtobeGiltmemberstopreviewtheitems;theysimplyhaveto“like”Gilttobegrantedaccess.IthasalsobeenhostingQ&Asanhourbeforesaleswithadesignerwhoseproductswillbepartofthesale.Userscanpostcommentsorquestionstobeansweredinrealtime.

Rue La LahasbeeninvolvedwithliveeventsonTwitter,aswhenitsstyleeditortweetedduringthefinaleofBravo’sfashioncompetitionshow“LaunchMyLine.”ThewinningcollectionfromtheTVprogramwasfeaturedinaRueLaLasale.ThecompanyhasalsobeenhostinglivechatwebcastsonFacebook,whereuserstypequestionstocelebritiessuchasWhitneyPortandELLEmarketdirectorJoannPailey,tobeaddressedinon-screenvideos.

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Kaboodle,asocialshoppingsite,hasmovedintocrowdsourcingwiththecreationofPopPicks.Eachweekusersgetapreviewofmerchandisefromthenextretailer’ssaleandgettovotefor—or“heart”—theirfavorites.Themosthearteditemsgetdiscounteduntiltheyrunoutorthefour-daymaximumisreached.Afterward,theproductscanstillbepurchasedforfullprice.Turningthesalesintoapopularitycontestencouragesshopperstoinvitefriendsandincreasestheviralnatureoftheflashsale.

Twitterretiredits@EarlyBirdaccountwith233,446followersaftertwomonths.CreatedinJuly2010totweetlimited-timedealswithmultichannelretailerssuchasCostPlusWorldMarketandbrandslikeDisney,Twitterisworkingonnewpromotionaltools.@EarlyBirdtriedtobeeverythingtoeveryoneandcouldhaveseenabetterresponsebycreatingseparateaccountsfordifferenttypesofdealsandgeographicareas.ThedealswereUS-basedbutTwitter’susersareglobal.

Whilemanymembers-onlysitesareactiveonTwitter,thetraditionalretailershavebeenunusuallyquietaboutbroadcastingtheirflashsales.J.CrewmakesnomentionofitsweekendonlineoutletonTwitter,andNeimanMarcusjustjoinedinNovemberandisstillfindingitsfooting.Thereisafinelinebetweenexclusivityandbadpromotion.AfewenthusiasticTwitterusershavementionedretailers’flashsalesonTwitter,butword-of-mouthisbeinghamperedbyalackofactivemerchantparticipation.

Breaking with Tradition

Promptingshoppersintoactionwithlimited-timesalesisnotenoughforsomecompanies,whichhaveaddedgamingelementsorcausemarketingtothemix.

ToVieFor, categorizedasentertainmentshopping,addsanelementofrisk.Usersarerequiredtobuycreditsandcanregisterforsalesasannounced.Witheachnewshopperforaspecificitem,theitem’spricedecreases.Thememberdecideswhentopounce,butit’spossibletheitemwillselloutandtheshopperwillstillbestuckwiththecreditstheyoriginallypurchased.Oohiloveisanothermembers-onlysiteinthisspace.Stillinitsinfancy,thesesitescanbecontroversial—noteveryoneisenamoredbythepay-to-playmodel.

I-ELLA,launchedinSeptember2010,istakingadifferentpathfromotherprivate-salessites.ClosertoaneBay,thepubliccanposttheirownitemsforsale,rentorswap.I-ELLAtakes10%ofprofitsanddonates10%ofthatamounttoacharityoftheseller’schoice.Ithostscelebrityauctions,alsowithacharitycomponent.

How Retailers Have Adopted Flash Sales

Limited-Time Promotions

Manyretailershaveadoptedflash-salestechniqueswithdifferentlevelsofparticipation.Newegg’sdailyShellShockerandAmazon’sGoldBoxareclassicclearanceexcitement-buildersharkeningbacktoKmart’strademarkin-storeBluelightSpecial.

Neiman MarcusbeganitsforayintoflashsalesinOctober2010withFashionDash,acomplementtoitsnewLastCallStudioconcept,whichoffersmoderatelypricedclothingsoldexclusivelythroughthisformat.PartoftheLastCallwebsite,userswhosignupforFashionDashwillgainaccesstolimited-timesalesthroughouttheday.

Saks Fifth Avenueenteredthearenaafullyearearlier;theluxuryretailerdebutedFashionFix,a36-hoursaleannouncedbyemailinvite,inOctober2009.Clearly,upscaleretailerswanttocompetewithestablishedmembers-onlyshoppingsitessellingsimilarmerchandise.There’snoreasonwhymorestaidbrandscan’talsostirupexcitementonline,maintaindecorumin-storeandprofitfromboth.Afterall,multichannelcustomersareextremelyvaluable.

“Younger, more fashion-forward store customers are also shopping online. The multichannel, cross-channel shopper spends three to four times more than the single-channel customers.” —Denise Incandela, president and EVP of Saks Direct at Saks Fifth Avenue, in an interview with eMarketer, October 2010

eBay Fashion Vaultexemplifieshowfartheauctionsitehascomefromitsvirtualgaragesaledays.Notedinaseparatetabonthemainpage,thisdailyapparelsaleofferslimitedstockandlastsforupto60hours.

Target teamedupwith GiltinAugust2010tostagea36-hourflash-salepreviewofthefallcollectionofJohnDerianhousewares,MulberrybagsandTuckerapparelthatwouldnotarrivein-storeuntilOctober.Muchhypedbyonlinemedia,thefrenzyresultedininstantsell-outsandservedasateaser—theunluckylockedoutoftheonlinebonanzahadtowaittwomonthsbuytheitemsataTargetretaillocation.

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Using Facebook

Jones Apparelstagedapop-upstoreonFacebookinFebruary2010topromoteajewelrycollectionthatwasacollaborationbetweendesignerRachelRoyandmusicianEstelle.Thethree-dayeventwasapreview,withsomeoftheitemsbeingexclusivetotheFacebooksale.Linksforpurchasingwentdirectlytothebrand’sownsite.Thespecialmerchandisesoldoutin6hoursandRachelRoy’sfanbaseincreased35%onFacebook.

ConsumersmightnotbereadytoreplaceAmazon.comwithFacebook,buthostingspecialeventsandpromotinglimited-editionobjectscancreatebuzzanddrawshoppers.Ifanything,theywillcertainlyincreaseabrand’snumberoflikes.

RetailersshouldnotunderestimatetheinfluenceofFacebookfriends,evenifauserdoesnotbuyanythingdirectlythroughthesite.Positiveword-of-mouthisvaluable,andsocialmediaisjustonewaytoencourageit.

Creating a Separate Business

Retailershavealsodevelopedtheirownversionsofmembers-onlyshoppingsites.Thiscanworkintwoways.Oneapproachistocreateabrandextensionwithasimilarnamethatreliesonexistinginventory.Anotheristocreateadistinctidentitywithdifferentproducts.Thelatterapproachisparticularlyusefuliftheflash-saleoffshootprovideshigher-endgoods.Thiswayshoppersdon’tfeelasifthey’rebeingsoldleftoversandfeaturedbrandsareensuredatastefulpresentation.

Overstock.com,alreadyknownasadiscounter,launcheditsprivate-salesiteforhomegoods,Eziba,inAugust2010.Anyonecanjoin,andOverstock.commemberscanusetheirlogin.YetEzibaremainsverymuchitsownentity—there’snotasinglementionorlinktoitfromtheOverstock.comhomepage,thoughthereisasmallOverstock.comlogoonthecornerofeachpageonEziba.Thesleek,handcraftedwebdesignevokesanaccessible,higher-endretailerlikeAnthropologie,asopposedtoOverstock.com’sno-frillsappearance.

“There are some brands that prefer to be on a private-sales site rather than a general ecommerce site, so the products that we can offer on Eziba are different and sometimes more exclusive than they are on Overstock.” —Jonathan Johnson, president of Overstock.com, in an interview with eMarketer, October 2010

WineShopper,startedinJune2010,isoneofmanywineflash-salessitesthathavearisen(evenWoothasWine.woot).Itholdsthedistinctionofbeinganoffshootofthewell-establishedWine.com.Existingonlinebrandscanusetheirscaletotremendousadvantage.

“We have purchasers in different states and typically can source deals over a larger geographical area than our competitors. Wine.com is pretty big, so we often get deals others can’t. We use that leverage to get those deals for WineShopper. A small flash-sales site usually can’t get the sources and the deals that we can.” —Cam Fortin, director of business development at Wine.com, in an eMarketer interview, October 2010

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Experts Answer Questions About Flash Sales

What Do Retailers Need to Know About Flash Sales?

Greg BettinelliSVP of Marketing

HauteLook.com

GregBettinellitoldeMarketerthatpure-playflashsiteshavetheadvantageofbeingsolelyfocusedonproducingsaleseventsandcandosoquickly.Yetlargeretailersareintheenviablepositionofhavingtheestablishedname,customertransactionhistory,sitetrafficandrevenues.Conceivably,retailerscouldeasilysegueintoflashsalesbuttheyneedtobetterintegratetheironlineandofflinebusinessesfirst,andtheyneedtounderstandconsumerperception.Dependingontheretailer,delvingintomembers-onlysalescouldseemoff-brandorjohnny-come-lately.

“What we do is hard. It’s a different type of business and it’s all we do. We know how to send emails to the right person at the right time. We know how to produce sales events quickly.” —Greg Bettinelli, SVP of marketing at HauteLook.com, in an interview with eMarketer, October 2010

Denise IncandelaPresident and EVP

Saks Direct

DeniseIncandelatoldeMarketerthatbecauseofitsestablishednetwork,SaksFifthAvenueisnotjustusingflashsalestoliquidateoff-seasonitemsbutisalsocreatingnewmerchandisewithvendorsusingolderfabrics,essentiallyproducingfreshapparelspecificallyforFashionFix.

Saksalsousesflashsalesaswaytoattractayoungercustomerthanitsaverage43-year-oldfemale.Ratherthandilutingthebrandoralienatingtheloyal,flashsaleshavepresentedanopportunitytoreachnewshoppersandgrowitscustomerbase.

“When we first encountered members-only flash sales, we thought we were in the unique position given our vendor relationships and customer credibility to take advantage of that opportunity and extend Saks.com to a new demographic…. The key for us is understanding where the price point sensitivity is.” —Denise Incandela, president and EVP of Saks Direct at Saks Fifth Avenue, in an interview with eMarketer, October 2010

Adam MichelsonDirector of Ecommerce

Optaros

AdamMichelson,directorofecommerceatOptaros,toldeMarketerthatoneofthemainreasonsprivate-salessitesrequiremembershipistogrowtheircustomerlist,butifyou’reanestablishedretaileryoualreadyhaveasubstantialbase,makingitdifficulttouseexclusivityasasellingpoint.

TheVIP-stylesalesusedbybig-boxretailersareessentiallyopentoeveryone.Instead,retailerswillneedtousetacticsbeyondofferingrecruitmentbonusestoattractshoppersandlookfornewwaystoreenergizetheirexistingcustomers.Onlinemerchantscoulddevelopasenseofcommunitybyintroducingcrowdsourceddealsifaminimumnumberofshoppersbuyafeatureditemoruseincentiveslikeloyaltypointsorfreeshippingforbringingfriendsin.

Andbecausemultichannelretailershavephysicalstores,theycouldeventhinkinsidethebox—stagingsimultaneousflasheventsin-storeandonlinewhilegivingajumpontheonlinesalesitemsformembers.

“The challenge for retailers is that private-sales events are private because consumers have to join or be invited to them. Big-box retailers already have a customer database of online and offline shoppers, so there’s no sense of exclusivity.” —Adam Michelson, director of ecommerce at Optaros, in an interview with eMarketer, October 2010

The takeaway:Smallerandnimblerdedicatedflashsiteshavetheluxuryofbeingabletoconcentrateondoingonethingwell,withlowoverhead.Yetmultichannelretailershaveawealthofcustomerinformation,brandrecognitionandinfrastructuretheycanusetotheiradvantage.

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Is the Market Oversaturated?

FlashsaleshavebecomepopularintheUSoverthepastthreeyears.Whatstartedasahandfulofluxury-focusedsiteshasblossomedintocountlessproductcategories.However,itisunclearifthestronggrowthcanbesustained.

Johnathan JohnsonPresident

Overstock.com

“I don’t think it’s oversaturated. When customers see what they’re looking for at a deal, they adapt pretty quickly. There are a lot of players in this market, but it will probably thin out.” —Jonathan Johnson, president of Overstock.com, in an interview with eMarketer, October 2010

Greg BettinelliSVP of Marketing

HauteLook.com

“Flash sales and private sales are becoming a more accepted type of commerce. There’s clearly something about being able to get access to aspirational brands at incredible prices in a really fun format. There’s an emotional attachment to the experience. But probably someday it will get fatigued like every other format.” —Greg Bettinelli, SVP of marketing at HauteLook.com, in an interview with eMarketer, October 2010

Denise IncandelaPresident and EVP

Saks Direct

“If you take a step back, the larger opportunity is liquidating off-price merchandise online, whether it’s a member-only flash sale today or something different six months from now. It’s about giving people better access to that.” —Denise Incandela, president and EVP at Saks Direct at Saks Fifth Avenue, in an interview with eMarketer, October 2010

Adam MichelsonDirector of Ecommerce

Optaros

“There’s more room to grow by demographic or by product line. And within the online group buying sales sites, big-box retailers will eventually host private events that are tied in with a local deal of the day via Groupon or similar provider. Internationally, the market’s definitely not oversaturated.” —Adam Michelson, director of ecommerce at Optaros, in an interview with eMarketer, October 2010

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Tamara RosenthalExecutive Director of Brand Marketing

ideeli

“The category is here to stay but it’s going to be very hard for other entrants to amass the same list. It’s hard to say exactly where it’s headed but there is a tremendous amount of potential in terms of overall growth. We’re just scratching the surface.” —Tamara Rosenthal, executive director of brand marketing at ideeli, in an interview with eMarketer, October 2010

The takeaway:Theexpertsareinagreementthatshoppershaven’ttiredofflashsalesandthatthereisstillroomformoreentrants,aslongasnewcomersareabletodifferentiatethemselvesbydemographictargetsorproductofferings.

What Is the Future of Flash Sales?

Thedigitalcommercelandscapeisrapidlychanging,particularlyassocialmediaandmobilebecomeanintegralpartofmarketing.Manyofthesameinnovationsthatarereinvigoratingtheonlineretailshoppingexperiencewillbeadaptedbyflash-salessites.

Adam MichelsonDirector of Ecommerce

Optaros

“There will be a blurring between the private-member sites, the local Groupon approach and the deal-of-the-day sites. Pretty soon it will be hard to distinguish a private-event site from a Groupon offer. All of these sites are connected and all are a natural fit with mobile.” —Adam Michelson, director of ecommerce at Optaros, in an interview with eMarketer, October 2010

John AuerbachGeneral Manager

Gilt MAN

“The entire customer experience will be personalized to preferences, sizing and recommendations based on previous purchases, and more.” —John Auerbach, general manager at Gilt MAN, in an interview with eMarketer, October 2010

Greg BettinelliSVP of Marketing

HauteLook.com

“Whether they’re private sales, staged by third-party partners or members curating their own sales for each other, there are just all sorts of things that you could do using social media that haven’t been done in ecommerce before.” —Greg Bettinelli, SVP of marketing at HauteLook.com, in an interview with eMarketer, October 2010

Cam FortinDirector of Business Development

Wine.com

“People will come up with more customer-specific triggers tailored to specific interests. So it’s ‘Tell me about this type of deal. Don’t email me every day, unless there’s a certain percentage savings or an item in this category is on sale’ or something like that.” —Cam Fortin, director of business development at Wine.com, in an eMarketer interview, October 2010

The takeaway: Personalizationwillbethebiggestshift,accordingtoourexperts.Shopperswilldecidewhatkindsofflashsalestheywanttoknowabout,andhowandwheretheyreceivethenotifications.Theywillstartseeingproductrecommendationsbasedontheirownbehaviorandpreferencesaswellasthoseintheirsocialcircle.Anditwillallbetailoredlocallytowhereashopperlives.

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Conclusions

Retailersplanningflash-salessitesshouldnot

focussolelyondiscounting.Marked-down

merchandiseisjustoneaspectofaflashsale

andmightnotserveretailerswellinthelongrun.

Exclusivityismoreimportantthanclearance,

sodonotsellthesamethingsthroughflash

salesthatarealreadyonsalein-storeoronline.

Instead,retailersshouldusethemembers-only

approachforspecialcollections,previewsorto

rewardloyalshoppers.

Create incentives to trigger repeat visits and lure new members.Establishedcustomersarealreadybombardedwithemailpromotions,socomeupwithcompellingreasonswhytheyshouldsignupforanewtypeofsale.AdamMichelsonofOptarossuggeststhatretailersofferperksbeyondthetraditionalreferralbonus,suchasfreeshipping,crowdsourceddealsbasedonaminimumnumberofvotesonthesameitem,andinvitationstoin-storeevents.

Know the target customer. Whilethecustomerbaseisshifting,flashsalestendtoattractayounger,trend-consciousshopper.SaksFifthAvenue’sDeniseIncandelamentionedthatthosewhosignedupforFashionFixwereyoungerthanSaks’coreshoppersoSakshasfeaturedbrandsthatwouldappealtothisdemographic.Ontheotherhand,whenOverstock.comshoppersjoinedEzibatherewasalearningcurve.Overstock.com’sJohnsontoldeMarketerthatsomeoldercustomerswerenotfamiliarwithhowflashsalesworkedandgotfrustratedwhenthemerchandisedisappearedafterafewdays.

Retailerscanevenslicebydemographicandhostflashsalesfordifferentneedsandlifestages.Momshavelongbeenamarketer’sfavorite,andmembers-onlysiteslikeTotsyandzulilyhaveappearedtofillthisniche.Whynottapintopet-owners,cookingenthusiastsorsportsfans?

Flash sales can work for a multitude of products. Shopperswillalwayssearchforluxurybrandsforless.Yetastheybecomeaccustomedtoprivatesales,theywillbeamenabletobuyingavarietyofproducts.Evenwithinapparel,themostcommonflash-salescategory,therearenicheslikebridal,plussizesandswimwearthathaveyettobefullyexplored.Retailers—especiallythosewithaspecialty—canbenefitfromestablishingthemselvesintheflash-salesspacebeforeanupstartbeginstoclaimterritory.

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Related Information and Links

Related Links

Ezibahttp://www.eziba.com

GiltGroupehttp://www.gilt.com

HauteLookhttp://www.hautelook.com

ideelihttp://www.ideeli.com

Optaroshttp://www.optaros.com

RueLaLahttp://www.ruelala.com

SaksFifthAvenuehttp://www.saksfifthavenue.com

WineShopperhttp://www.wineshopper.com

ContacteMarketer,Inc. Toll-Free:800-405-084475BroadStreet OutsidetheUS:212-763-6010Floor31 Fax:212-763-6020NewYork,NY10004 [email protected]

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