Why Flash Sales Are In Trouble

December 16, 2015, 9:28 PM UTC

Once red-hot, online flash sale startups may be heading to the grave.

News of Gilt Groupe’s potential $250 million sale to retail conglomerate Hudson’s Bay Company is likely to be the nail in the coffin of an online business that just wasn’t able to compete in a retail world in which Amazon is king.

Gilt, which was once valued at $1 billion, is reportedly set to be acquired by Hudson’s Bay Company, the parent of Saks Fifth Avenue. The retailer wants to better compete online with fellow luxury retailers Nordstrom, Neiman Marcus and Bloomingdale’s.

Gilt isn’t the only flash sales site to lose steam. Shares in Zulily, a Gilt rival, plunged over 60% following its initial public offering in 2014. Earlier this year, it sold itself to the parent of home shopping channel QVC for $2.4 billion. Ideeli, which had raised over $100 million from investors, was sold to Groupon in 2014 in a fire-sale. Like Gilt, Fab.com was also valued at $1 billion, but sold for $15 million in 2014.

Meanwhile, Vente-Privee USA, the U.S. outpost of European flash sales site Ventee-Privee, shut its doors last year. Earlier this year, flash sales site RueLaLa reportedly laid off staff, and this week, One Kings Lane, which focuses on home goods, let go of 25% of its staff.

All of these companies follow a similar strategy. They sell discounted clothes, accessories, and home goods for a limited time.

Venture capitalists poured hundreds of millions of dollars into the flash sale market. They hoped that the upstart sites could compete with Amazon (AMZN), Neiman Marcus, and others.

Many flash sale sites were born in 2008 and 2009, while economy tanked and retailers and designers scrambled to offload their unsold merchandise. But as the economy picked up, these same retailers no longer needed to rely on sites like Gilt to sell their products. Furthermore, they had many more flash sales sites to choose from.

Sucharita Mulpuru, analyst at Forrester Research, explained that Gilt and others faced the challenge of big expenses and intense competition. Photographing every item for sale to display on the site can be costly, she said.

Meanwhile, luxury brick and mortar retailers like Nordstrom’s started investing more in selling discounted merchandise online and in-stores through their out outlets and discount chains. Online sales at Nordstrom Rack rose 51% to $117 million in the second quarter. Discount retailer TJ Maxx is also seeing success.

In the end, flash sales was not a bad idea for a business, Mulpuru said. “It’s just not a big one.”

For more on online retail businesses, watch this video:

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