Flash sales are (still) the most scalable e-commerce business model

By Erin Griffith , written on February 6, 2013

From The News Desk

The past four years have offered us no shortage of twists on the straight e-commerce business model. No longer are stores tied to the tyranny of the shopping mall, so why not tack on some crackpot flavor-of-the-month twist and call it innovation? That's what brought us waves of companies pedaling the next big thing in commerce, from group buying, daily deals, flash sales, subscription commerce, "content and commerce," direct sales networks, trunk shows, influencer curation, and custom commerce. It's always worked long enough to get a company or two to scale, which means they raised money, and a hundred copycats sprung up in its wake.

With the struggles of Groupon and LivingSocial, it would appear daily deals are all but dead. Most of the copycats have either joined forces or disappeared. Meanwhile the jury is out on the fate of LA's pool of subscription commerce sites including ShoeDazzle, Beachmint, both of which have undergone rocky management changes and turnaround efforts in the last few months. The other commerce innovations are too young to know whether they have staying power.

That is, except flash sales, apparently. As explained by Ben Fischman, CEO of flash sale site Rue La La, this category is different from the rest because it can scale much faster. In comments made at Business Insider's Social Commerce conference today, Fischman explained that custom commerce and subscription commerce sites had taken three or four years to build businesses with sales in the tens of millions. But companies like Rue La La and Gilt were able to go from zero to $300 or $400 million in a matter of two years. The urgency of a 48-hour sale made users more likely to share items with each other and the customer service Rue La La focused intensely on turned them into prostheletizers of the brand.

"There is true scale here and I am sure there will be a multi-billion-dollar private sale player that evolves in this space," he said. Naturally, he'd like it to be his company.

And notably, he shied away from the out-of-vogue term "flash sale," opting instead of "private sale." Anyone can join Rue La La, or, or Gilt, but it wasn't always the case. Rue La La, amassed 7 million users, precisely because it required an invitation to join, he said. "It was a mousetrap to get initial scale." (The site was spun off from Retail Convergence for $467 million when it was acquired by eBay in March 2011.)

Not all innovative commerce business models turn into massive companies. But a panel of venture capitalists from earlier in the day agreed (for the most part) with Marc Andreessen's bold statement to PandoDaily on the death of traditional retail -- shopping malls are being disrupted, and quickly.

It's not a matter of whether big retail brands like Macy's and JC Penny will go away. It's a matter of whether they can beat small, scrappy, Web-only companies to the punch. Certain categories of commerce will completely disappear from brick and mortar retailing, Brian O'Malley of Battery Ventures said. It's already happened in movie rentals, thanks to Netflix. It's only a matter of time before other categories begin experiencing similar disruption.

[Image courtesy RetroRoger1]