Unit 7 Case Study : E-Commerce

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Ideeli Case Study ML00007-008/Published 07/2012

MarketLine Case Study

Ideeli The growth of the flash sale website Reference Code: ML00007-008

Publication Date: July 2012

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Ideeli Case Study ML00007-008/Published 07/2012

OVERVIEW Catalyst Ideeli, a flash sale shopping website, was co-founded in 2006 by Paul Hurley and Mark Uhrmacher. Flash sale sites are involved in limited time sales on reduced price merchandise. Just five years after it was founded, in 2011, Ideeli was ranked the fastest growing private company in the US by Inc. magazine. This case study will examine the factors that have led to the rise of Ideeli and possible issues the company may face going forward.

Summary  Ideeli was co-founded in 2006 by Paul Hurley and Mark Uhrmacher, beginning as a small company operating

out of a New York apartment. The company now has over 250 employees, around 5.5 million members and over 1,000 suppliers.

 Since the company began it has adapted from a marketing platform to a flash sale site. The flash sale model was based on a French online private shopping company, Vente-Privee.

 In 2011, less than five years after the company was started, Ideeli was named the fastest growing private company in the US by Inc. magazine.

 The rapid success of Ideeli can be attributed to a number of factors, with recession being the overriding one.

 Going forward, the company faces numerous threats to its success. It is questionable whether flash sale sites can continue to grow in post-recession times and continue to compete in an ever growing marketplace.

 The rapid success of Ideeli may be a threat to its future growth. The company must attempt to continue to secure good prices from suppliers and grow as its member base does.

 Success in the future may be guided by diversification in the company's business model or its product offerings.

Ideeli Case Study ML00007-008/Published 07/2012

TABLE OF CONTENTS Overview ...................................................................................................................................................................... 2

Catalyst .................................................................................................................................................................... 2

Summary .................................................................................................................................................................. 2

Analysis ....................................................................................................................................................................... 6

Ideeli was founded in 2006 ........................................................................................................................................ 6

Ideeli was originally a marketing platform ................................................................................................................ 6

Ideeli started off small ............................................................................................................................................ 6

Flash sale sites grew quickly ..................................................................................................................................... 7

Flash sale sites follow a private-sale business model .............................................................................................. 7

Ideeli was named the fastest growing private company in the US .............................................................................. 10

Ideeli's revenues have grown rapidly .................................................................................................................... 10

Ideeli's success can be attributed to a number of factors .......................................................................................... 11

The retail market for luxury goods was impacted by recession ............................................................................... 11

Ideeli appealed to designers as well as consumers ............................................................................................... 12

Ideeli has used social media sites to advertise ...................................................................................................... 12

Ideeli faces numerous issues going forward ............................................................................................................. 14

Recovery from recession may slow growth for flash sales sites ............................................................................. 14

The rapid growth of Ideeli may be the cause of its demise ..................................................................................... 15

The Ideeli business model may not be sustainable ................................................................................................ 15

The marketplace is becoming crowded ................................................................................................................. 15

Conclusions................................................................................................................................................................ 17

Diversification may be the key to future success ....................................................................................................... 17

Appendix .................................................................................................................................................................... 18

Definitions ............................................................................................................................................................... 18

Sources .................................................................................................................................................................. 18

Further reading ....................................................................................................................................................... 18

Ask the analyst........................................................................................................................................................ 19

About MarketLine .................................................................................................................................................... 19

Disclaimer ............................................................................................................................................................... 19

Ideeli Case Study ML00007-008/Published 07/2012

LIST OF TABLES Table 1: Total retail sales growth in the US, 2007–10 ............................................................................................................. 10

Ideeli Case Study ML00007-008/Published 07/2012

TABLE OF FIGURES Figure 1: Ideeli homepage ................................................................................................................................................. 7

Figure 2: Ideeli menu tab ................................................................................................................................................... 8

Figure 3: Website layout of a flash sale................................................................................................................................. 9

Figure 4: Americas: expenditure on luxury branded products ($bn), 2006–11e .......................................................................... 11

Figure 5: Top retail display advertisers on social network sites in Q2 2011 ranked by number of display ad impressions (000) ............ 13

Figure 6: Americas: expenditure on luxury branded products ($bn), 2010–15f ........................................................................... 14

Figure 7: Total unique visitors to ideeli.com (000) ................................................................................................................. 15

Ideeli Case Study ML00007-008/Published 07/2012

ANALYSIS Ideeli was founded in 2006 Ideeli was co-founded in 2006 by Paul Hurley and Mark Uhrmacher. The company began as a small enterprise with 15 employees working from an apartment in New York.

Ideeli was originally a marketing platform The concept for Ideeli was formed by Paul Hurley, who identified two distinct retail trends. Firstly, he noted that traditional US bricks-and-mortar retail companies were losing market share to online retailers and off-price stores. Secondly, Hurley recognized that the US retail market is fragmented and as such brands have been finding it increasingly difficult to engage consumers. Consequently, Hurley created a business that acted as an online marketing platform, a place for brands to generate awareness through giveaways and a small number of limited-time sales.

Hurley became aware of a Paris-based online private shopping company, Vente-Privee, and decided to base Ideeli on a similar model. Ideeli began to sell branded apparel, accessories, and other goods through its website in 2008. This shopping website is for members only, with membership free and non-exclusive. Goods are sold at discounted rates, typically 30–80% off retail prices. As a flash sale site, Ideeli holds sales for a limited time, generally no longer than 36 hours, with a number of sales ending early as goods sell out.

Ideeli started off small Ideeli was originally launched with five employees. This grew to 15 employees all working from an apartment in New York. In May 2008, the company moved to a bigger building. However, in under a year the company moved again into its current location in Chinatown in New York. The company now has over 250 employees and is continually hiring. Ideeli currently has around 5.5 million members and more than a thousand suppliers.

Ideeli Case Study ML00007-008/Published 07/2012

Flash sale sites grew quickly Flash sale sites began to appear in the US around the time that the recession began. Since then these private sale websites have been growing in size and influence. Over the years, the number of flash sale sites has been increasing with the introduction of sites including Gilt Groupe and Rue La La. Ideeli is one of the sites that have established themselves as destinations for shoppers looking for luxury goods at discounted prices.

Flash sale sites follow a private-sale business model Flash sale websites conduct time-restricted sales, generally of luxury branded goods. These sales are hidden from the general public by membership requirements. Membership tends to be free but helps to maintain an impression of exclusivity around sales. Members receive alerts via email to inform them of when sales are starting. While daily-deal sites such as Groupon tend to offer one deal per day in a local market, flash sale sites generally hold sales over a limited-time period that feature numerous products from a particular brand.

Flash sale sites tend to follow a private-sale model whereby the site acts as a distributor, carrying no stock and making a wide margin on sales.

The Ideeli model is similar to that of other flash sale sites Ideeli conducts time-restricted sales on products including apparel, accessories, home wares, and travel. The product range is comparable to that of its nearest competitor, Gilt Groupe. Sales on Ideeli begin at 12 noon each day with members able to view upcoming sales from 10 am. Flash sales on this site tend to last no more than 36 hours, with sales sometimes ending early when items have sold out. Ideeli offers all-day shipping, allowing members to purchase numerous products throughout the day and only pay for shipping once.

In order to take part in sales on Ideeli, membership is required. Membership is free and must be verified before the consumer enters the site.

Figure 1: Ideeli homepage

SOURCE: www.ideeli.com M A R K E T L I N E

Ideeli Case Study ML00007-008/Published 07/2012

Ideeli often features time-restricted sales from numerous designers at any one time, selling a range of products including womenswear, menswear, childrenswear, and home wares. The company buys a small amount of its stock outright. Other parts of its merchandise are taken on consignment. Ideeli has over 1,000 suppliers, including luxury brands such as Calvin Klein, Fendi, and Prada.

On the Ideeli website, consumers can search for sales by designer or by product.

Figure 2: Ideeli menu tab

SOURCE: www.ideeli.com M A R K E T L I N E

When browsing sale items, consumers are made aware of the time remaining on the sale by a countdown clock located above the sale items.

Ideeli Case Study ML00007-008/Published 07/2012

Figure 3: Website layout of a flash sale

SOURCE: www.ideeli.com M A R K E T L I N E

Ideeli Case Study ML00007-008/Published 07/2012

Ideeli was named the fastest growing private company in the US In 2011, less than five years after the company was started, Ideeli was named the fastest growing private company in the US by Inc. magazine.

Ideeli's revenues have grown rapidly In 2010, Ideeli's revenues amounted to $77.7m, representing an increase of 40,882% since 2007. Co-founder Hurley stated that he expected these revenues to be tripled in 2011. Growth in other retail channels in the US has been far less dynamic.

Table 1: Total retail sales growth in the US, 2007–10

Retail channel Growth

Ideeli 40,882%

Online retail 20.7%

Bricks-and-mortar retail stores (excluding department stores) 6.2%

Department stores 1.7%

SOURCE: www.ideeli.com; VERDICT RESEARCH

M A R K E T L I N E

Ideeli Case Study ML00007-008/Published 07/2012

Ideeli's success can be attributed to a number of factors The rapid success of Ideeli can be attributed to a number of factors. Vitally, Ideeli's business model has been successful in boosting consumer demand. Luxury merchandise is offered with significant discounts, emailed directly to members, with constraints placed on both time and supply in order to tempt consumers into taking immediate action. Furthermore, Ideeli's customer base is largely made up of one of retail's most desirable group of consumers. A spokesperson for Ideeli described members as largely being women with household incomes extending from $50,000 to $250,000 per year.

The retail market for luxury goods was impacted by recession When Ideeli was first established, the US economy was entering into recession. Consumers were slashing their spending with regard to luxury and designer products. In 2009, the global luxury branded products market declined by around 8.5%.

The Americas experienced steep decline The decline in sales of luxury branded products was felt more steeply in the Americas region, with the market declining by 13.7% in 2009. This represented the negative effect that the recession was having on the market.

Figure 4: Americas: expenditure on luxury branded products ($bn), 2006–11e

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0 10 20 30 40 50 60 70 80 90

100

2006 2007 2008 2009 2010 2011e

Ye ar

-o n-

ye ar

g ro

w th

(% )

To ta

l s al

es ($

bn )

Total sales ($bn) Year-onyear growth (%)

SOURCE: VERDICT RESEARCH M A R K E T L I N E

In comparison, flash sale sites were performing well According to Forrester Research, the combined revenue of the top three players in this market, Gilt Groupe, Rue La La, and Ideeli, exceeded $300m in 2009. As sales from luxury retail stores sank, the leading flash sale sites were seeing huge increases. Furthermore, CNN Money reported that flash sale sites generated approximately $1bn in sales in 2010, with this figure expected to reach around $6bn by 2015.

While growth for flash sale sites is impressive, it is perhaps worth noting that as this is a relatively new channel; high growth from an initial value is to be expected. This is evident in the 40,882% growth seen in Ideeli's revenues since its

Ideeli Case Study ML00007-008/Published 07/2012

start-up.

Ideeli appealed to designers as well as consumers The CEO of Ideeli, Paul Hurley, has stated that recession accelerated Ideeli's growth and led to brands being more interested in working with the company.

Ideeli gave brands the opportunity to offload excess stock The negative impact of recession on the retail market led to a number of designers and brands being left with excess stock as consumer spending dropped. Prior to recession, any excess merchandise tended to be sold through off-price stores such as T.J. Maxx. However, as the recession took hold, many of these off-price stores were demanding larger discounts on merchandise, some as high as 90%. Furthermore, selling products through these retailers was seen as detrimental to brand image. Such retailers are renowned for their sale items and "bargain bins," neither of which fit with the high-end or luxury image that many designers are trying to maintain. Flash sale sites such as Ideeli gave brands a way to offload their excess stock without affecting their brand image. Membership helps to protect the image of the brand, with sales being hidden from the general public.

Ideeli gives brands access to customers The appeal of flash sale sites such as Ideeli to brands is the access to consumers, some of whom may not have bought their products before. As such, consumers become educated about particular brands and may choose to visit a store in the future. Furthermore, for smaller luxury designers who do not have a large number of stores, Ideeli gives them access to customers that they otherwise would be unable to sell to. For example, European clothing brand Desigual chose to use Ideeli in an attempt to raise its profile in the US, where it only has nine retail stores. Over only three sales, the brand sold around 15,000 products through the site. Such brands can gain access to consumers in parts of the country where they do not have any stores.

Flash sale sites, such as Ideeli, can be seen as a good channel to use for designers that want to educate consumers who are not able to afford to buy luxury products at full price. This may include young people whose parents are unwilling to pay full price for designer products for their children. As such, customer aspirations can be developed, which may bring luxury retailers more custom in the future.

Ideeli has used social media sites to advertise Social media is widely seen as an increasingly effective way to promote a company, product, or service. Ideeli encourages its members to follow the company on Twitter and Facebook. Through this media they offer information about sales and upcoming events. Ideeli is among the top retail display advertisers on social media sites.

Ideeli Case Study ML00007-008/Published 07/2012

Figure 5: Top retail display advertisers on social network sites in Q2 2011 ranked by number of display ad impressions (000)

367500

287267

264883

236863

137156

87938

86870

77848

74576

72061

ebay

radioShack

Netflix, Inc.

Home Depot

J. C. Penney

ShoeDazzle.com

QuiBid

Gilt Groupe

Bidcactus

Ideeli Inc.

SOURCE: www.comscore.com M A R K E T L I N E

Ideeli Case Study ML00007-008/Published 07/2012

Ideeli faces numerous issues going forward While Ideeli, and the flash sale sites sector as a whole, is still growing, it currently faces a number of issues that threaten its future success.

Recovery from recession may slow growth for flash sales sites In 2011, US consumer spending has risen, particularly in the luxury retail sector. Luxury department stores have been performing well. As such, while recession was a contributory factor in the rise of Ideeli, so to recovery in consumer spending may reduce the need for flash sale sites.

2011 saw a good recovery in the luxury goods market.

Figure 6: Americas: expenditure on luxury branded products ($bn), 2010–15f

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

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100

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2010 2011e 2012f 2013f 2014f 2015f

Total sales ($bn) Year-onyear growth (%)

SOURCE: VERDICT RESEARCH M A R K E T L I N E

As consumers become more willing to buy luxury items at full-price, flash sale sites may suffer as the need to sell overstock is reduced. Furthermore, as a response to the recession, many designers and brands are producing volumes to reflect expected demand.

However, with the threat of recession looming once again in the US (as of Q2 2012), it remains to be seen whether consumer spending will be affected once more. Recent economic apprehensions do not appear to have depressed luxury sales in the US as yet. Fourth quarter 2011 sales for many high-end retailers, such as Saks Fifth Avenue and Macy's, were up. Saks Fifth Avenue stated in September 2011 that its most expensive products were selling especially well. Similarly, Tiffany & Co. reported in August 2011 that its revenues were surpassing expectations.

Luxury goods in the US are also seeing a sales boost from tourists from Europe, Asia Pacific, and the Middle East. This is largely owed to the weak US dollar ensuring that merchandise is considerably cheaper than in the customers' home markets.

Nonetheless, if economic conditions worsen and stock markets remain unstable, it is likely that consumer confidence and spending on luxury products will drop again. Unquestionably, luxury retailers will be better equipped to deal with any declines in demand than they were previously, due to more cautious production and inventory policies. As such, should luxury product retail face decline once more, this will not necessarily equate to a rapid growth for flash sale sites as was

Ideeli Case Study ML00007-008/Published 07/2012

seen previously.

The rapid growth of Ideeli may be the cause of its demise The fact that Ideeli has grown so rapidly and so dynamically may lead to the company being unable to keep up with securing more volumes of desirable luxury products at low prices. The rapid growth that Ideeli has seen since it began creates the requirement for more quality products to keep the company going and growing. This may be difficult to fulfill going forward as the company finds that it requires greater volumes.

The Ideeli business model may not be sustainable It is questionable whether flash sale sites, such as Ideeli, are sustainable in the long term. According to American Express Business Insights, spending on flash sale sites grew by 21% in 2011. While this growth is strong, it is far less than the estimated 92% increase seen the year before. However, this may simply be due to the fact that the initial rapid growth of flash sale sites is now settling.

Perhaps of more cause for concern is the fact that Ideeli appears to be seeing a decline in unique visitors to its website.

Figure 7: Total unique visitors to ideeli.com (000)

420

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480

500

520

540

560

April 2011 (000) April 2012 (000)

SOURCE: www.comscore.com M A R K E T L I N E

The flash sale business model works by creating a sense of urgency around sales, with time being restricted and merchandise being of limited quantities. This serves to encourage consumers to make impulse purchases. However, consumers may do this on a number of occasions but they are likely to be quick to learn that they may be able to find the product cheaper somewhere else. Furthermore, flash sale sites, including Ideeli, have tough return policies, which may be offputting for repeat customers.

Shoppers visiting Ideeli and other flash sale sites will be looking for high-end goods at steeply discounted prices. This may simply not be sustainable in the long term.

The marketplace is becoming crowded Since the launch of Ideeli in 2006, the number of competitors has risen considerably. Not only is Ideeli competing with other flash sale sites such as Gilt and Rue La La, but also with sales events in other retail channels such as department stores, off-price stores, and outlet stores operated by brands.

Ideeli Case Study ML00007-008/Published 07/2012

Moreover, a number of traditional bricks-and-mortar retailers are diversifying into online flash sales. For example, US department store Nordstrom acquired flash sale site Hautelook. In August 2011, US department store Saks launched Saks Fashion Fix, its own flash sale site offering 24-hour sales with products at up to 70% off.

With the continued crowding of the marketplace, Ideeli may face problems in drawing consumers to its site. Furthermore, with emails being the primary method of alerting customers to deals, if consumers are subscribed to numerous sites they may soon begin to tune out of emails and perhaps unsubscribe.

Ideeli Case Study ML00007-008/Published 07/2012

CONCLUSIONS Diversification may be the key to future success The rapid growth of Ideeli in recessionary times painted a promising picture for the future of the company. However, it remains to be seen whether the site can continue to be successful as the economy recovers and consumer confidence and spending grow. Furthermore, the growth of other flash sale sites may lead to a consolidation of power, with only the strongest companies surviving.

Despite the fact that flash sale sites, including Ideeli, are facing numerous challenges and threats to their future, growth does appear to be continuing. However, the slowdown in growth does perhaps indicate that flash sale sites are maturing. As a result, a new trend that is beginning to emerge in this sector is the expansion into offering niche products. For example, Gilt has expanded its offerings to include Gilt Men, Gilt Children, Gilt Home, Gilt Taste (food and wine), Gilt City (local deals), and Jetsetter (travel deals). Furthermore, Gilt has even begun to offer high-end products that are not discounted at all.

In order for Ideeli to survive, the company may need to diversify its business or offerings. Evidence of this can already be seen with the introduction of travel deals on the site. Furthermore, Ideeli might benefit from focusing on relationships with brands, which may be strengthened by offering customer data to suppliers. Whichever way the company chooses to adapt, it is clear that some method of diversification is required to keep up with other competitors in the market.

Ideeli Case Study ML00007-008/Published 07/2012

APPENDIX Definitions Flash sale: a restricted time period during which goods are sold at a discounted price.

Off-price stores: retail stores that sell products at prices lower than other retail stores.

Sources ComScore (2011) State of the Internet

www.inc.com/magazine/201109/inc-500-paul-hurley-ideeli.html

www.inc.com/magazine/201109/inc-500-paul-hurley-ideeli-americas-fastest-growing-company.html

www.businessweek.com/technology/content/nov2009/tc2009114_771888.htm

http://images.businessweek.com/ss/09/11/1104_private_online_shopping_sites/12.htm

www.usatoday.com/money/industries/retail/story/2011-11-17/ideeli-fashion-bargain-site/51275578/1

www.telegraph.co.uk/finance/personalfinance/consumertips/8541666/How-to-bag-a-bargain-in-a-flash.html

www.businessoffashion.com/tag/flash-sales

www.businessinsider.com/ideelis-ceo-shares-what-it-took-to-become-americas-fastest-growing-company-2012-3

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=39527740

http://blog.ideeli.com/todays-features/2010/9/21/introducing-ideeli-travel.html

www.ideeli.com/pages/about_us

http://moneyland.time.com/2011/12/05/flash-fashion-101-how-to-make-the-most-of-gilt-rue-la-la-and-other-sale- sites/#ideeli

www.cnbc.com/id/47507737/Time_for_Flash_Sales_to_Adapt_or_Die

http://money.cnn.com/2012/04/27/pf/flash-sales/index.htm

Further reading Verdict Retail (2011) Global Luxury Retailing, November 2011, CM00080-007

MarketLine (2011) Industry Profile: Online Retail in the United States, September 2011, MLIP0172-0008

MarketLine (2012) Industry Profile: Apparel Retail in the United States, June 2012, MLIP0535-0033

MarketLine (2011) Industry Profile: Apparel, Accessories & Luxury Goods in the United States, May 2011, MLIP0240- 0006

Ideeli Case Study ML00007-008/Published 07/2012

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Ideeli Case Study ML00007-008/Published 07/2012

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