How “Flash Sales Fatigue” is transforming a 13 year-old concept

First a little bit of context and history:

The online Flash Sales model was invented in France in 2001 to work around a law preventing resellers to do clearance sales outside of the government prescribed windows. There are loopholes in that law and that is why Flash Sales were invented. Before Flash Sales were online, The group of partners that founded, already had a monopoly on overstock business in Europe. They leveraged on all traditional channels to get rid of overstock from the well-known brands that trusted them already for 15 years. They were used to split the overstock into smaller lots and sold it to low-cost stores. Later, they started using showrooms that became very successful. The founders were constrained by their walls and they quickly understood that growth for their highly discounted overstock business could only work through maintaining low infrastructure costs, moving more inventory at higher velocity and finding a way to not damage the brands’ images so the already long-lasting partnership could be maintained. Flash Sales were born because they addressed three original motivations:

  1. It needed to be a private sale addressing only a subset of the population (Hence the login gate)
  2. There needed to be a very high discount to justify a 14 days delivery time and negative cash flow requirements of the model essentially based on post-sale consignment and where sales are only made out of samples and promises of stock.
  3. It needed to last for a very limited time to create the sentiment of urgency (Hence the term Flash Sales)

This way of getting rid of overstock became a very intuitive and easy way for brands to start having an online presence and it spiraled into brands in Europe becoming Lazy in their sourcing and storage strategy because and the Flash Sales model in general in Europe has been for the last 13 years a very efficient insurance policy against risks of stock.

As the inventor of the concept, became a trusted shopping destination for an entire generation of new Internet Users new to ecommerce. This monopoly in France is not fainting and the daily traffic of the website allows the founders, still privately heading the company’s destiny today, to extend their offer with travels, wine, daily deals, last-minute show ticket and more recently gourmet food.

Vente-privee was the first, and was already profitable in 2004 and the tremendous growth and success fueled their european expansion and strengthened their monopoly. They succeeded because:

  1. They were a monopoly before getting online
  2. They focused on owning their entire value-chain right from the start from Digital production to Fulfillment and Customer Services inventing a new operations model every time
  3. They focused on being a B2B2C company focusing mainly on being a solution for brands considering designers and brands as their main customer and by putting member or consumer lower in their list of priorities. (The essence of the success of all supply-driven companies)
  4. They managed to preserve the image of the brands with beautiful photography sometimes giving a second life to aged inventory and often doing an even better marketing and merchandizing job than the brand itself
  5. They created long-term partnerships favoring brands in performing repeat events twice a year or even every quarter sometimes.

But now it is obvious that the business model reached a plateau and the game is changing: 

It is a true statement to say that the traditional motivations behind Flash Sales in Europe has plateaued. There is a limit in the number of brands that can be featured in one day and the 20% YoY growth of since 2010 is due to the vision they had back then to exploit the 3 Million unique visitors landing on their sites every day to sell them tickets, travels, food, one-day deals, groupon-like offers, wine, etc. When the traffic is there and when the trust remains, an online company is unstoppable and can only grow. The biggest challenge that never tackled because they never had to is the improvement of their sell-through. The average sell-through of an event has remained steady around in the past years. They never got to implementing strategies around personalization, up-selling, cross-selling or dynamic search that would have allowed them to get rid of the stereotype that everything gets sold in the first hour of a sale which is obviously a wrong assumption. But this perception contributed to a phenomenon I would call “Flash Sales fatigue” remains highly dependent on the quality of the stock brands carry. They experienced it the hard way in 2009-2010 where their struggle to source a quality offer triggered the exploration of all those alternative verticals that were enumerated earlier. As the world gets smarter and as big data enables for more efficiency, better tuned sourcing strategies and tighter understanding of markets will see brand’s needs for overstock management solutions fade away as time goes by. This is a logic requirement to the survival of brands against the Asian brand tsunami currently in the making. Once this revolution materializes, one of the only edges that our designers and brands will preserve is their deep roots in our history (Levi’s, Chanel, Dior, Louis Vuitton, Van Cleef and Arpels etc. appeal to multiple generations and became timeless) Unless brands remain lazy and tackle other problems of their backlog before this one as long as they have the Flash Sales solution.

Flash Sales fatigue in the US?:

When the Flash Sales model moved to the United States in 2007, the game rules of Flash Sales were not used to solve the same overstock problems. It was used to offer a different shopping experience, play with the sentiment of urgency, dynamically manage fast moving limited inventories, and showcase discount in a refreshing way. The exclusive consignment model was abandoned very early by the US early Flash Sales adopters Rue La La and GILT. Americans, already expecting shorter delivery times, have a very distinct vision and exposure to discount as deals are pervasive on both the web and brick-and-mortar models. The reason why Flash Sales worked in the US is the reason why they still survive today: They evolved into a curation method and members of the Flash Sales ecosystem trust that what is being proposed is relevant to what they look for (Designers, Brands, Categories, price points, colors , styles). The fatigue for this online shopping approach flows from the fact that it sees the same unsold merchandise being re-ran perpetually. It also damages the brands that become reluctant to such practices. Vente-privee USA launched in 2011 with the clear intention to come and do it right and attempt to re-focus the market on the consignment model but is clearly failing to do so because there are many more well-established solutions in the market executing better.

Flash Sales as a curation method is here to stay because of the trust relationship established between the curator and the members. It lives side-by-side with search and personalization.

Flash Sales as a method to liquidate overstock is losing traction and efficiency. Mostly because of a lack of focus and an increasing will from all existing actors to diversify their offer and leverage on their traffic to increase revenue.

Flash Sales The RealReal way are here to stay?

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The 3 Eras of all Successful Start-ups

After countless interviews with candidates at The RealReal, I found out that the best way to describe the context in which they will evolve here is through the thorough explanation of the three eras of a start-up. I love the Rule of three. I learned it the hard way: Never start enumerating more than three things in a speech or a text, you will inevitably forget one… And if you don’t your audience will.

So there are 3 eras to a start-up :

Thee Eras of a Startup

In depth analysis of each eras will be posted in an upcoming trilogy. But I wanted to freeze some key concepts right now because I feel it’s always important to secure the context in which individuals are destined to evolve. It sets expectations right and spares everyone’s time because different eras call for different mindsets and mostly different types of collaborators. By mapping key requirements associated to each eras right up front, smart people are much more inclined to highlight what in their experience and personality makes them great candidates depending on the era the start-up is in.

Proof of Concept Era (POC): When I walked in at The RealReal, the POC era was already over, but you could easily experience remnants of the transition in the early employee’s habits and behaviors. Most start ups don’t make it through the first era. Sometimes they get Series A seed funding to get their concept going but it will most likely stop there. Proving your concept requires sometimes several iterations, series of beneficial incidents , and enough meaningful encounters. That’s why most start-ups run out of time, resources or simply interest. Some visions are also just emerging too early. later start ups will succeed with a similar concept because their timing will be better. POC era involves believers doing whatever is necessary to make the idea go forward. People often miss the constructive chaos atmosphere surrounding this era when the company gets funded for its success  and moves on to the “Brace for Impact” era.

Brace for Impact Era (BFI): Like I try to illustrate it by the way I name it, BFI is a transitional state. A dangerous and hazardous one.  Full of pitfalls and roadblocks. It’s time for a start-up to understand what its pillars are and own them all. The RealReal focused on making its business model work from an operational standpoint during the POC era and was wise enough to quickly outsource Technology for a time being. But When they got funded, they brought all of their critical assets in-house, owning their entire technology stack and building flexible and adapted software to automate and orchestrate their already stable operations. This is what BFI era is about: Securing a start-up’s own destiny by owning the whole value chain. Leveraging on the most recent technologies and services is the way to go fast with this. Resources are limited and choices need to be made when it comes to the areas to focus on. All verticals can’t grow at the same pace, all markets cannot be developed at the same rhythm, etc. Tough choices to be made and a company gets through this era when they manage a profitable outcome. The longer a company wanders in this transitional state, the harder and costly it is to move to the more mature, real growth-enabled era. Companies die failing to transition quickly enough. At this stage, the company gets bigger than its key individuals and can absorb change and shifts.

Growth Era : That’s it! They made it, that growth period lasts until we stop calling it a start-up. We deal with more streamlined processes, people walking in are no longer called visionaries. We measures business moves more carefully, we think about optimization because it enhances margins. We stop throwing bodies at problems and favor leveraging on technology to solve problems. We start talking about Enterprise Resource Planning (ERP), we start talking about Operational systems, we have exception handling covered. We care about protecting our positions and plan our next expansions more carefully. When this final transition happens, several collaborators move on to other career challenges because they are addicted to the adrenalin and prefer to move on to another idea so they deploy efforts to get there once again with another start-up. Trust me I know that feeling.

So now the debate is on. Prove me wrong, how is this representation not the case for every successful start-up?

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Introductory Post – Time to Share

So I have been starting in this new CTO Job… At The Real Real. Last time I felt so good about an ecommerce Business model was when I left Microsoft in 2007 to join the inventor of Flash Sales 6 years later, when I thought that the eCommerce industry could hardly find new ways to innovate, the founders of The Real Real explored the merge between Utilities and Commerce. And I totally bought that approach: In a world where the decisions we have to make on a daily basis become so overwhelming because of the variety and the complexity surrounding us, utility applications are emerging on our smartphones, our tablets, our PCs and our TVs. They become that abstraction layer that makes our world digestible, simpler to connect with. Need a Cab? use the Hail-O app on your phone, the yellow cab in NYC or the black cab in London will stop right in front of you and call your name. Need a Doctor? Log on to Zoc Doc, find the specialist you need, book your appointment right away and fill out the check-in questionnaire on line. Utility applications like Air BnB make our lives simpler more fun and they curate and personalize their content by leveraging on the social identity we create and grow on LinkedIn and on Facebook. The end of the anonymous web 1.0 made possible the emerging of a new form of trust, and The Real Real understood this at the right time on the right vertical. Nothing is more tied to trust and authenticity than the high-end Luxury industry.

One of the early challenges of my tenure will be to build a Product and Technology team from scratch. Find a proper balance between junior engineers full of energy and good will and senior software wizards, familiar with ecommerce, attracted by the new C2C business model (C2C stands for “Consignor to Consumers”) of this pure player and the multi-disciplinary nature of the roles animating this company. But anyway… during the recruitment process, the round of interviews usually ends with me. I’m in charge of closing the sale and setting the expectations right. And I realized that I had a more and more polished speech. I decided to share it on this Blog going forward. If it can help you in any way, it’s mission accomplished. And I’ll be happy about it.

Enjoy and Debate

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