LOS ANGELES -- It's just after 9 a.m. on the West Coast and the competition is already out in force at GiltGroupe.com. The countdown has started on the $129 turquoise Oscar de la Renta peep-toe pumps in my virtual shopping cart, where they will stay for just 10 minutes. If I still haven't checked out by then, the shoes will automatically go back onto the virtual selling floor.
The urgency and limited quantities are supposed to stoke desire, and it's working.
Over on RueLaLa.com, a message pops up onscreen telling me there are only six pairs left of the $99 Rafe ikat print wedge sandals I've been eyeing.
While I'm going through a mental checklist of what's in my closet, the turquoise pumps at GiltGroupe.com disappear, and are quickly "clicked-up" by another shopper. I follow a link that says "waiting list" and enter my contact information. If the other shopper returns the pumps, I will get an e-mail giving me a second chance.
Welcome to the sport of private online flash sale shopping, where Alexander McQueen dresses, Vera Wang jewelry, Moschino blouses, Judith Leiber jeweled evening bags, Tag Heuer watches and Gucci sunglasses can be bought for as much as 80 percent off retail, so long as you are the quickest one to the virtual checkout counter.
There are dozens of private flash sale sites online now, tantalizing shoppers every morning with an announcement of the day's new designer sale events and turning shopping into must-surf entertainment. The catch is that bargains, big and small, are available for just a brief window -- one to three days -- and you're competing against thousands of other private sale junkies for limited quantities.
GiltGroupe.com launched in November 2007, followed closely by HauteLook.com and Ideeli.com, just as shoppers wanted to satisfy their designer tastes at more recession-friendly prices. All three of the top sites have between 1.8 million and 2.5 million members.
"Discovery-based shopping is what excites the customer," says Adam Bernhard, chief executive of Hautelook.com, which is based in L.A. "We remerchandize our (online) store every night, and every morning you have an e-mail with eight or 10 new brands. Shoppers come for no other reason than to look and all of a sudden they've made a purchase."
This new way of shopping was born of the recession, when entrepreneurs recognized that manufacturers would need a place to discreetly sell excess inventory.
Rather than ditching high-end handbags and runway apparel at bargain-basement, bricks-and-mortar retailers -- where they might stay on the floor for months and tarnish a brand's image -- manufacturers and designers can turn to the private flash sale sites. Here, discounted merchandise is hidden from search engines, sells out quickly and is seen only by "members" who have signed up to participate, or buyers who've been referred by a member.
"The perfect storm of the recession put wind in the sails of these entrepreneurs because they had access to an excess of merchandise they never would have had, and manufacturers who never would have considered a sale online were left with their pants down," says Sucharita Mulpuru, e-commerce analyst for Forrester Research.
Private sample sales generated $1 billion last year, a relatively small piece of the $155-billion e-commerce pie. But the category is thriving, with more than $100 million in venture capital flooding into the space in the last six months alone and sites continuing to launch as recently as this year. Private sale sites are hiring seasoned brick-and-mortar retail vets from Williams-Sonoma, Old Navy, Urban Outfitters and more to sharpen merchandising and to focus on new segments of the business, such as men's and children's wear.
This new model of shopping has been so successful, in fact, that department stores such as Saks and Neiman Marcus have experimented with their own 24-hour online flash sales, and eBay launched a similar model at FashionVault.ebay.com.
Comcast also has entered the ring, launching Swirl.com earlier this year as an offshoot of the popular DailyCandy e-newsletters.
Now that the competition is heating up, private sale sites are working harder at branding themselves and differentiating their shopping experiences.
GiltGroupe, which has projected revenue of $500 million for 2010, has launched a sister site, Jetsetter.com, specifically for travel packages.
It is also experimenting with selling furniture and offering more localized deals, including restaurant and spa promotions. "It's about curated luxury items," says Alexis Maybank, co-founder of GiltGroupe.
"I love Gilt," says Liz Garcia, a television writer in Los Angeles. "I don't mind racing against the clock to make a purchase because, unlike other sites, Gilt has an edited selection of clothes and accessories. You don't have to slog through (stuff) that clearly didn't sell ... for a reason."
Swirl.com is emphasizing up-and-coming designers, such as jeweler Amrita Singh and L.A.-based label Dear Creatures.
"We introduce them to a broader shopping public," says Eve Epstein, creative director for the site, which is based in New York.
Other sites are aligning themselves with celebrities and entertainment properties. SeenOn.com features private sales of items seen on TV and in movies, such as the preppy-cool outfits worn on "Gossip Girl" and goth styles inspired by "Twilight."
"Ever-changing selections make it fun to cruise through the sites," says Anne Montone, a DJ, singer and event producer in Los Angeles.
Her favorite deal was on RueLaLa, a $35 striped cowl-neck sweater from Buffalo by David Bitton.
"I love to get things in the mail, so that adds to the experience," she said.
As the private sale business grows, increasingly what's being sold isn't overstock at all. It is merchandise earmarked by designers at the beginning of the season to sell on sites such as GiltGroupe.com at a later date.
"We go into the order cycle at the same time as (other retailers), but we get a different delivery," says GiltGroupe's Maybank.
"If done correctly, it helps a brand shape inventory and reach customers it might not otherwise reach."
"Today, the vast majority of what's on these sites is overstock that someone has seen in a store or on a runway," says Paul Hurley, chief executive and founder of Ideeli.com. "But five years from now, when this becomes a big, mature industry, it will be more of a mix."
Ideeli.com won't just be a destination for excess inventory, he says, it will be another channel in a designer's retail strategy that helps support the top line, like a factory outlet.
"One of the most successful factory outlet retailers that is also a top brand is Ralph Lauren. He has different levels of his brand.
"The level that's at a more attractive price point is labeled differently. As long as you are clear about what you are doing, it's fine," Hurley says.
(Ralph Lauren's brand architecture is legendary, with the runway collection on top, followed by other levels including Black Label, Blue Label, Lauren by Ralph Lauren and Lauren Jeans -- and that's just in the women's apparel category. Lauren also recently has created the American Living Collection for J.C. Penney.)
Private sale sites are becoming an important marketing platform.
GiltGroupe.com is starting to work on sales with European designers looking to re-enter the U.S. market, including Paris-based Lancel.
The site is also introducing exclusive capsule collections by labels Trovata and Yigal Azrouel.
Despite all the funding and the new activity in the space, Mulpuru, the e-commerce analyst, is still skeptical about the future of private flash sale sites.
"When you're creating your own merchandise, you are essentially becoming a high-end TJ Maxx," she says. "These sites are selling more hype than anything else."
However, Ideeli's Hurley disagrees.
Private sale sites are "not a flash in the pan," he says.
"We are looking at a $6 (billion) to $8 billion category in the next five years. We are standing on the shoulders of a secular shift that goes beyond the recession. ... Consumers want to have a fun experience shopping. They want a little bit of a game."