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Call it genius, call it a mind game—‘exclusive’ online luxury discounters are striking while the demand for bargain shopping is hotter than ever.

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For Annette Leiske, an office manager for a small law firm in Tampa, FL, the day starts with a cup of coffee, a check of her e-mail, a chat with a co-worker and then a login to Gilt.com, one of a growing number of free, members-only luxury discount websites that have been appearing online during the past few years. It’s not yet noon, but flashbacks of sold-out Marc Jacobs dresses and, in particular, a pair of black Delman ballerina flats haunt Leiske and fuels her daily mission for scoring designer deals, a habit she picked up in early 2009. Time is of the essence, as Leiske must log on at a specific time of day—and even then it’s a first-come, first-score retail frenzy. “Shopping on Gilt.com has taught me to be quick on my toes, to buy without hesitation and to be prepared,” she explains. It’s click it or lose it, as these deals are strictly offered for a select time period and then the item is gone.

With bargain-hunting fashionistas like Leiske so intently tuned into their computer screens, the frantic pace at which e-tailers like Gilt Groupe, Ideeli, Rue La La and HauteLook are hitting the Internet makes sense. They offer a new, tactful, aggressive—and possibly more stressful—way of shopping for discounted luxury goods: Become a member (most sites do not charge for the privilege) and take your shot at reaping deals that can be far chicer—and cheaper—than you might find on the clearance racks at your nearest upscale mall or high-end boutique. In addition to scoring a pair of $231 Industry boots for $99 (a recent offer on Ideeli.com), a shopper can also cruise Gilt’s half-price massage packages at upscale urban spas.

Amanda Graber, manager of marketing for New York-based Gilt Groupe, describes its members as knowledgeable and savvy—just like the women behind the company. Gilt Groupe founders Alexis Maybank and Alexandra Wilkis Wilson—fellow Harvard grads with impressive tenures at eBay, Louis Vuitton and Bulgari—turned their appreciation for sample sales into a full-fledged lifestyle e-tail venture. With investor Kevin Ryan, the former CEO of digital marketing firm DoubleClick, on board, Gilt held its first sale in November 2007. The Zac Posen merchandise sold out in 45 minutes. Today, Gilt holds up to 10 limited-time sales a day via Gilt.com and its three diffusion sites: Gilt Man, the trendy and budget-friendly Gilt Fuse, and the travel-centric spinoff Jetsetter.

Most of these sites launched with women’s apparel but have expanded to men’s and children’s apparel, home décor, accessories, shoes and—in Rue La La’s case—wine. Jimmy Nguyen, a merchandiser from Westminster, CA, has 12 Gilt purchases under his belt. Most were shoes, including patent leather PF
Flyer Glides, Creative Recreation’s Cesario sneakers, Adidas’ Consortium hi-tops and a pair of lo-tops from Puma’s Black Label. “I like rare, hard-to-find items when it comes to shoes, and I know those can be costly in other retail channels,” he explains. According to Graber, footwear—along with dresses—is one of Gilt’s strongest categories.

The developers of discount luxury e-tailers logged on at the perfect time, just as consumers grew weary of paying full price and designers were forced to warm up to discounts. However, Graber admits it was difficult to get designers behind Gilt’s concept in the early days. “They didn’t understand how the site could help them while keeping their high-end reputation intact,” she says. In hindsight, the negative knee-jerk reaction to the idea of linking up with a discount e-tailer proved to be typical of 2007 and prior—a time when luxury brands could still behave snobbishly. Kerry Bennett, director of marketing communications at HauteLook, a subsidiary of Retail Convergence, says the Los Angeles-based online retailer faced the same initial roadblock, but over time designers took note of the value in this type of retail. “We’re able to present their product in a fun and exciting way. It’s not just sitting in a bin at a discount store losing value,” she explains.

Joshua Willis, director of product line merchandising at Creative Recreation, says one of the main benefits of these sites is timing. The Los
Angeles-based brand has done business with Gilt during the last two seasons and is in the planning stage of another sale. “Your brand goes up for a short period of time, and it’s down just as fast. You have the ability to sell a large amount of old product in a short period of time,” he boasts. Tracy Beetler, sales manager for the brand Matiko in Orange County, CA, is also impressed with the swiftness of the sale. “Our products don’t sit for months trying to sell. Instead it is limited to a timely sale that’s over quickly, and whatever is sold is shipped out to eager customers,” she explains.

“These sites are a classy way for companies to get rid of their inventory,” notes Erika Maschmeyer, a senior research analyst for Chicago’s Baird Capital Partners, an asset management firm. HauteLook’s mix of high-end and trendy products lured Matiko. “Every vendor out there needs an outlet for off-priced or last season’s product,” says Beetler. “For us, HauteLook was the perfect match.” The site’s willingness to work with vendors’ schedules and within desirable price ranges has eased designers’ tension. In one instance, Matiko had to push a sale back a month due to inventory. “We were able to reschedule a new date so that we would be better prepared for them and the amount of volume we know they can move,” Beetler says.

And as Stacey Santo, vice president of marketing communications for Boston-based Rue La La, describes the relationship, sample sale e-tailers are doing more then depleting unmovable inventory. “We’re introducing brands to an entirely new audience,” she says. It’s a win-win situation for fashion-starved pockets of the country and designers who may have previously overlooked these markets. “I live in a city where a lot of high-end brands are hard to come by,” explains Krista Roman, a Pittsburgh-based TV news writer and Gilt member. Roman says the big, recognizable names keep her coming back, but she considers sales of brands she’s unfamiliar with a fun learning experience. “I enjoy finding new products I probably would not have come across [otherwise],” she adds.

Part of HauteLook’s platform is to introduce its members to up-and-
coming brands. Amrita Singh, designer of an eponymous jewelry, handbag and sandal label, says HauteLook is allowing her to reach a wider demographic. “I did not have distribution in all 50 states,” she notes. “Now the line reaches millions of people [plus] the comfort of not having to go to a store.”

But brick-and-mortar retailers shouldn’t panic just yet. Baird’s Maschmeyer believes that everyone can co-exist—and many vendors agree. Willis doesn’t think online luxury discount sites replace the brick-and mortar experience. “I honestly believe this is more of an impulse sale. Time restrictions and limited quantities at a great price are great ways to get someone to buy right away,” he explains. Beetler describes these sites as just another channel for avid shoppers to score a deal. “This shopper is very fashion-forward and has a knack for looking good and saving money. She’s shopping all over, but the Internet sales are a bonus she can look forward to daily.”

Gilt reports over two million members. Bennett says HauteLook has more than one million members in the U.S. and Canada. “Exclusive,” “private” and “limited” are just a few of the elite words tossed around as e-tailers, vendors and consumers describe this segment of online shopping, but none of the businesses believe they are elitist. Most members learn about the sites through word-of-mouth and just about everyone who takes the time to register is accepted (although Gilt has been known to waitlist requests for a short period of time). “Rue La La offers a sense of community,” Santo explains. “Our members love the experience—and passing that experience on to someone else.” Bennett says HauteLook is not trying to keep people out. “The members-only angle of the site adds to the excitement,” she concedes. “Plus, shoppers are smart. They know prices, and we’re just taking the work out of finding the deals. And what could be more exciting then getting a great brand at a great price?”

Each e-tailer interviewed predicts growth in 2010—in sales, categories, brand assortment and membership. Bennett describes HauteLook’s growth as “lightning in a bottle.” Consumers are happy to play along. Roman admits the members-only tag attracted her to the sites despite the fact that membership is free and available to anyone. It is a mind game she can get behind. “I find the most exciting part of the site to be the short window of time to buy what you want. I think it psychologically makes the items more desirable because you could miss your chance and have regret,” she explains. “It’s a tug of war between your heart, your mind and your wallet.” —Angela Velasquez

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