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05.27.09

The Luxury E-tail Boom

Department stores may be hurting, but Sameer Reddy reports that high-end e-commerce sites such as the Outnet, Yoox, and Vente Privee are packed with customers looking for a steal.

If you’ve been down Madison Avenue recently and popped your head into any of the high-end retail shops that line the famous street, you’ve most likely come across the following scene: less-snooty-than-usual store attendants standing around in alarmingly empty surroundings, ready to pounce in desperation on any unsuspecting shoppers who happen to wander in. The big department stores aren’t resorting (yet) to the staggering 70 percent discounts they turned to during the holiday season, but Saks is already at 40 percent off and Barneys is expected to follow suit shortly.

Smaller specialty stores, such as the iconic Linda Dresner outpost on Park Avenue, and Tracey Ross in L.A., have closed their doors. Along with the auto and banking industries, the luxury retail world is falling victim to plunging consumer spending, as nervous fashionistas save their pennies and wait to see how the economy shakes out over the coming months. In one corner of the market, however, business is booming like never before: e-tail.

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Only a few years ago, the online luxury retail world was a small piece of its brick-and-mortar counterpart, which conventional corporate wisdom valued as an essential ambassador of a label’s value. Being seen and sold in the right stores was the most effective way to communicate a brand’s snob appeal, an essential element in the retail strategy that guides most luxury labels. A few independent sites such as Bluefly and Net-a-Porter managed to transcend the e-commerce stigma, securing major labels such as Gucci, Jil Sander, and Lanvin, but for the most part e-stores were the kind of places that, if they had a physical location, the style set wouldn’t be caught dead in, with their clunky interface design and shabby designer selection.

The events create the same kind of stampede that distinguishes Manhattan showroom sales, with rabid shoppers competing for the same choice pieces, and working against the clock, except in this case there’s no danger of actual physical harm, except perhaps to your keyboard.

Today it’s a completely different story. Net-a-Porter just launched the Outnet, an online designer outlet, which boasts the kind of blockbuster label selection, from Chloe to Christian Lacroix, that sets off hysteria in style addicts, all at prices up to 80 percent off retail. The site features glossy production values and easy-to-navigate design, extending a spending incentive to even the most clueless Internet users. Another new kid on the e-commerce block is The SHOP, which launches May 28, the brainchild of the entrepreneurs behind the online fashion showroom, Not Just a Label. The site plans to distinguish itself by creating a platform for emerging designers from around the world, curated each month by a noteworthy tastemaker from the fashion world, including prominent retailers, editors, and stylists. It’s the online equivalent of pop-up or guerrilla stores like London’s Dover Street Market, which offers avant-garde runway designs at a broad range of price points. Other more-established success stories include Gilt Groupe, Vente Privee, and Yoox. The first two are organized around the concept of an invitation-only, limited-time sample sale—members are alerted by email shortly prior to the start of sales from designer labels like Christian Louboutin, Diane von Furstenberg and Dolce & Gabbana, and prices can drop as low as 70 percent off. The events create the same kind of stampede that distinguishes Manhattan showroom sales, with rabid shoppers competing for the same choice pieces, and working against the clock, except in this case there’s no danger of actual physical harm, except perhaps to your keyboard. Yoox, on the other hand, works more like a giant online warehouse sale. Unlike the Outnet, where merchandise is more selectively curated, Yoox’s massive inventory is a bit overwhelming, but for intrepid deal-seekers, investing energy in scouring the site pays significant dividends, such as straight-off-the-runway Prada heels for $380 or a Balenciaga metallic dress for $900.

These sites are succeeding dramatically despite the downturn (Yoox and Vente Privee, for example, posted 2008 revenue gains of 46 percent, while Gilt Groupe’s December 2008 sales were 35 percent above plan) because they deliver incredible deals, satisfying consumers’ appetites for designer merchandise at discount prices, but they share a number of other qualities that give them a competitive advantage over their traditional 3-D counterparts. First, most e-transactions take place in the privacy of one’s home (or they’re snuck in, surreptitiously, at the office), requiring a minimum of effort on the consumer's part. No standing in line or navigating crowds—it’s the retail equivalent of a couch potato enjoying a film on DVD instead of in the theater.

Second, in these troubled times, heavy-duty luxury shoppers are making an effort to be a little more discreet, going so far as to avoid carrying fancy shopping bags for fear of attracting negative attention—with sites like Net-a-Porter and The SHOP, buyers enjoy high-quality packaging that arrives at your doorstep via UPS or FedEx, presenting your self-indulgence as if it was a beautifully wrapped gift from Bergdorf Goodman.

Finally, there’s the issue of ease of access; not everyone lives in a major city, and as a result, short of taking a shopping-spree vacation, it can be almost impossible to get your hands on the most desirable designer merchandise. Plus, there’s the handy fact that shopping online somehow never feels as serious as the sensation of swiping a credit card or handing over cash in an actual store—it feels a little bit like spending Monopoly money, at least until the bill comes due.

The fashion media aren't talking about it much, but the luxury department store model faces a real danger of extinction over the coming seasons. Saks, for instance, burdened with $5.1 million of losses this quarter, can’t survive many more such beatings, and Barneys is struggling with its cash flow and sluggish sales. If these giants are forced into bankruptcy, the entire industry will feel the effects, and e-commerce, with its low overhead, and broad market penetration, will be even better positioned to become more prominent. If they could only solve the problem of how to allow customers to try things on, e-tailers would be unbeatable. Until that day comes, as long as you know your size or don’t mind dealing with a potential return, they’re still a smart solution for deal-hungry junkies who are jonesing for a fix of luxury right about now. If you hurry you might be able to get a pair of Marc Jacobs flats for 70 percent off, only $118, on the Outnet, but you’d better move fast: There are a lot of shopping-starved customers out there right now sitting by their laptops, ready to pounce.

Plus: Plus: Check out Fashion Beast, updated every Wednesday, for more news on the latest runway shows, hot designers, and emerging trends.

Sameer Reddy is a special correspondent for Newsweek International, to which he contributes two columns—Top Shelf, which deals with luxury, and Tendencies, a survey of trends in culture. Based out of Berlin, he edits a recently launched blog about aesthetics, www.the-comment.com, while consuming large amounts of sausage and gluten-free pretzels.