Friday, February 22, 2008

The ‘new’ Retail craze: Private Sale

The web’s ability to disrupt well established markets or entrenched trading practices is well documented. The inexorable growth of many sectors of eCommerce at the expense of the high street continues apace.
Every now and then a new form of retailing is ‘invented’ which captures consumers imagination and represents a real threat to established players. The markets which are ripest for attack are those laden with regulation ie those where the freedom to trade in an unfettered way has been severely restricted.
In the past 5 years a new breed of on-line retailer has come out of France which has taken advantage of the years of conditioning which French, Belgian and other European consumers have been subjected to. Vente Privee is generating hundreds of millions of Euros of sales at high levels of profitability and has spawned more than a dozen copies.
Their formula is simple: a product or group of products is offered for sale for a limited period to their ‘members’. The product is usually very good value and is highly desirable.
How different is this from a retailer’s sale? Many retailers in the UK and the US have storecards (ie members) – they are often offered first crack at the bargains.
The difference is the application of rather archaic and restrictive trading laws in France, Belgium and elsewhere. These laws restrict retailers from running sales at any time other than those specified.
The Economist ran an interesting article which explains these laws more fully:

Part of the article reads as follows:
"If all this sounds fundamentally illiberal, that is because it is. One Eurocrat suggests that a key ancestor of many continental bans on unfair trading is a German law from the mid-1930s that sought to stamp out what Nazi officials called aggressive “Jewish” conduct among shopkeepers. But the laws also carry more than a whiff of distrust of capitalism itself. Belgian parliamentary papers from the late 1960s describe indignantly how some shops “deliberately” sell products at a loss to attract customers who might buy other goods at full price, a ploy referred to as “destructive” competition. Such loss-leaders were banned in Belgium in 1971, along with any selling below cost or at “extremely reduced” profit margins. This has kept the lawyers busy as the courts argue over what extremely reduced might mean. And that is why sales in Belgium are such a big deal: though offering discounts is legal at other times of the year, the sales are the only time when Belgian shopkeepers may sell goods at a loss."

Another snippet of news on a closely related topic caught my eye recently:
A union of French bookstores sued Amazon last month over the free shipping on orders over €20, saying that the cost of Amazon's delivery reduced the price of a book to one lower than allowed by the Lang Law. The booksellers were awarded €100,000 in damages in the suit, and Amazon was ordered to enact a delivery charge.
Amazon.com said that it would rather pay €1000 a day in fines than abolish its free shipping on books in France.

Readers of this blog may wonder which TAG company does this piece directly impact since I hardly ever write on subjects not directly concerning portfolio companies.
It is Koodos, the off-price branded fashion eCommerce site which has both open and closed sale platforms and is making quite a name for itself in the UK fashion scene right now. Clearly our belief is that in the US and UK, retailers run sales any day, all day - even pre Xmas - so consumers have different attitudes and are more inclined to buy on the merits of the offer itself.

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