Flash Sales: Once a big-hit!

How do you feel when you see a product listed as Only 2 left in stock — order soon! or even better if that product comes with a hefty discount on it? Combining both of these elements results in a unique promotional strategy which is known as Flash Sales. And there was a time when flash sales were so popular that the entire businesses models were solely following this concept. However, now the scenarios have changed as these businesses are struggling to survive. 

First, let us try and understand what makes Flash Sales such a popular method of promotion. The quantity is limited, which often means discounts are higher or more significant than ordinary sales. The time limit and limited availability entice consumers to buy on the spot. There is a lot of urgency and exclusivity that tap into customers FOMO (Fear of Missing Out!), which encourages impulse buying.

Scarcity is about how much less of something is available. Scarce things are less accessible because of high demand, limited production, or restrictions on the time or place you can acquire them. Brands developed innovative strategies to enhance scarcity by making their products accessible only to people who meet particular criteria.

For example, Rue La La is a members-only private sale shopping emporium where members discover and shop from luxury brands. Access to Rue La La is invite-only, and individuals can join only for a limited time. Meaning you can enter and access Rue La La only if you have received an invitation from your friend or someone to access the website. A form of referral program but in a very different way.

Scarcity and exclusivity help products catch on by making them seem more desirable. If something is difficult to obtain, people assume that it must be worth the effort. If something is unavailable or sold out, people often infer that many people like it, and therefore it must be pretty good. 

Not only that, Flash Sales can be extremely successful to sell the unsold inventory or to sell stock out of season or items which are now out of trend. Eventually improving the Inventory Turnover Rate and also Customer Satisfaction Score. But even after all these advantages, is it practically feasible to build the entire business model on this sole concept? Let’s find out!

Many companies are following flash sales business models, ultimately struggling due to some of the main challenges discussed below. 

Flash Sale Fatigue: Consumers are bombarded with different promotional emails on a daily/ weekly basis. Driving them crazy and making them feel burnt out from the need to purchase at a discounted price, so it happened as more and more consumers started disengaging from such emails and Opt-out rates began to climb.

Fight for Market Share: The market has become increasingly competitive as the number of new players continues to rise, Beauté Privée, launched in 2007 and acquired by Showroomprivé in 2019; Private Sport Shop in 2011; Bebeboutik in 2012; Brico Privé in 2012; Mon Animal Privé in 2015; and Homme Privé in 2018. Also, they faced a lot of heat from other e-commerce platforms such as Amazon, Alibaba, as this intensified the fight for acquiring more market share. 

Say no to Margins: Offering good services at a highly discounted rate cannot be a sustainable business model for long-term operations, resulting in narrowing margins and reducing EBITDA. And once the consumer gets habitual to high discounts, it becomes difficult to get them interested without offers.

Customer loyalty is a challenge: A flash sale can attract one-time buyers. Once they snag a deal, they vanish. Additionally, many flash sale e-commerce stores offered less than favourable shipping rates and return policies. These two elements are main in building a loyal customer base and generating word of mouth.

All these challenges are evident from the situations a lot of Flash Sales platforms had to go through.

• Groupon lost 80% of its market cap in the year following its IPO
• Rue La La, acquired by eBay, was sold because it dragged down profits
• Totsy liquidated after burning through $34 million
• Fab, once valued at $900 million, now sits at $50 million
• Zulily once had a cap of $7 billion and was acquired for $2.4 billion

As per the trend, Flash sellers will have to evolve their business model to survive in the market. Sites such as Rue La La and Totsy have to go for downsizing. Some others have returned to standard e-commerce business models. Groupon, on the other hand, has shifted to an online coupon model offering discounts valid for long periods. Whereas, Fab.com, which acted as a social media network before offering flash sales, is evolving again, this time into a standard online retailer outfit. Using Flash Sale as an add-on feature should be the approach as very well done by brands such as Flipkart with their Big Billion Day or by Cult.Fit, as shown in the image.