If one were to look at DTC wine sales eight or 10 years ago, one would see that flash sales sites were all the rage. Many of those sites still exist, but they do not seem to be enjoying the popularity they once had. Is this just because they were a flash-in-the-pan trend? Or have economic conditions and competition changed the DTC landscape?
The answer is a little of all of the above. Diving into some of the details about the rise of flash sites can give us some insights, not just into that model as a way of selling DTC, but also as a kind of case lesson. Understanding the trajectory of flash sites might hold lessons, for example, about how to do wine clubs and other subscription services in a smart way.
The Rise of Flash Sales Sites (for Wine and Other Goods)
The first flash sale site was created by online retailer Woot.com in 2004 (although Sam’s Club had a similar “deal by email” model as early as 2000). This site had a “deal-of-the-day” format in addition to the company’s online store. Each day a special product was offered at a heavily discounted price, and consumers had 24 hours to pull the trigger on the deal or lose it.
The rationale behind the deal-of-the-day format made good sense. For the consumer, it meant heavy discounts on desirable items. For the seller, it was a way to offload extra inventory. Also at work was the psychology of scarcity: Because the discounts were steep but lasted only 24 hours, consumers felt they had to act quickly or else lose the deal on that particular item. It was the ultimate embodiment of the salesperson’s old pitch, “Act now! Supplies are limited!”
Since 2004, many other deal-of-the-day sites have sprung up. Some of these were additional offerings by established retailers, while some were “flash sale only” sites offering goods from multiple brands.
Importantly, flash sales enjoyed much success because of the way the economy was headed. Flash sales really began to take off in 2007 and 2008 when the market crashed and recession hit. Consumers, for their part, needed to tighten their belts, and so flash sites were a way to splurge a little on luxuries while still getting a really good deal. The “buy it or lose it” aspect also made the sale itself fun and exciting. For retailers, flash sales were often an easy way to move slow-moving items—a very important strategy when inventories were becoming backlogged with unmoved goods. Thus, flash sales fit with the scarcity mindset that came with the recession.
Another twist to the flash sales trend was the rise of social media. Because some deals required a “participant quotient” for the deal to activate, it became popular to share them across social media and invite friends to participate. This amounted to a kind of inexpensive word-of-mouth marketing.
The wine industry was no stranger to flash sales, either. Sites like WineShopper, Last Call Wines, Wine Woot, and Wines ‘Til Sold Out sprang up during the flash sale craze, and several of them are still with us today. Many of these companies offered wineries a chance to offload inventory and get cash on hand to improve cash flow but still offered steep discounts to consumers.
Non-Wine Flash Sales Hit Hard Times
Flash sales are by no means gone, but the gold rush has certainly petered out and the model has normalized.
For example, many flash sale sites are being bought out by larger, better-leveraged retailers—and at a rate that is far less than their peak valuation. Gilt Groupe, for example, once valued at $1 billion, was bought by retail conglomerate Hudson’s Bay Company for $250 million. Likewise Fab.com was valued at $1 billion but sold for $15 million in 2014. Sites such as Rue La La and Totsy have experienced major downsizing.
Even Groupon, a remarkably well known and successful site, has seen its stock value plunge about 80% since it went public, with fewer sales and local partnerships now than it had at its start.
The question is: Why? Part of the story is outright burn-out. An occasional barn-fire deal is an exciting thing; but one a day can be exhausting. As consumers were added to more and more marketing lists, triggered by their single flash sale purchase, the deluge of offers became too much for some.
Another part of the story is the recovering economy. A better economy meant less “excess” inventory laying around, and more discretionary spending. Deep discounts thus became harder to justify.
A final part of the story was, frankly, greed. A number of flash sale sites tried to widen their margins even as they offered huge discounts by marking up shipping rates and restocking fees. But those huge shipping and return fees devalued the deals in the eyes of the customer, further eroding customer loyalty.
In retrospect, though, that “greed” makes sense. Flash sales need a sustained marketing effort to re-engage past customers. But the average customer simply doesn’t drink wine fast enough for the model to be sustainable. Thus, there was always a mad drive to get new customers, and to squeeze more revenue out of existing ones. Still, how quickly companies could add customers dictated their ultimate success.
Wine’s Hybrid Model: Making Good?
There is an additional worry with flash sales sites in the wine space: The dilution of a brand. By offering premium labels at a steep discount, some wineries inadvertently “cheapened” their brand.
That misstep is being addressed, however, by wineries that are combining daily deals with subscription services and content/curation. For example, sites like Naked Wines, Winc (formerly Club W), and Blue Apron Wine are maintaining much better control of the customer experience, and thus actively building a brand around their core knowledge and service. Thus, even if wines are offered at a discount, customers are still coming back again and again for this kind of purchase experience.
This hybrid approach has many benefits. For example, good deals and fast DTC shipping are especially appealing to millennials, who are quickly becoming one of the largest demographics when it comes to wine purchases. Flash sales also make sense as seasonal “specials,” especially when existing wine club members get special treatment (for example, longer access to the deal, early bird specials, or even steeper discounts). Finally, some argue that such sites are good brand exposure, if the deals are couched as ways to sample new stock (a position often taken by subscription services).
Of course, the story is still being written, both for subscription services and for these hybrid approaches. But there are some important takeaways from the history of flash sales that are relevant to both of these newer models. That will be the focus of our next post.
In the meantime, if you would like more information on the subscription services topic from those working in this space daily, download our most recent report where wine industry leaders share their insights. I’m also happy to answer any questions you may have on this topic so don’t hesitate to reach out. Thank you for reading!