Today Amazon announced the acquisition of our portfolio company BuyVIP, confirming a deal that had been widely leaked via the Spanish press since the weekend. This deal was done at the same time as BuyVIP's nearest rival, Barcelona-based Privalia announced a whopping €70m funding round. The markets are abuzz with further transactions among private sale clubs and private equity firms.
What does this mean for the market pioneered by Vente-Privee, variously referred to as private sales, shopping clubs or short-duration sales? Until Groupon and its many deal-of-the-day clones exploded onto the scene, the private sale market was the fastest-growing business model most of us had ever seen.
The torrid growth continues, but the market dynamics are about to change. The first phase was about speed of execution,the next phase will be about scale and cash.
Originally, the private sales model offered brands a way to quietly feed excess inventory to loyal brand followers, much like out-of-town outlet malls. But with European private sale revenues exceeding €1bn in 2009, up perhaps 40% on 2008, the shopping clubs had become a significant channel in their own right. I suspect brands were surprised at how quickly this new channel ran away from them.
Brands are waking up. They're learning how to play the various shopping clubs off against one another. In the coming months and years they will drive harder bargains. Inevitably, the clubs will have to start buying more inventory if they want to continue to pass on discounts of 60-80% to their members. That approach has been the norm in the US market for some time. This is why Privalia needs so much capital and why BuyVIP will now benefit from Amazon's balance sheet. Look out for more scrambling for cash among the other clubs in Europe.
The last two years were all about the land-grab. Vente-Privee expanded into the UK, Germany and Spain, with mixed success. BuyVIP and Privalia battled it out in Spain and Italy. Privalia became the first serious player in Latin America by building a beachhead in Brazil. BuyVIP fought over the German market with incumbent Brands4Friends, and the latter expanded haphazardly into Austria, the UK (by investing in SecretSales) and Japan. BuyVIP also entered the Dutch, Polish and Portuguese markets through partnerships. In the meantime, domestic players dug in at home: Showroomprive, Private Outlet and BrandAlley in France, SecretSales in the UK, KupiVIP in Russia, and many others.
Hundreds of millions of euros have been spent on acquiring members, feeding a whole sub-industry of SEM agencies, affiliates, lead hustlers, etc. A lot of that spend has been inefficiently duplicated as the same fashion-hungry shoppers are hoovered up to join multiple clubs. That in turn drives up marketing costs for everyone, which is ultimately not sustainable.
Fixing this will require consolidation. There are only two gorillas in the space today: Vente-Privee in Europe and Gilt Groupe in the US. If the others move quickly enough there can be a third, perhaps a fourth, with enough scale to push down member acquisition costs, and enough clout to stand up to the brands. Then it will be a race to IPO. Why Vente-Privee has not yet issued shares to the public is one of the enduring mysteries European investors love to grumble about. I suspect Gilt Groupe won't be so reticent.
And for consumers... it's all good news. Shop on!

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