British e-tailer, SecretSales, is in the business of discounting, offering up to 70% off the world’s top brands and designers. But when mainstream retailers turn to sales as a new way of selling goods, it can become harmful for the entire industry.
Nish Kukadia, CEO and co-founder of SecretSales – which bought in over £50 million in gross revenue over the last 12 months – says the last year bought about a whole new wave of retailers increasing their propensity to cut the price of their goods. “This can condition consumers in Britain to expect discounts across the board, all the time, and we’re seeing full-price retailers go down that avenue which is a bit of a worry,” he explains. “I think it's dangerous for them and it's dangerous for us. And it doesn't create a good consumer experience.”
Kukadia says these retailers should “leave the discounting to the professionals”.
“We sell discounted products and we are about sales, but we are also in the business of protecting brands, we want to make sure we don't go out at bargain basement prices.”
He says flash sales are not about clearing the product for the sake of it, but cultivating an environment where customers can still enjoy a great sales experience and don’t become disloyal. “I think it's not all about price, it's also about choice,” he says, noting SecretSales is the highest rated discount retailer in the UK, with a score of 9.4/10 on Trustpilot.
“In today's world convenience trumps price,” he continues. “People are willing to pay more for a more convenient experience, than expecting the discounting that really affected the entire retail market last year.”
How flash sales came to the UK
SecretSales was the first flash sale website to enter the UK market. Kukadia set up the business with his brother, Sach, in the mid-2000s, using the pair’s strong family routes in retail. “Our father went from owning stores across London selling designer fashion and denim, to becoming one of the early shareholders in Pepe Jeans, which was launched by three Indian brothers who took it from concept brand to enormous global denim phenomenon, trailing in the steps of Levis,” he describes.
“We grew up knowing a lot of designers, working in warehouses, getting to know how fashion got put through the cycle. That shaped our careers instrumentally – actually, it shaped our entire adolescence.”
While Kukadia is the academic of the two brothers, co-founder and buying director, Sach, focuses more on the product. “Fashion wasn’t my forte – I was much better in cords than I was in denim,” he laughs.
Two family friends approached the pair in 2006 after witnessing the rapid emergence of flash sales across the Channel in France and they decided to replicate the idea. “SecretSales was an eCommerce business, hosting short online sales of designer brands. Brands would ring-fence the stock and we would only buy in what has been bought by the customers,” explains Kukadia. “But we had to change the way the website functions and we needed to fundamentally select different brands from what the French guys were doing and we knew the landscape here was a lot more competitive.”
SecretSales was bootstrapped and started with a £100,000 bank loan underpinned by family property. They used the money to secure some inventory from Italian handbag wholesalers, including the coveted Chloe Paddington bag which they offered at a 60% discount.
“A little bit of PR got us a tiny column and that tiny column got us a huge wave of traffic because Chloe was a strong launch brand,” he explains, noting how SecretSales is now more than double the size of the second largest flash sales business in the UK.
The recession helped SecretSales gain momentum as the site became viral and the press featured it as smart ways to save money, but Kukadia says it was not easy getting brands to understand the benefit of this new-age way of clearing stock.
“We can offer brands a better price than the likes of TKMaxx and we make your brand look amazing,” he says. “But most of the brands said there was no way they would want to sell discounted products online because they didn’t trust the internet.”
He says luxury retailers, and even mainstream brands like G-Star, weren’t selling online themselves ten years ago, but SecretSales gained yet more momentum in March 2008 when it managed to get hold of a container of Adidas Original trainers.
“They sold like hot-cakes because we suddenly put on the site, not a high value French or Italian designer brand, but a brand everyone recognised and everyone understood was a certain value. And when we offered a discount against that it became an impulse purchase,” he explains. “It is much less of a consideration to buy a pair of Adidas trainers at 70% off than it is to buy a Valentino suit – not only is it expensive even at a discount, but people don't understand what they're buying into at that point, because they’re not as familiar with the product.”
The business then went on to gain brands like Furler, True Religion and Original Penguin and when Lehmann Brothers collapsed in 2008, Kukadia said the phones rang off the hook. “People were ringing up saying: ‘Are you those two Indian brothers who can help us move stock, because we have a real stock problem and we need to move it fast?’ That was fantastic and we didn’t need to spend any more on marketing because the quality of stock in the pipeline was creating those great water-cooler moments.”
And still to this day, the major proportion of traffic to SecretSales.com comes through word of mouth.
But Kukadia says other e-tailers think it is simple to set up a flash-sales website once you get hold of the inventory. “It’s probably one of the most complex eCommerce plays you can get into,” he says. “You are funnelling through your business more SKUs in a space of a week than other businesses would do in a space of several months.”
Kukadia says SecretSales can upload up to 2,000 new SKUs, all of which are photographed in its own studio, retouched and uploaded to the eCommerce site.
“It's the velocity and volume of products you put on the site, and it’s that level of newness which attracts customers back,” he says. “One of our loyal customers, who I try and speak to every week, was saying it's just the element of surprise, never knowing what you're going to see in that email. And it's a little bit of a pick me up every day – that's still an important part of it.”
The customer journey
The business now has 4.6 million members, with 2.5 million described as active, who engaged within the last 90 days. The business predominantly uses email to entice these shoppers with sales, which accounts for a big chuck of the company’s revenue, but referring to those “watercooler moments”, still 50% of sign ups come through natural traffic.
Shoppers generally tend to be affluent women aged 30-45, AB1 with a high disposable income. “They have four or more credit cards, drink wine and like to ski as a pastime,” he adds.
While customers have had to traditionally wait weeks to receive their orders due to stock travelling from the brands at the end of the sale to SecretSales for distribution, Kukadia says SecretSales is trialling a service to encourage brands to use the eCommerce platform to dispatch goods directly from their warehouses, which speeds up the service proposition considerably.
The eCommerce platform itself is all bespoke, while its behavioural database is internally built in Redshift. SecretSales is increasingly using personalisation algorithms to improve what customers see on their emails and the website.
“We’re sending out a lot of different variations of emails,” explains Kukadia. “We’re testing out algorithms that rerank banners based on the likelihood of customers to buy those products and how much inventory is available.”
Kukadia notes how the e-tailer’s CFO has a professional background in online gambling, which he believes is a very important sector to keep an eye on from a CRM perspective. “There are micro nuances of how to get customers to play more or play less, depending on how good they are at winning,” Kukadia describes. “It’s a very subtle science of understanding customer behaviour and understanding the right messaging at different times. And we’re starting to see talent from online gambling seep into the retail world and there’s not enough really strong retail CRM experts out there because a lot of people focus on brand and visual identity and less on science, which delivers consumers the right messaging at the right time.”
Mobile and stores
Another area which SecretSales has spent much time and investment is mobile – 63% of the e-tailer’s sales are from mobile, 40% of which are smartphones, 23% tablets. “Most other retailers quote these figures for traffic, not sales,” he says. “But we had a fully responsive site by the end of 2012 and that was a good six months before Mashable and everyone else started talking about responsive being an important wave in web design.”
Kukadia describes how the nature of flash sales is speed. “It’s finite quantities and if you can’t access it when you need to, you’re going to miss out. Most flash sales play on the fear of missing out, so smartphone accessibility has always been paramount.”
SecretSales has chosen a mobile-first approach, but decided early on not to “distract itself” with an app.
“You just need everything to function seamlessly, and we have that as part of the DNA of how we developed our technology.”
SecretSales is also not distracting itself – for the meantime – with physical stores, Kukadia says the lines between online and in store are beginning to blur.
“Naturally you'll start to see stores and pureplay businesses working more collaboratively,” he says, describing how the business launched with Hermes Parcelshop to provide customers with a Click & Collect option. “And we could see that partnering with stores or department stores, or shopping malls, is going to be in the future and I think pureplay businesses like us will start to have presence either on a Click & Collect basis or some sort of physical presence.”
He continues: “The first state of pureplay and bricks and mortar collaborating will be in service and convenience like eBay and Argos, and Argos and Sainsbury's. We’re starting to see a wave of that happening across the US and I think that's what will happen here soon as well.”