Things may be grim for many high-street shops, but some online retailers have thrived as thrifty consumers search for bargains. Brothers Nish and Sach Kukadia are prime examples.
"Our dad was one of the founders of Pepe Jeans," says Sach, "so I guess it was always likely we would do something in clothing." In 2006 they were approached by Silvia and Michael Cody, two former partners of their father. The couple had seen the success of Vente-Prive a French firm that acted like an "online factory outlet" and wanted to start a British version. The couple thought that Nish, who was working for advertising giant WPP, and Sach, who was selling branded clothes to large shops, had "the skills needed to make it work".
The brothers packed in their day jobs and re-mortgaged their houses to raise some cash. "Vente-Prive had proved the success of the model so we had no problem taking the plunge." The plan was to persuade fashion retailers to let Secret Sales offer its clothes at a discount to its private members, but without Secret Sales having to buy any stock until a sale was certain. The fashion brands weren't keen. "They didn't want to sign a deal with an unknown firm with no trading record and no members. They wanted us to prove ourselves." The quartet realised they would have to take the risk of buying discounted stock themselves and then start selling it. "We had contacts with some European suppliers and managed to get our hands on some good-value stock."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
By January 2007 they had started using internet marketing to attract members. "We put a lot of content on the site, articles and photos to attract people interested in fashion," says Sach. They also used sponsored search results to target people looking for clothes online. Margins were kept low so that customers got cheap deals. "Discounts were the biggest help in building membership. People began telling their friends," says Nish.
By the end of the year they had 40,000 members. That persuaded Italian designer handbag-maker Furla to partner Secret Sales. "Getting big names on board helped boost our membership and showed other brands that they could use us."
Then came the recession. "Suddenly brands found they had excess inventory they couldn't shift," says Sach. "We were the perfect solution because our private membership structure means they could discount stock and sell it quickly without cheapening their brand," adds Nish. The recession also boosted membership. "Consumers still wanted top brands but had less to spend. We were their obvious choice." By the end of 2009 Secret Sales had 450,000 members and sales of £2.4m. The quartet pumped profits back into upgrading their website and marketing for new members. "It was a snowball effect," says Nish. "With more range we were able to offer members better clothes, which in turn helped us attract more members." Last year the firm generated £20m in sales from over 1.5 million members. Buoyed by this success the quartet has now set its sights on the homeware market.
-
Rents rise at slowest pace for four years – is buy-to-let still worth it?Slowing rental growth and higher property taxes are creating a headache for landlords. Does buy-to-let still offer a good yield?
-
Should you bag a bargain with a half-price investment trust?Twenty-six investment trusts look cheap by historic standards, with some trading at a discount of more than 50%. Are they a bargain or value trap?
