In 2005, Ben Fischman became CEO of SmartBargains.com. The discount
shopping website sold everything from apparel and bedding to home decor
and luggage. The business model was straightforward: companies wanting
to offload clearance items or extra merchandise would sell them cheap to
SmartBargains, and SmartBargains would pass the deals on to the
consumer. There was a broad variety of merchandise, and prices were often
up to 75 percent lower than retail.
But by 2007 the website was floundering. Margins had always been low,
but excitement about the brand had dissipated, and momentum was
slowing. A number of related websites had also sprung up, and
SmartBargains was struggling to differentiate itself from similar
competitors.
A year later Fischman started a new website called Rue La La. It carried
high-end designer goods but focused on “flash sales” in which the deals
were available for only a limited time—twenty-four hours or a couple of
days at most. And the site followed the same model as sample sales in the
fashion industry. Access was by invitation only. You had to be invited by an
existing member.
Sales took off, and the site did extremely well. So well, in fact, that in
2009 Ben sold both websites for $350 million.
Rue La La’s success is particularly noteworthy, given one tiny detail.
It sold the same products as SmartBargains. The exact same dresses,
skirts, and suits. The same shoes, shirts, and slacks.
So what transformed what could have been a ho-hum website into one
people were clamoring to get access to? How come Rue La La was so much
more successful?
Because it made people feel like insiders.
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When trying to figure out how to save SmartBargains, Fischman noticed
that one part of the business was doing incredibly well. Its Smart Shopper
loyalty club allowed people who signed up to get reduced shipping fees and
access to a private shopping area. Deals that no one else could see. It was a
small part of the site, but growth was through the roof.
At the same time, Fischman learned about a concept in France called
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