Sector Spotlight: ‘Flash Sales’ Retailers Look to Regain Their Mojo

Flash sales sites continue to look troubled, with heavily funded outfits like Fab and One Kings Lane shedding employees. The model, in which sites hold regular sales of items such as clothing, shoes and furniture from particular vendors for a limited period of time, is criticized as too expensive and a relic of an era when discount retailers had excess goods they needed to offload.

The problem: Gross margins on flash sales are razor thin—in the low 20s, according to two people familiar with the space—and that leaves little room for any extra costs. Successful flash sales businesses like Hautelook and Zulily have been able to keep marketing budgets under 10 percent of revenue, which is far below the 50 percent that many other e-commerce operations spend. Also these sites need to have robust logistics that can handle a flood of orders that must be processed and shipped in a short period of time.