Online Shopping Clubs Cleaning Up

Includes: NMG, SKS
by: Mark McQueen

For all of the impressive big cap stories at this year’s fabulous RBC Capital Markets Technology, Media and Telecom annual conference, some of the buzz is definitely centered around the impact that targeted e-commerce is having on traditional outlet shopping malls.

As consumers test the wonders of “eFashion”, venture capital funds are practically piling into online shopping clubs. In Europe, US$377 million has been invested of late according to the Financial Times. North American names, such as Groupon, Haute Look and Beyond The Rack, have all attracted meaningful cheques from firms such as Insight Partners and Highland. Summit Partners is the VC behind the world’s largest club, France’s Ventee Privee, which wrote a E180 million cheque in 2007 for a minority stake. That investment kicked off the gold rush that’s still underway today. As many shopping clubs are profitable after just a couple of years, and industry consolidation is in the offing, it’s no wonder that VCs are bullish about the space.

Even if you’ve never heard of these online shopping clubs, they may well be impacting your shopping patterns. Have you been to an outlet shopping mall of late? Perhaps you stopped by the Off5th (Saks (NYSE:SKS)), TJ Max, or Neiman Marcus (Pending:NMG) Last Call. Or maybe you prefer Filene’s Baement. Did you notice something about the inventory?

Not as much of the “good stuff” as in previous years, is there?! That’s not likely the recession recovery at work; this is the new reality presented by these online shopping clubs. Why send 200 sunglasses to TJ’s if you can flip them online? Better margins for the seller, and more convenient for the consumer; at least those consumer’s (read: employed) who are trapped at their desks for most of the week. Everyone’s happy.

This is no fad, and the VC industry believes there is enough momentum still left to warrant further investment in the space.

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