European venture capital companies are making a bet on online shopping clubs, with more than $377m invested in the fledgling sector over the past three years.
The latest addition to the growing list of buying club start-ups is Keynoir , a UK based business launched by two former founders of Kelkoo. Keynoir focuses on discount offers for “experiences” such as spa days and restaurant meals. The company raised £1.3m and say that 5000 users have signed up in their first full month since launch.
Online shopping clubs offer exclusive discounts on items from designer clothes or holidays to members who sign up on the internet. It is often a way for brands to dispose of excess stock in a discreet way, or for companies to drum up new business through special offers.
The recession has helped boost business for many of these clubs. Not only are people looking for a bargain, but designer brands have had more unsold merchandise to sell off through channels like these.
By far the biggest of the European shopping clubs is Vente Privee of France, which raised 180M EUROS from the sale of a 20% stake in 2007. It now has revenues in excess of 650m euros, and its success has spurred a number of companies to emulate their business model.
Brands4Friends , the largest buying club in Germany and Austria has revenues of 80m euros, and was profitable within two years of its launch.
Investors have also been encouraged by the success of Groupon , a US-based online buying club, which raised $135m in funding in April from Russia’s Digital Sky Technologies, implying a valuation of more than $1bn for the company.
Although the European private sale market is estimated to be worth around 3bn euros, it is becoming increasingly crowded. There are at least five companies in France alone now, and we are already seeing consolidation in the sector. Brands4Friends recently acquired TripHunter , a two-year old shopping club focused on offering luxury holidays. It also invested an undisclosed amount in SecretSales in the UK. In Italy, there has already been a merger in this sector.
Bigger buying clubs will end up aggregating the more specialised ones. At the same time, Amazon and eBay are eyeing the shopping club market with some interest.
Analysts are divided on how this will all pan out. Penetration is relatively low still, and this type of shopping will not appeal to all. But given you can always get a deal, it will clearly be a viable business model for some time to come!