She found a good way to sell them elsewhere without consigning them to a bargain-basement rack that might tarnish the brand in the eyes of would-be customers. All year, she's been selling the excess goods for half-price on the members-only Web site Gilt Groupe, during 36-hour sales that are hidden from the view of the general public. "What we're selling is first-rung, but if it sits around at a sale I think the consumer gets the wrong impressions about the product," Merkin says.

Saddled with overstock from the retail recession, makers of luxury apparel, home furnishings, and other high-end goods are selling their wares at reduced prices through Gilt Groupe and other private shopping sites. Many of these companies help fuel pent-up demand by limiting membership, forcing would-be clients to park on a waiting list or be referred by existing members.

Lure for Bargain-Hunting Fashionistas

Luxury brands can use these members-only sites to hide markdown prices from retail shoppers willing to pay the full amount, while attracting scores of wannabe fashionistas willing to wait for haute couture at a low price. "The brands they offer are of such high quality, and because they're at discount prices it makes them much more attainable," says Meghan Donovan, a 24-year-old San Francisco resident who shops on Gilt.com.

The private-sale model also makes sense for Gilt Groupe and other sites that act as middlemen, because they carry no inventory and earn a wide margin on sales. Combined revenue at Gilt Groupe, Rue La La, and Ideeli, three of the top four players in the U.S., is expected to exceed $300 million this year. That, along with sales at other private-sale sites, makes up a significant portion of the estimated $1 billion a year in online sales of luxury apparel, says Sucharita Malpuru, e-commerce analyst at Forrester Research.

Online private-sale fever is spreading. In October, upscale department store Saks held its own online "flash sale," a 36-hour event open only to customers on its mailing list. Cable company Comcast recently announced it's getting into the space by opening Swirl, a private-sale site affiliated with its DailyCandy newsletter, which provides an insider's guide to shopping and nightlife in cities such as New York and Miami. And on Oct. 27, e-commerce services company GSI Commerce said it will buy the parent company of Rue La La for up to $350 million, a deal that may see a range of GSI clients like Kate Spade, Ecko, Calvin Klein, and Adidas lining up for private sales on the site. "Our brands want to sell a lot of inventory in a very quick period of time and they want to do it discreetly," says Michael Rubin, CEO of King of Prussia [Pa.]-based GSI. (continued...)

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