1Mby1M Deal Radar 2010: Beyond The Rack, Montreal, Canada

It’s all the fun (and great clothes) of a sample sale without the crowds or the need to live in a big city. Montreal-based Beyond the Rack is private sale shopping club serving members throughout the United States, Canada, and other countries around the world. The company sells designer fashions, hosiery, underwear, swimwear, jewelry, cosmetic and beauty products, and accessories from recognized brands at prices up to 70% off retail.

Beyond the rack was founded by CEO Yona Shtern and his business partner, Robert Gold. Shtern has more than twenty years of experience of consumer marketing, e-commerce, and fashion as VP of marketing for Saks Fifth Avenue and Microcell and CMO of Ice.com, and Gold has had an equally long career in fashion and wholesale buying, experience that made entry into the shopping club space a natural move. The pair became aware of the shopping club model while on a business trip to Europe in mid-2008.

Merchandise is made available to members in the context of two-day, first-come-first-served events. Between five and eight new events are launched each day for a total of 35 to 56 a week. Merchandise scheduled to be sold from March 11-14 included Antique River jeans, Lauren G. Adams bangles, and Tom Ford sunglasses. Other brands represented are Fendi, Gucci, Marc Jacobs, Dolce & Gabbana, Coach, Police, and Rudsak. The company has sold products from over 500 brands.

There are a lot of good deals online, but Beyond the Rack aims to go beyond this by democratizing the sample sale market space: it’s no longer an urban privilege. The invitation-only club creates a sense of exclusivity and desire to join, and limited-time events create an air of excitement and urgency to purchase. The current economic climate provides additional incentive to save. The sense of urgency that the company creates combined with the scarcity of the individual products it sells is a potent mix.

The primary target market is women ages 25-49, with a secondary target of men in the same age range. Beyond the Rack is targeting aspirational college-educated women with a household income of more than $60,000 who are savvy online shoppers, interested in fashion and beauty, but don’t have much time to shop. People can join by receiving an invitation from a friend or signing up for the wait list at the company’s site.

A handful of U.S. clubs, notably Gilt Groupe, Hautelook, Rue La La, and ideeli were already in place. With the exception of Gilt Groupe, which targets a slightly higher-end, predominantly urban demographic, the other clubs were and are competing for the mainstream female online fashion shopper who wants brand-name apparel at a discount. New clubs are appearing on a regular basis. Beyond the Rack plans to  innovate by leveraging its inherent customer segmentation and database marketing expertise to deliver a more personalized, interest-driven shopping experience.

Beyond the Rack has more than 750,000 members and continues to grow. The company says that site traffic is currently in the range of one million page views per day based on 200,000 daily visits. According to compete.com, Beyond the Rack is the leader of the North American shopping club in terms of traffic.

For the past twelve months, both membership and revenue for Beyond the Rack are up 35% month-over-month. The monthly revenue run rate exceeds $2 million. The company says that EBITDA before marketing expense is approaching break-even.

Beyond the Rack has raised a total of $4.5 million: $1 million in February 2009, $1.5 million in July 2009, and US$2 million in January 2010, all from European Internet entrepreneurs Oleg Tscheltzoff and Oliver Jung; venture fund Montreal Start Up represented by John Stokes; and Machkor Holdings Ltd., represented by David Chamandy. The team is currently in discussions with U.S. venture capitalists about a fourth round of equity raising; the target closing date is within the next few months. The company would use the proceeds to fund continued exponential growth, and for general corporate purposes.

The plan is to increase the membership base to more than 2 million by the end of they year and expand the number of product events per day, by expanding the buying and merchandising team and vendor base. In terms of profitable growth, the company wants to achieve break-even before marketing expense as a very near short-term objective and break-even EBITDA within 12 months.

Beyond the Rack hopes to position itself for an IPO within two years, be a consolidator in the industry, or be consolidated by one of the larger players in the space.

Recommend Readings
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Deal Radar 2008: Glam Media’s Fashion Forays
Deal Radar 2008: TheFind

This segment is a part in the series : 1Mby1M Deal Radar 2010