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What's next for Rue La La, fast-growing 'flash sale' specialist based in Boston?

Posted by Scott Kirsner  December 22, 2011 08:45 AM

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2011 was an interesting year for two Boston retailers.

One Filene's Basement, announced that it would close after 102 years in business.

And another, Rue La La, founded in 2008, was acquired into and then spun back out of eBay. Like the Basement, Rue La La's business is built on buying surplus high-end goods and selling them at a discount. But rather than owning brick-and-mortar stores, Rue connects with customers through its Web site, a daily e-mail, and apps that run on mobile devices. Most merchandise that appears on Rue is only available for two days, hence Rue is often described as a "flash sale" site.

Since the spin-out from eBay, Rue has been part of a newly-formed Pennsylvania holding company called Kynetic, though it is still run by Rue founder Ben Fischman. (eBay retained a 30 percent stake, and put $70 million in cash on Kynetic's balance sheet.) Rue has 400 employees. I caught up with Fischman last week to talk about what's next for the company, and the depressing end of the road for Filene's Basement.

On the Basement: "What was most unique about Filene's Basement was the brand that it built in Boston. There was so much emotion and passion, and they sourced merchandise so well for that Boston store. I just think they couldn't carry that to other markets. In Boston, they were an icon, but it just didn't matter in New York as much, or Chicago, or the west coast. I think their biggest mistake was making bad real estate decisions." Could someone acquire the Basement brand and revive it? Fischman says that former Filene's Basement CEO Sam Gerson who died in 2003 "isn't coming back, and I think it'd be tough sailing for anyone else."

On what works in brick-and-mortar retail today: "I was just in Chris Birch's new store, C Wonder, in New York. It's an incredible retail experience, with lots of proprietary product. That is the future of retail. It's people who develop their own shopping experience with their own unique product that can't just be copied by Wal-Mart and Amazon. It's great retail theater. Newbury Comics here in Boston is a great example of a cultural experience that is so rich and good, as is Brookline Booksmith. But I think Barnes & Noble goes away. Wegman's wins. Try walking into a Wegman's, and then walk into a Shaw's."

On phones and tablets: "Over 30 percent of our sales are being done through a mobile device, and more than half of that is being done through an iPad. By having this device tethered to your body, it creates a level of engagement that is driving incremental sales."

On offering free shipping during the holiday period: "What we're doing instead of offering blanket free shipping to everyone is a new approach to free shipping. When you make a purchase, and pay your $9.95 shipping, for the next 30 days you can buy anything on the site and get free shipping for that next purchase. It's driving tremendous incremental sales."

On the future for Rue La La and Kynetic: "When we were spun out, it was kind of a 'died and gone to heaven' scenario. We became a private company, with no institutional or venture investors or private equity. The company is owned by Michael Rubin [chairman of Kynetic], me, and the management team. I love the flexibility that we have. We can do with the business what we believe is most important. Public markets could be an interesting place for us in the not-too-distant future. And we think consolidation is really interesting. This is a hard business, with a low barrier to entry but a high barrier to success. We look forward to playing a role as a consolidator."

(Last fall, I wrote about Rue La La in the Globe, and also on this blog. An audio interview with Fischman, conducted in June 2010 by venture capitalist Lee Hower, is here.)

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About Scott Kirsner

Scott Kirsner was part of the team that launched in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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