The flash sales or discount sites sector was once a cool sector that saw several billion dollar unicorns like Groupon, Gilt Groupe, LivingSocial, and Zulily. But as the sector’s appeal fades, these unicorns are turning into unicorpses*. The latest addition to the unicorpse list is One Kings Lane, which was recently bought by Bed, Bath & Beyond for $30 million, a mere 3% of its peak valuation of $912 million in 2014.

Photo Credit: Loozrboy /Flickr.com

One Kings Lane: The Beginning

One Kings Lane was founded in 2009 by design enthusiasts Susan Feldman and Alison Pincus to provide a curated destination where consumers would be able to shop for several home and lifestyle brands. It enabled US consumers to buy superior quality home goods at a discount. During this period between 2008 and 2010 when the economy slumped, several flash sale or discount sites mushroomed to help retailers and designers sell their unsold merchandise.

One Kings Lane worked directly with suppliers including leading home brands, antique and vintage dealers, and designers and was able to offer discounts as high as 70% on their flash sales. Besides flash sales, the company also offered tag sales that let their suppliers sell unused items and unsold inventory through their site. It also offers complimentary interior design service at two studios in San Francisco and New York.

One Kings Lane flourished in its niche of home goods. At the end of 2012, the site had more than five million members and it listed nearly 1,000-2,000 products daily for these consumers. It reported revenue of $100 million in 2011 and was looking to earn revenues of $200 million in 2012. However, like most other companies in this genre, it was not yet profitable.

But still, venture capitalists were pouring millions of dollars into this hot but unprofitable sector and One Kings Lane was also a beneficiary. It received $229 million in funding from investors including Kleiner Perkins Caufield & Byers, First Round Capital, Reid Hoffman, Greylock Partners, TriplePoint Capital, Marissa Mayer, Tiger Global Management, Mousse Partners, and Scripps Networks Interactive. Its last round of funding was held in January 2014 when it raised $112 million at a valuation of $912 million.

The Downfall

One Kings Lane went through a series of layoffs that began in 2014 when it cut 79 jobs or 15% of its staff. About 18 months later, it cut another 25% jobs. According to Keybanc Capital Markets, One Kings Lane saw only a 3% increase in revenues last year and for the past year was looking for a buyer. It was hoping to get at least the amount it raised, but was finally sold to Bed, Bath & Beyond for $30 million.

According to a Retention Science study, 93.8% of flash sale site customers did not return to a given company to make a repeat purchase within six months. That figure drops to 72% for customers of subscription websites, like Honest Company, and 91.5% for general retail sites, which do not offer the consistently steep discounts of their flash sales counterparts. Analysts also point out that the target market of these flash sale sites is also to blame. They are trying to attract bargain shoppers who are more conscious about the price than what and where they buy it from.

And as the economy picked up, the supply line for these sites began drying up as the retailers no longer needed to rely on them. They also had a lot more flash sales sites to choose from.

Another important factor for the fall of these discount sites is the presence of e-commerce giant Amazon (AMZN), which has the resources to offer a wide range of products as well as discounts.

But, the lesson to be learnt here is to keep an eye on the fundamentals. Avoid this fast lane of raising funds to fund expansion and hiring when you don’t even have a fundamental long-term business in place. The flash sales model was a temporary flash in the pan that didn’t warrant such high valuations and so much funding.

* The term Unicorpse was first coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.