Can Gilt and Its Competitors Survive Longterm? (Updated)


Le Pavillon du Golf on Jetsetter_2010_10

By most accounts, Gilt Groupe — aka the the “private online sample-sale site” — is a runaway success. The business, founded in 2007 by former DoubleClick CEO Kevin Ryan, purportedly went cash-flow positive a mere six months in — practically unheard of for a start up. The company has since raised close to $50 million dollars in funding from private equity investment firms including General Atlantic and Matrix Partners. And in 2009, Gilt’s sales topped $170 million (a figure they say they’ll double in 2010).

The grounds at Le Pavillon du Golf, a Marrakech resort currently featured on Jetsetter.

The company is also growing its offerings incredibly fast. After launching with womenswear in 2007, Gilt execs quickly added menswear, kids, home, and even food. In 2009, Gilt debuted Jetsetter, a new microsite featuring discounts on luxury hotels and travel packages. In April, the company added Gilt City to its roster. The service, similar to Groupon, offers local deals on services, restaurants, and events.

Current offers on Gilt City.

Not every brand extension has been successful. Gilt Fuse, a site focused on lower-priced brands with younger audiences, was folded into Gilt after about a year. It “sounded like a good idea,” said a former Gilt buyer, but by hosting all the Gilt Fuse sales at the same time as Gilt’s main sales (noon EST) they “split their women’s sales down the middle.”

All this constant, aggressive growth is “part of the reason why Gilt is a challenging place to work,” says a former Gilt executive, who related that, “[Kevin Ryan’s] goal when he started Gilt was to have the fastest growing start up of all time — [and] he was [accomplishing this], until he was surpassed by Groupon.”

In part to keep up with consumer demand, the site has quietly begun imitating its brick-and-mortar discount counterparts by asking designers to create outlet merchandise specifically for Gilt. In a long profile on the company that appeared in New York Magazine in February, Andrew Rice wrote, “A designer may reduce production costs by using less-expensive materials, say wool from Scotland instead of Italy, or by using a little less stitching in the places buyers don’t see…But neither Gilt nor the designers have any interest in letting customers know which items were made specifically for the site.”

This year, 35 to 40 percent of the women’s merchandise sold on the site will be designed and produced exclusively for Gilt. Current chairman (and former CEO) Susan Lyne addressed the topic in a blog post in February, assuring customers that “the integrity of the products we sell to our customers are always held to the highest standards.”

Vera Wang dresses on sale on Gilt.

Sales haven’t been harmed by this apparent quality switch: “In a way it’s like people almost don’t want to know,” said the former exec. “It seems like, ‘if you’re telling me this is a designer piece, that’s good enough for me.’” That sentiment was echoed by Gillian Regan of Captial New York. In an article about the company’s new robot-equipped warehouse in Kentucky, she writes, “For some time now some New York fashion aficionados have felt that Gilt Groupe is no longer quite what it was…And for shoppers eager for that level of authenticity, other, smaller sites have popped up following Gilt Groupe’s model. Just the same, now that the company’s reputation is set across the country, there is little pretense needed to keep that high-end, luxury reputation alive.”

It’s true that Gilt is no longer alone: In the past three years, the flash sale market has become crowded with fast-growing competitors like Rue La La, HauteLook, and ideeli. Gilt’s recent experiments have involved forays into full-price apparel and accessories, such as a preview of Helmut Lang’s summer collection and a partnership with Target to sell the chain’s designer collaborations. And there are murmurs that a private line is in the company’s future.

“In my opinion Gilt is the most innovative company in this set — so innovative, in fact, that it chews people up and spits them out,” our source said. “I think Gilt will continue to churn through fresh people and fresh ideas and really drive to growth, so I do see it as being successful [in the long term].”

The company’s recent expansions point toward a future where flash sales are but one small part of a larger lifestyle marketplace. To succeed, they’ll need to continue to adapt to each new trend (and hire/retain the staff to manage them all), whether it be private sales, group shopping, or something entirely different.

Update: Women’s Wear Daily reports that Gilt is indeed preparing to launch a private-label line and, “has been secretly interviewing designers all around town.”


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