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Gilt Groupe: Adding & Subtracting Value

Donnerstag, Nov. 18, 2010, 11:13 / United States

The sample sale is the inconvenient (for consumers) yet effective method for unloading fashion overstock. If you’re skinny enough and lucky enough, you might have the good fortune to actually acquire a real sample that hasn’t been snapped up by a press agent or a fashion editor. But chances are you’ll be happy to walk out with an item of which there were five too many made, or to purchase a dress that had been lost in the stock room until the season was over. And because the sale lasts for no more than a day or two, a fashion house or label can liquidate without risking brand devaluation. The event provides extremely motivated shoppers with the opportunity to acquire the kind of high-end, highly coveted goods most of us can’t afford to buy straight off the rack or catwalk.

Prior to the advent of e-commerce sites such as Gilt Groupe, sample sales would take place only in major cities, and news of them would spread through a combination of word-of-mouth and special invitation. The sales themselves are to this day, a complete free-for-all, with deal-seekers literally fighting one another for the goods. The experience has definitely become a tradition for those with champagne taste on a beer budget. In 2007, Gilt Groupe effectively reinvented the sample sale, but made it better– no long queue, and no elbow-jabs from aggressive shoppers. Even better, because of the e-commerce site’s impeccable timing and veil of exclusivity (GG never advertises and its customer base sources its “members” through word-of mouth only), labels and designers are still able to maintain their caché– for now.

Every weekday, just before noon Eastern Standard Time, Gilt Groupe sends out a bulk email to its members with news of the day’s deeply discounted offerings. For the next hour, according to the company, the site is visited by roughly 100,000 shoppers. In its first year, Gilt raked in $170 million in revenue, an almost unheard-of sum for a startup.

Gilt Groupe is the brainchild of Kevin Ryan, the former CEO of online advertising company DoubleClick. As he told New York Magazine’s Andrew Rice, the inspiration came one day in New York City, when he spotted a long line of women waiting for the doors to open at a sample sale. “All I could think was, if there are 200 people who are willing to stand in this line, that means in the United States there are probably hundreds of thousands,” Ryan says. “But they don’t live in New York, they’re busy right now, they just can’t do that. And I can bring this sample sale to them.”

However, Gilt’s big break came in the fall of 2008, at the moment when untold trillons of U.S. dollars evaporated in even less time than one of Gilt’s famous ‘flash sales’. The market was flooded with unsold luxuries, and so enabled Gilt Groupe to rescue cash-strapped fashion houses and consumers by liquidating entire seasons’ worth of previously unwanted merchandise in as little as 36 hours.

One glance at Gilt Groupe’s CrunchBase profile gives new meaning to the old saying, “when the going gets tough, the tough go shopping. “Indeed, Gilt has defied the logical expectation that a recession would crush the demand for the finer things. However, since the big crash, Gilt has attracted more than 2 million members and now boasts an average of 4 million unique visitors per month, selling labels like Rodarte and Christian Louboutin at about 70 percent off retail. Investors were so happy with the site’s success that they pumped in $43 million in Series C funding last summer, and Gilt is expected to amass $500 million in revenue by the end of 2010.

The big question for designers, though, is whether a site like Gilt Groupe will permanently reduce the market’s expectation of value. For example, a consumer who’s gotten used to buying Marc Jacobs at sale prices might never want to pay full price again. The issue of reduced expectation of value has raised many questions about Gilt’s ability to maintain its discrete appeal in the long term. This is especially so in light of Gilt CEO Susan Lyne’s comparisons to the American bargain basement, T.J. Maxx, as well as analysts’ predictions that in order to survive, Gilt must diversify beyond the luxury market (it has with spinoffs like Gilt Fuse and JetSetter). As Andrew Rice put it, “Gilt Groupe’s brand identity is tethered to the very thing it undermines: perceptions of intrinsic value… A discount is like a shadow—it only exists in relation to an object of actual worth.”

Catherine Levy | TribaSpace

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