One side effect of the recession is a hell of a lot of overstocked designer clothes.
LoLo, Esq., and I both scored massively from the 70%+ off sales at Saks which Sadove swears will never happen again (and no, Steve, we don’t believe you this season, sorry), but this kind of stuff is more traditionally disbursed by the designers at warehouse or sample sales after. Nothing says sisterhood like tearing through bins of possibly-damaged high-end frocks, then stripping in the aisles because there are no dressing rooms and maybe even getting into a shoving match where she who has the sharpest elbows wins the $40 Diane von Furstenberg wrap dress.
But what if you want to kind of feel like you’re getting the deals without all the risk of losing an eye, or you don’t live in NYC, or whatever? Over the last couple years, a bunch of online liquidators – Gilt, Hautelook and RueLaLa come immediately to mind, but there are others – have sprung up, usually with not-particularly-exclusive “invite only” systems (srsly if you want to join Gilt, click here and use my invite) and regularly scheduled online-hocking of very limited assortments of last-season’s designer wares.
The business model is this simple:
- Buy overstock high-end apparel and accessories from designers or large retailers
- Advertise these recent acquisitions to your members
- Sell the merchandise online, usually within a limited time window
- Grow your member base as members send invitations to friends; give members rewards for these referrals
Amazingly, one of these sites is now valued at almost half a billion dollars:
Gilt Groupe, a private-sale e-tailer incubated by New York’s AlleyCorp, has signed a term sheet with General Atlantic and Matrix Partners to raise about $40 million at about a $400 million valuation, reported Henry Blodget, editor in chief of Silicon Alley Insider, last week.
Founded two years ago, Gilt Groupe “generated $25 million of revenue last year and should generate about $150 million of revenue this year,” according to Blodget. ”It is also projecting revenue of more than $500 million next year.”
A couple problems.
- Sustainability: Retail stores are not purchasing nearly as much merch this season as they did in 2008. Thus, they won’t be stuck with massive quantities of overstock. Not only that, but there’s not as many designers – those who have had to close up shop as they can’t cut it in this environment are too numerous to count. This means much less residual merchandise for resellers like Gilt to work with in the near future.
- Functionality: Unlike a real sample sale where even the grabbiest bish only has two hands, you can log into an online sale thirty seconds after it starts and find almost all the merchandise ‘waitlisted,’ meaning it’s in someone else’s cart. That’s because it’s not that challenging to write a script that grabs everything so that you can then review it at your leisure for both your own personal use and resale potential, then release the chaff. These stores may be able to solve this technically, but if you look at their job listings, hiring programmers appears to be low on their to-do list.
And, hmm, I can think of one recent fail – this business model didn’t work so hot for Regent’s Secret, though I am not sure where they went wrong.
Corollary: Marc Andressen and Ben Horowitz on why VC should think smaller. As in, “why do you need to invest $40MM into a glorified shopping cart?” smaller.
scurvy // Jul 7, 2009 at 11:05 am
$40M on a $400M pre? Wow. Those VC partners are idiots.
LoLo,Esq. // Jul 7, 2009 at 11:54 am
I have the date of the epic saks sale tattooed on my back with flames and a screeching eagle around it and a crying coco chanel and the words NEVER FORGET around her in olde english script. it’s pretty badass.
toshiro_mifune // Jul 7, 2009 at 12:35 pm
They may not be sustainable long term, but I will enjoy them in the short term. Gilt has some awesome savings.
alyx // Jul 7, 2009 at 12:39 pm
True, and I’m not dishing out total haterade here. I would shop there – though the deals aren’t as good as some things I’ve found at Off Saks, NM Last Call, etc, they are more convenient – but investing? No way. Their goose is cooked once the last couple seasons’ glut of inventory has been burned through.
LoLo,Esq. // Jul 7, 2009 at 6:49 pm
Gilt’s prices are way too high. If you know where to shop for dealz, you won’t shop at Gilt.
Arjen M // Mar 22, 2010 at 1:45 pm
you feel stupid writing this post, dont you?
With Gilt’s estimated $250M revenue’s in 2009 and expected IPO by the end of 2010, you wish you were one of those investors that poured money into Gilt.
Alyx // Mar 22, 2010 at 1:49 pm
Nope, I still think it is going to die in a fire once excess inventories dry up, but thanks for Googling their name and dropping in on this post to crow about them.
Arjen M // Mar 23, 2010 at 12:38 am
wow you know your Google Analytics!
I Googled their name because i am writing an MBA research paper on their exact business model and future of eCommerce transactions. This post actually ranks fairly high on Google “Gilt.com Business Model”.
You said the same thing back in July “once their inventory drys up”…You fail to realize that they’ve expanded beyond just designer clothes to include home merchandise, exclusive events and travels. You simply can not make 250M in revenue without a viable model.
We will revisit this topic later this year when they go public.
Great blog tho!
alyx // Mar 23, 2010 at 1:15 am
Good point, though I remember eLuxury tried a similar diversification but ultimately foundered. At this point I see Gilt as a cross between that and $BFLY… albeit in a much better financial position than the latter.
LOL, do feel free to come back in a year and prove me wrong if necessary
I maintain that inventory for these sites will soon enough become very slim pickings. In my head, I sort of think they’ll ALL fold, and we’ll be back to the days of strictly standing in line for sample/warehouse sales, which is probably horribly luddite of me, but still. Gilt’s probably better positioned than some of the others to get their hands on what designers do want to get rid of, since they’ve got some cache and – as LoLo and I have lamented in the comments on this post – Gilt never seems to slash anything to bargain-basement prices, and while we as consumers love our 80% off, designers get offended when merchants do that kind of thing.