CEO's Corner: Gilt Groupe's Kevin Ryan on the Flash Sale Fashion Site's Fabulous Future

Gilt Groupe CEO
Gilt Groupe CEO

Private sale websites are red hot. Offering the modern day, online version of the sample sale, these "flash sale" fashion sites have made online appointment shopping a new consumer ritual with discount sales that last usually for 36 to 48 hours on limited-quantity, upscale designer merchandise -- often overruns from tony brick-and-mortar stores. Now, they're one of the fastest growing sectors in retail.

Gilt Groupe pioneered the business, and is its No. 1 player, with an estimated $400 million to $500 million in annual sales.The retailer is now rapidly spreading its wings beyond women's fashion and discount fare with some high-profile launches: It will unveil men's site Park & Bond next month, and Gilt Taste, which sells upscale food, debuted in May.

These new sites sell full-priced merchandise and reflect what the company calls the marriage of "commerce and content," a trend that's gaining traction in the world of online retailing.

Park & Bond, for one, marks a partnership with GQ magazine, while Gilt Taste features magazine-style reviews and articles on its culinary fare lead by Ruth Reichl, the iconic editor of Gourmet magazine, the influential foodie periodical that folded in 2009.

But the flash-sale field, which includes competitors such as Rue La La and Ideeli, is getting more crowded these days: Even online giant entered the business in April with the launch of MyHabit.

Kevin Ryan, Gilt Groupe's chairman and CEO, spoke with DailyFinance about his company's growth opportunities, the world of private-sale sites, and competition -- including why it has a leg up on Amazon (AMZN).

: Who is Gilt Groupe's target shopper?

Ryan: The sweet spot is 26- to 45-year-old [women] disproportionately living in large cities, who care about buying nice things. It's a relatively high income shopper: A very high percentage make more than $100,000 a year.

How would you describe the state of the online private-sale market and Gilt Groupe's distinct niche?

The space continues to grow, which is great. But you're not seeing that many broad players. Even Rue La La, at the end of the day, is a women's site.

This week, they have three hotels; we have 30 [on JetSetter, Gilt's travel site]. You can say technically we're competitive with them in travel, but not really.

We have a big home and kids business, a business in Japan. There are not that many private-sale sites that have the critical mass to be present in many different categories [the way Gilt Groupe does]. The reason that's important is because you have to decide as a shopper: You can get an email from a kid's flash-sale site. And one each from men's, women's, home and food, and you'll get several emails every day. Or you can get an email from Gilt that has several categories. Which one would you rather have? It's a lot of the same reason why you would shop Amazon instead of 50 vertical sites. I don't think we're going to have as many competitors in doing what we do.

What about competition heating up in the sector, including Amazon's entry with MyHabit?

We'll see how they'll do. In general, on the Internet, the winner tends to be someone who is 100% focused on the business. Although Amazon is a very good company and they have a good record of execution, when they went into the auction business they didn't win, because they were competing against a company, eBay, that was 100% focused on auctions.

We're focusing exclusively on flash sales and high-end positioning, which is different from what Amazon stands for. And eBay is not doing that well [in flash sales]. When you think of eBay, you think of auctions. It's hard to change your brand.

Taste homepage
Taste homepage

How will food site Gilt Taste and men's site Park & Bond enhance your business?

Gilt Taste has a lot of growth [prospects.] I don't launch a new sector unless I think we can get $50 million in revenues in two years.

When you're a provider of food, the restaurants come and take your best stuff. [But] we're offering [food] that's sold to top, top restaurants, like Snake River Farms meat from Per Se [the New York City restaurant]. We're not trying to compete with your standard, basic grocery store. Some of the things sold on the site you can't get anywhere else. You can't get some of the cheeses we have on here from Murray's Cheese, which it doesn't sell to consumers.

The launch of Gilt Taste has been promising. We already had a lot more traffic than Dean & Deluca two weeks [after launching].

Why launch Park & Bond?

Some of the reason why we're going into the full-price men's business before women's is that men love to shop online. They tell us "I just don't like shopping in stores that much. I don't want to spend hours in a store." I think more and more over time, men are just going to buy more and more online.

Women are willing to go to five different stores, willing to stand in line. To generalize, they are more aggressive, passionate, more ambitious shoppers.

On Park & Bond, you'll see a lot of the brands you see on Gilt Man [Gilt's discount men's site] today, plus a lot of the brands you'll find at some of the upscale department stores, such as Alexander McQueen, Brooks Brothers, Thomas Pink.

Park & Bond can't be compared to anything in the flash sales world. This is a full price men's store. Go look at Saks (SKS) and Bergdorf's home pages, and check if you see any men's [clothing]. They're basically women's stores that have a small men's store.

Your latest partnerships reflect the marriage of "content and commerce," with magazine-style articles related to the merchandise. What's the strategy behind this approach to retailing?

We're not a content company: We're an e-commerce company. Our goal is provide great ways to buy great merchandise. We think that content helps that, in some areas more than others. It's not important when buying a pair of socks, but it is when buying foie gras. Gilt Taste has some articles; JetSetter [the travel site] has reviews of the hotels.

We don't put [merchandise] up for sale unless somebody has gone to that hotel, seen and endorsed it. Travelocity doesn't do that.

The full-price men's business will have quite a lot of content. The editors of GQ will pick out a number of their favorite items from Park & Bond, which will host a GQ online store. People trust GQ: It's the No. 1 men's publication with tremendous brand credibility.

[The site will also address questions] that customers would ask a really good salesperson, such as, "If I'm going to a black-tie event, do I get a wing collar or a spread collar? A ruffled shirt or a non-ruffled shirt?" A lot of guys want a bit of advice [like this], so content will be important. It will be well written, but relevant to purchasing. We won't do a profile on Muhammad Ali, for example, which is what you would find in GQ.

Some industry experts say private-sale sites thrived during the recession since brick-and-mortar retailers needed to unload their excess merchandise -- the core of the flash sale sites' supply -- because consumers weren't buying.But now that the retail picture has improved, how have you had to deal with less overstock goods available to you?

Two years ago, 100% of what we sold was excess inventory that was not sold in stores in men's and women's [clothes]. Today, that is 35% of business.

As we get bigger, more inventory will be made for us, as opposed to [getting] end-of-season, excess inventory [from retailers.] When you get very big, you can't just sell excess inventory. Not all vendors have 2,000 to 3,000 units leftover after a season, so we need to order that inventory at the beginning of the season and have it made for us.

We're starting to do some exclusive lines where it is made just for us [like the Brooks Brothers partnership]. We're also seriously looking at launching private-label lines in women's and men's apparel.

The second reason [excess inventory from other retailers is contracting] is that Gilt Groupe's home and kids businesses have very little inventory: Most is done on consignment or drop-shipped from the supplier.

Where do you see Gilt Groupe in five years?

The only difference from today is that it will be much bigger, a higher percentage of our business will come from full-price revenues, and it will probably be more international.

And we will have expanded into one or two more product lines: As a hint, we've done specials for a full week on weddings and bridal, we also occasionally sell art and pet products -- that means we're trying things out.

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