How a New York startup put fashion sample sales online and established a recession-resistant business model in the process.
(Fortune Magazine) -- If you are an urban woman of a certain age, chances are you've spent at least one afternoon in line at a sample sale. They are the end-of-season fashionista free-for-alls where designers try to clear their inventories with deep discounts. Sample sales are the way you get a Marc Jacobs handbag cheap, or perhaps a pair of Sergio Rossi pumps.
High fashion, low price plays well under any economic circumstances - but during a flagging economy? How countercyclical can you get? The only drawback to sample sales: They tend to be held in rag-trade enclaves like New York and Paris.
Well, ladies (and gentlemen) in Tacoma and Tampa and every other fine metropolis in between that doesn't happen to have a luxury-apparel industry: An enterprising team of techies at Giltgroupe.com has brought sample sales online.
Gilt, as the site is known, was started by two women who share a taste for couture, as well as an alma mater and some business chops. Alexandra Wilkis Wilson and Alexis Maybank - ages 32 and 33, respectively - met as undergrads at Harvard. The former head of North American retail operations for Bulgari, Wilkis Wilson supervises the merchandise.
Maybank, who was an early employee at eBay Canada, handles strategy. (There's a third co-founder: Kevin Ryan, who helped start DoubleClick years ago before selling it to Google. Gilt is a part of Alley Corp., Ryan's New York-based Internet incubator.)
And in September, Gilt landed a big hire: Susan Lyne, former CEO of Martha Stewart Living Omnimedia (MSO), passed on a job running Oprah's media company to become Gilt's CEO. The site has a handful of competitors - ideeli.com, HauteLook.com, and Editor's Closet, to name some. But Milton Pedraza, CEO of the Luxury Institute, calls Gilt "one of the leading innovators in online luxury," highlighting the site's strong designer collection and its management team.
You can't just join Gilt; another member has to invite you. The site hosts roughly 20 sales a week, each starting at noon and lasting exactly 36 hours. Merchandise includes clothing, accessories, and housewares; designer names range from up-and-coming Page Sargisson to ruling gentry like Paul Frank.
Everything goes at flat-rate discounts of up to 70%. (Yes, there's a return policy for apparel and accessories, so no need to worry about getting stuck with something that doesn't fit.) The site's professional buyers - many of them veterans of Saks - build relationships directly with brands, picking from their excess inventories. Gilt, which launched in November 2007, expects sales of $25 million for the year.
The site has amassed more than 500,000 members. Customers are mostly women in their late 20s and early 30s with incomes in the low to middle six figures. They're often women like Antonia Thompson, 26, a senior associate at fashion consultancy Robert Burke Associates. Thompson visits the site daily and says, "The best stuff is sold out in five or ten minutes." During one week in November, she purchased a set of LuLu D.K. for Matouk linens for $560 (regularly $1,400) and a pair of Banfi Zambrelli over-the-knee boots for $250 (down from $900).
Gilt has unquestionably hit its stride. October sales were the highest to date. But will the momentum last as cold winds begin to blow down Fifth Avenue, the epicenter of high-end retail, and even the new stuff is marked down by as much as 40%?
Lyne believes so and is already talking about a whole empire of Gilty pleasures. "You can use this platform for any white-label sale," she says. "Imagine the possibilities. High-end appliances. Cars."