Bye Bye Brooklyn! Gilt Groupe to Move Bulk of Warehouse Operations from Scrappy Navy Yard DiggsOctober 08, 2010
Capital New York
by Gillian Reagan
Since 2007, online flash-sale retailer Gilt Groupe has operated out of a warehouse in the Brooklyn Navy Yard. Clicks and flashes from magazine-style editorial photo shoots brush cheek-by-jowl with the rumble of shopping carts piled with plastic-wrapped dresses and studded, high-heeled booties, preparing to be packaged; the chittering of customer service calls in a carpeted room lined with cubicles; and the Spanglish shouts by the loading docks, where the merchandise gets trucked inside. But it’s all about to change, as the startup becomes, well, no longer a startup, and moves the warehouse to a custom-built, robot-enabled facility in Kentucky.
Kevin Ryan, the former C.E.O. of digital ad firm DoubleClick, packed the first Gilt order, a Zac Posen dress, in the Brooklyn Navy Yard, a 300-acre site skirting the East River across from the Financial District and in the shadow of the bridges and the Brooklyn-Queens Expressway. With Michael Bryzek, former chief technology officer for a United Way subsidiary; Alexis Maybank, eBay Canada founder and AOL e-commerce executive; and Alexandra Wilkis Wilson, a Bulgari and Louis Vuitton operations whiz, Ryan started Gilt in November 2007. The team worked out of a 500 square foot room. Now Gilt owns 200,000 square feet of space in the Navy Yard. They launched a members-only, luxury designer fashion sample-sale site and enticed 50,000 members by the end of their first year, and have now grown into a full-fledged online retailer serving up to 2 million online shoppers in seven categories including women, men, and childrens’ fashion; home furnishings; travel packages; food like chocolates and steaks and local deals like spa treatments and discount dance classes. And within the next six months, Gilt will shut down most of its distribution operations out of Brooklyn, with just high-end gowns and jewelry left to be shipped from the building. Startup phase: nearly complete.
“The building is unproductive,” said Gilt’s vice president of operations, Christopher Halkyard. “It’s a multi-level, older facility that transfers everything by freight elevator, which is really about as hard as you get.”
It was 8 a.m. on a recent stormy morning and a model had just sat down for make-up. The brunette was propped in a canvas director’s chair in the rusting warehouse. A vanity mirror’s bright lights lit up her Rachel Bilson looks. A make-up artist swept a milky foundation on her chin and cheeks. She closed her eyes. She would be in front of the camera within the hour. And on Gilt’s site, splayed out in a designer frock, within the next 36 hours.
But that morning, it was early yet. It was four hours before Gilt’s first offerings of the day would go on sale, and the warehouse was just beginning to wake up.
Outside, the model had walked past workers in trash-bag ponchos and damp track pants, unloading boxes packed with plastic-wrapped merchandise shipped in directly from designers and manufacturers (sometimes custom-made for distribution through Gilt). She rode an elevator past a floor where another brunette, a petite woman in Target-brand jeans and an apron, was unpacking boxes stacked with French Connection frocks lined with chunky black jewels around the collar. She placed a sticker on each dress, labeling its style and size, filed them onto racks and scanned them with a bleeping gun, archiving them in Gilt’s home-grown computer system. The dresses would later be wheeled past shelves stacked with boxes of Diane von Furstenberg pumps and New Balance sneakers and into a room crammed with racks of designer dresses, checkered blouses and puffy winter jackets hanging in clear plastic overcoats.
Within two weeks from arriving at the warehouse, the merchandise will be bought up online by Gilt’s mostly female buyers, down to the last pair of underwear.
Gilt sells at 50 to 70 percent off retail, which would make it not too different from any number of overstock sites here and abroad. But Gilt couldn’t have started anywhere else, really.
The brand was born as an online version of the Manhattan-insider, secret-sample-sale obsession, inspired by the success of France’s Vente Privée, which sells fashion overstock to the world’s other fashion capital. As with sample sales, you need an invite to attend; the sales are announced a week ahead of time by email and they usually last no more than 36 hours or until the merchandise is sold out, whichever comes first.
As Andrew Rice wrote in New York last February, “During the hour after its weekday sales kick off, between noon and 1 pm … its site is visited by an average of roughly 100,000 shoppers. For that time, it might as well be the most crowded store in New York.”
But in the era of retail operations that take over the world, from Itunes to Amazon, even the websites for megachains like Walmart and Target, the question might be whether that aspiration is a little bit limiting.
For some time now some New York fashion aficionados have felt that Gilt Groupe is no longer quite what it was: rumors that inventory was made to be sold on the site removed the cachet of getting just what a shopper at Barney’s or at Marc Jacobs’ own West Village boutique would get. 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. After all, the fashion-obsessed Omaha woman who opens a box from Gilt is still probably getting what her neighbors can’t. And the presentation is everything: Orders are bundled in delicate tissue paper, and a note of thanks from the founders in black and gold type is placed on top; the whole thing is packaged in a black box that opens to reveal the Gilt Groupe logo in elegant black lettering on the inside of the lid. This is not Land’s End.
In May, Gilt raised a $35 million round in financing to help expand their business and hired a chief financial officer, former StubHub executive Andrew Page. They are considering going public with an I.P.O. by 2011. It’s time to grow up and out of New York.
Gilt Groupe wants to keep their loyal customers. But even if they lose some of them by trading in whisper campaigns for big-M Marketing, they’d be trading in a very small set of customers for a very big one.
Accordingly, change is coming. Gilt has so far operated out of distribution centers in Massachusetts and this one in the Brooklyn Navy Yard. But by next year, Gilt plans to consolidate its operations in Louisville, Kentucky, in a 303,000 square foot warehouse custom-built for their needs, and located to maximize efficiency for national distribution by being neighbors with a U.P.S. shipping hub.
Halkyard, a former executive of supply chain at Marc Ecko Enterprise and, earlier, L’Occitane en Provence, was hired in April to help control Gilt’s rapid growth.
“A customer buys four units, it’s going to be delivered perfectly and it’s going to be there in two days,” he said. “The entire order to be correct. It’s very very tough to get right.”
Gilt orders merchandise from vendors six to eight months before users see the sales online: today’s fall fashions were likely bought last spring, said Kate Furst, Gilt’s director of sales operations.
When the orders ship in, assistants pull one of every item—the skirt, or top that needs to be online within the week—and brings it upstairs to be steamed and hung on a model for the photo shoot. Meanwhile, two workers are preparing the rest of the order in time for the upcoming online flash sale.
They print out reams of stickers labeled with each item’s brand name, size, color and individual bar code. Once each dress or blouse or onesie is labeled, they are hung on the racks and wheeled in to the “rack room.” There, each rack is “zoned,” or labeled with a location, so workers know where to find the items once they are sold online.
After sales kickoff, usually around noon each day, Gilt’s buyers click away in their cubicles, or BlackBerries, and orders queue up in the company’s custom-made computer system.
In one day, if Gilt has a very high-end designer, they could sell 500 units, but if they are selling denim jeans or lower-retail cost like t-shirts or underwear, they could sell 10,000 units.
As requests stream in for a size 7 Bettye Muller peep-toe ankle bootie or a size 4 white, one-shouldered Marchesa minidress trimmed with ostrich feathers, workers print out orders in sets of about 100 or so. A worker will find the location of each dress or blouse based on their barcode numbers and location, in the same way Barnes & Nobles allow users to look up where a book is located in their computer kiosks: Search for Freedom, and the software will shoot back a results page with a map and location of where to find it—in fiction on the second floor, sandwiched between history and cookbooks. Gilt’s workers push a cart through the rack room and pick out items, one order at a time, by hand.
Once they have about 100 orders stacked up, with the hand-picked clothing wrapped in plastic and layered between sheets of paper listing the Gilt customer’s name, address and requests, they roll the cart to the shipping area. There are walls of boxes lining the room and workers are bustling about the floor, assembling cardboard boxes and moving around carts. There’s a line of several conveyor belts, where the packaging is done, and a worker will park her cart of orders in front of a woman standing by a computer screen. She picks up one of the sheets of paper, scans the order, and then digs through the cart to find each item printed on the page. If she scans the wrong item—if it’s the wrong size or brand name—the system will send her a virtual gong. She can’t print out the U.P.S. label until she scans the correct item.
The worker sends the order down the conveyor belt and another woman packages it up, placing each item neatly in the box and adding touches like a printed note from the founders thanking them for their order.
“We only have so many opportunities to speak to our customer truly during their shopping experience,” Furst said, referring to the Web-based nature of Gilt’s shopping experience. “It’s really about what we actually give them. So when you open up that box and it looks like someone just threw it in there and it has no care, it’s not a positive experience. We literally wrap every piece. It’s a beautiful present when you get it.”
As ingenious as this system is, and as much as Gilt Groupe is a star of the next-generation e-commerce business, you can’t help but marvel at how old-fashioned it all seems. And that’s the part of the business that’s about to go away.
They will employ robots to do most of the picking and archiving of clothing in the Louisville location, with humans guiding them along, of course. By April, Halkyard said Gilt will begin moving its women’s distribution out of Brooklyn.
“My goal is to have nothing but fine jewelry in there,” he said.
And what will remain is what always remains in New York when a manufacturing or warehousing concern moves on.
“All the creative side will stay in Brooklyn,” he said.