Kevin Ryan's New Hope: Gilt GroupeSite could be Web entrepreneur's next $1 billion venture.
June 05, 2011
Crain's New York Business
by Matthew Flamm
Here’s one measure of Gilt Groupe’s success as a prestige discount shopping site: In offices around the country, work stops at noon. That’s when the clock starts ticking on gilt.com’s daily private sales. More than a million nimble-fingered bargain hunters a month can jump the line, so to speak, to grab designer clothes and accessories at 30% to 70% off.
Founded in 2007 by Silicon Alley pioneer Kevin Ryan, Gilt has enjoyed spectacular growth thanks to its combination of fashion cred, artfully displayed selections and operational smarts. The so-called flash-sale site has also maintained its carefully cultivated snob appeal by staying focused on luxury brands. Recently valued at a cool $1 billion, or about twice this year’s projected revenues, the members-only website is the biggest homegrown Internet business in New York. And it represents yet another digital coup for Mr. Ryan, a tireless proselytizer for New York’s technology and new-media scene.
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He served as chief executive of Web advertising giant DoubleClick, which was sold for $1.1 billion in 2005. Mr. Ryan also had a hand in founding popular news website Business Insider and database company 10gen, and was named a Crain’s Forty Under 40 in 2001. Gilt is clearly his favored child these days, however. Mr. Ryan has long recognized that it had a chance to enter the Silicon Alley record books, and last September, he traded his job as chairman with that of then-CEO Susan Lyne to run the company himself.
“Somewhere between large and historic”
Since then, Gilt has been on a tear as it seeks to expand its offerings and stay ahead of a growing army of competitors. For an outfit that started as a women’s sample-sale site, it’s making a particularly audacious bet with the creation of several properties selling merchandise at full price.
A persuasive brand ambassador as well as an aggressive, data-driven operator, Mr. Ryan, 47, seems bent on turning Gilt into New York’s high-end answer to Amazon. In the near future, Gilt will likely be hawking everything from fine art and wine to pet supplies. “I realized that Gilt could be somewhere between large and historic,” he said.
Gilt Taste, the first full-price property (albeit with daily specials), was unveiled last month. It combines a gourmet food and wine shop with an online magazine edited by Ruth Reichl, former editor of Gourmet.
A men’s full-price clothing site—separate from the current men’s discount site—will start doing business this summer. (To help it compete with other full-price enterprises, it will be Gilt’s first apparel site not to require membership.) A relaunch of the Home site, which will offer full- as well as off-price items, will follow in the fall.
Mr. Ryan vows that he’s just getting started. “I’ve been involved with a lot of different Internet companies, and there are more opportunities for growth in the e-commerce space than in any other area I’ve looked at,” he said.
Apparel sales suggest e-commerce’s potential. Sales of men’s and women’s clothing at brick-and-mortar stores hit $160 billion last year, up 3% from 2009, according to retail consultancy NPD Group. Online apparel sales totaled just $15.1 billion—but that represented a 10% increase.
Gilt’s plan is to leverage the 1 million-plus members who shop the site monthly, according to the company. (Gilt does not divulge overall membership data, other than to say that about a quarter of its members are men.)
Coming: one or two new divisions a year
In May, Gilt raised $138 million from Goldman Sachs, SoftBank Group and others, which is helping to develop the new, yet-to-be-named men’s site. Other possible full-price extensions include bridal wear, fine art and pet supplies, according to Mr. Ryan. The company also has year-old Gilt City, a local-services deals site; 2-year-old luxury travel site Jetsetter, which offers discounted and full-price packages; and off-price Gilt Children, started in 2008.
In general, Mr. Ryan expects Gilt to launch or buy one or two divisions every year. The idea is to exploit its extensive customer data and well-oiled distribution chain, but he also believes that a comprehensive approach makes Gilt more competitive. “The consumer could be faced with a choice: Get an email from a kids’ site, a men’s site, a home-furnishings site—or get one e-mail from Gilt,” Mr. Ryan said. “There are advantages to having one provider.”
Every advantage will be needed as pressure intensifies in Gilt’s core business. Paris-based Vente-Privée, the originator of the members-only flash-sale model and the biggest international player, announced last month that it is partnering with American Express to enter the U.S. market. It will join a crowded field, which includes Amazon’s recently launched MyHabit.com, Nordstrom’s HauteLook, Rue La La—soon to be part-owned by eBay—and Manhattan-based Ideeli. Even Century 21, New York’s famed discount department store, has launched an invite-only flash-sale site.
Analysts expect a shakeout and say that existing market position will be important. “Amazon is going to wipe the mat with all of them,” predicted Patricia Pao, founder of The Pao Principle, a luxury-retail consulting firm.
Needed: a compelling reason to spend more
Mr. Ryan argues that being the flash-sales front-runner gives Gilt an edge. “We’ve built up great loyalty and a lot of knowledge,” he said. “There has to be some compelling reason for customers to switch.”
Gilt also has close ties to the fashion industry and can draw on New York’s talent pool of buyers for each of its sites. Co-founder and Chief Merchandising Officer Alexandra Wilkis Wilson held senior posts at Bulgari and Louis Vuitton.
Gilt may have had no choice but to branch out into full-price lines. Some analysts say there is not enough marked-down merchandise to feed the exploding growth of discounters. “It’s not like there are these huge untapped wells of merchandise,” said Sucharita Mulpuru of Forrester Research. “As [the flash-sale concept] becomes a mature business, the question is, how much more runway does it have?”
Mr. Ryan shrugs. He’s heard that argument before and points to designer outlet chain T.J. Maxx, whose 900-plus stores did more than $20 billion in sales last year. “The supply will find you,” he said.
Indeed, some designers say they now rely on Gilt to achieve economies of scale with bigger production runs. It can also provide exposure to an elite audience in a setting that’s good for a brand, notes Susan White, president of boutique knitwear maker White + Warren, who began selling on Gilt shortly after it launched. “There are always leftovers” at the end of the season, she said. “The challenge is not to make them look like leftovers.”
Some analysts are also skeptical that Gilt can continue its winning streak when it moves into full-price apparel sales. Its success was propelled by the recession, with consumers looking for discounts and manufacturers unloading inventory. Full-price high-end clothing “is a harder niche to exploit,” said Kerry Rice, an e-commerce analyst with Wedbush Securities. He thinks men’s designer site Mr Porter, a recent spin-off of luxury-goods pioneer Net-a-Porter.com, will be tough competition for Gilt’s new men’s site.
Mr. Ryan responds that Gilt got strong results from test runs with full-price food and men’s clothing. He also points out that the full-price section that Jetsetter debuted in January now accounts for a quarter of the travel site’s business. And, cribbing from the Net-a-Porter model, Gilt has also recently hired editors from GQ and Esquire to build up Gilt MANual, a sophisticated guide for male shoppers.
He will “drive the hell out of it”
Mr. Ryan himself may be the deciding factor in how well Gilt does. He’s described as good at building teams—and “great at raising money,” said Henry Blodget, the CEO and editor of Business Insider. So far, Gilt has raised more than $240 million. Mr. Ryan doesn’t rule out going public, but says that won’t happen for at least one to three years.
Associates also say he’s a good choice for running an operations-intensive business that must stay abreast of luxury tastes. “He can learn any subject very quickly,” said Kevin O’Connor, a co-founder of DoubleClick who now heads comparison engine FindTheBest.com. “And he’s a very disciplined operator. He’s going to find out what the leverage points are, what data he can get to prove or disprove a position—and then he’s going to drive the hell out of it.”
Office workers with a shopping jones may never leave their desks again.
CORRECTION: Kevin Ryan joined DoubleClick in 1996 as president and later served as chief executive. His title was misstated in an earlier version of this article.