Death By Overfunding: Gilt Groupe

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At one time, the flash sales sector was a favorite with investors. We saw the valuation of several companies like Groupon, Gilt Groupe, LivingSocial, and Zulily skyrocket. But as the sector got washed in funding, companies stopped delivering on hyper growth. Investors fled from the scene and the companies collapsed. Gilt Groupe was acquired by Hudson Bay for a quarter of its estimated value at its peak.

Gilt Groupe’s Journey

Gilt was co-founded in 2007 by DoubleClick CEO Kevin Ryan, eBay executive Alexis Maybank, and a Bulgari and Louis Vuitton marketing executive Alexandra Wilson. They created an online portal for by-invitation-only sample sales based in New York. Gilt focused on being a flash sales site for designer products and luxury brands. The members-only shopping site allowed consumers to shop for curated styles, goods, and services at prices that were as much as 70% off the retail price.

Gilt basically offered unsold inventory that they picked up from designers and wholesalers at a steep discount. Gilt passed on this discount to its members and kept a share for itself. The model worked well during the economic downturn when retailers and brands had a lot of excess inventory that Gilt helped get rid of.

In 2010, at the height of its popularity, it moved beyond apparel. It added Jetsetter, an invitation-only travel sales site offering travel deals for more than 200 properties spread across 20 countries. It also launched a Groupon-like location-based deal site called Gilt City. It also started expanding internationally and set up its international headquarters in Ireland.

According to market reports, Gilt was making 50% gross margins on all sales and was estimated to have been EBITDA positive in 2011. Gross revenues grew from $450 million in 2011 to $550 million in 2012 and $600 million in 2013. But it failed to make any profit.

Instead, it was expanding beyond apparel into travel sales and food. It also expanded into Asia. But as it tried to deliver on hyper growth, it became difficult to procure excess high-end inventory at low costs, affecting margins. Gilt also had to deal with increasing competition from the likes of Amazon, which ventured into discount sales for luxury brands with the launch MyHabit in 2011.

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More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

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