September 13, 2009

Gilt Group, Rue La La, And A Different Shopping Model

Have you read this article about luxury apparel companies? If there's only time for one article this week, read this article.

Just look at Gilt Group's home page. Is this the well merchandised home page the experts taught us to build? If you're a first time visitor without the luxury of knowing somebody who shops Gilt Group, what do you think your conversion rate will be (conversion = purchase)?

Sites like Rue La La encourage you to join a waiting list, a waiting list!!?? Weren't we taught to make it easy for a first time visitor to find what they want, followed by a discount/promo e-mail when the customer leaves the site after putting something in the shopping cart? These sites are experiencing exponential growth doing the opposite of what industry experts tell us to do.

While we're busy wondering if homepage text should be salmon-colored or periwinkle-colored, Gilt Group is busy going from $0 to $150,000,000 in two years, heading to $400,000,000 by this time next year. Please take one moment and think about what that kind of growth means.

Question: Ignore your core business for a moment, because ninety five out of one-hundred of us are unwilling to make significant changes to the core business. Would you be willing to try the type of innovation that Gilt Group / Rue La La are doing for a brand new business unit within your brand? If not, please use the comments section to explain why, and if your point of view is "... that wouldn't work in our industry", explain how you know it wouldn't work if you haven't tried it yet.


  1. Anonymous9:00 AM

    This is a good article but doesn’t a core issue with Gilt. It also illustrates a core problem with Zappos business model. It is true that Zappos went to $1 billion in sales. They were also acquired for less than 1 billion. You don't need an MBA in financial analysis to know that companies don’t get acquired for less than their revenue unless there is something fundamentally wrong with their profit model. If I gave out 1 dollar in exchange for $.99 I could probably get 1 million customers quickly, By my millionth customer I would have a net loss of 10k. It will be interesting to see what happens once the buzz wears off and customers realize that most items at these sites are NON-RETURNABLE. This model will enrich the VCs and founders when they sell to a sucker but it not sustainable in the long term. The question is really about how long can they keep this model up before they are out of money?

    I think the real question is how many years can a company not turn a profit for in exchange for capturing market share?

    Take a look at these and tell me what you think they are worth now?

  2. Anonymous, thanks for your comment.

    Zappos is at 4% pre-tax profit, according to SEC filings by Amazon. 4% is probably a little bit below the industry average, but they aren't losing money.

    Here is a link to the Zappos profit and loss statement:

    Of course it is important to be profitable, nobody would argue with your comment. Profit was not the point of this post, innovation was the point of this post.

  3. Hello friends. Anyone who joins through the link below before October 10 will receive a $10 credit. No purchase required.

  4. Anonymous8:13 AM

    That's the newest private sale online website. I've had some good luck with it.

  5. Anonymous8:33 AM

    I love this first comment. At some point, we need to stop teaching our kids that the best way to build a business is by believing that the old model is broken. These sites sell a lot of stuff people really don't want that much. The labels are fancy, but there's a reason they're selling for so little money...they are leftovers the designers know isn't really that great. Once customers wear this stuff a few months, they'll notice a lot of rolled eyes or complete disinterest and that label effect that the assume will result never does. Garbage in; garbage out.

  6. Anonymous8:43 AM

    Zappos is a business model that in my opinion works if they raise prices. It's a convenience to shop online, but only if you can order three sizes and ship the two back which don't fit. Once you apply the added cost of doing business the way zappos does, their customer count is the number of people who value their core offering...selection and convenience. That might be significantly less customers than they built into their assumptions when they opened shop. But if the net result is that they can't compete without dropping prices, then we find people really don't value what they have to offer that much and we have another online business model which simply doesn't work because conversions on the internet for non digital products are just too low to make it a viable business model. The corner store works better. Nike and the VCs profit, but it's just another money pyramid scheme that's been trumpeted as innovation. No wonder our economy is crashing. With the exception of Iphones and some of our cars (yes, our cars), there really isn't much we make that anyone wants.

  7. Thank you anonymous, and anonymous, for your thoughts!

  8. If anyone needs an invite to Gilt Groupe I can let you use my link. I should have enough invites left for anyone that reads this. I’ve given away as many as I can to friends, better to use what’s left than just let them sit there.

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