The Gilt Groupe operates a flash sale business model for its online retail locations. Although it has also had traditional retail outlets in the past, Gilt has been cutting costs by up to 10% while seeing revenues increase by up to 20% in a given year. With retail sales above $600 million across all of their online platforms, many customers are snapping up deals that are 90% off or even more. This undercuts the retail market, lets people shop at home, and Gilt moves more product.
That’s the secret to the Gilt business model: scale. Instead of selling a few items at a large markup, they sell lots of items with very little markup. Customers then wait for the items to ship out and they are more patient with the process because in their view, they’ve just saved a ton of cash.
Aren’t Flash Sale Business Models Struggling To Succeed?
Because some flash sale sites have chosen to close their doors or focus on a specific segment of the flash sale industry, there is a perception in the marketplace that this e-commerce platform is struggling for air. The truth is very different from the perception.
Amazon and Overstock are still leading the e-commerce industry, but the next four top sellers are flash sale sites. There is a lot of potential for future growth in this industry, especially has the global economy begins to weaken. In 2015, only the US economy is poised to have sustainable growth. It’s strong enough that even interest rate increases are being debated. Elsewhere the picture is very different. Austerity measures are even being considered. That’s why a flash sale business model makes sense still today.
How Does a Flash Sale Site Succeed?
This business model finds success by offering large quantities of items at deeply discounted prices. The reason why scale is so important to this business model is directly related to cost. There are fixed costs associated with product descriptions, item photography, and processing the sale of an item. If small inventory quantities were purchased, the discounted model wouldn’t be profitable.
According to current chairman and former CEO Kevin Ryan, a flash sale site needs to do 9 figures worth of sales every year. Without a minimum of $200 million in revenues, Ryan doesn’t believe that a site has the chance to survive. That’s not because the economics of the Gilt business model aren’t valid. It’s because there has to be scale involved to provide profitability.
What Can Be Learned From the Gilt Business Model?
There were a few stumbles along the way for the Gilt Groupe as they looked to build up a brand awareness for their flash sale business model. Part of the problem was the fact that their CEO was only working 3 days per week on the business venture. Ryan stepped aside in 2013 to be chairman as Michelle Peluso was promoted into the role.
With that correction, Gilt looked to trim down the number of categories that were being offered through their business model. Too many categories extends the need for more products and more costs. If the infrastructure is in place to support those categories, then the scale of the selection would benefit Gilt. Unfortunately the infrastructure hadn’t been built yet, so the costs of being over-extended weighed the company down.
Gilt also learned that the flash sale business model doesn’t have to be 100% about flash sales. They were attempting to incorporate traditional retail locations into their business, but now are looking at complimentary e-commerce solutions as a way to build profitability. From chat hosting to consulting to even vintage product flash sales, there are plenty of ideas that are being worked on right now with the hopes of providing Gilt with some sustainability.
What Is the Future of the Gilt Groupe?
The Gilt business model needs to build slowly and carefully, focusing on their infrastructure and core mission to be able to recover from their stumbles. They’ve already taken some of the first steps to make sure this happens. With a full-time CEO and employees bring new ideas to the executive team on a regular basis, there are plenty of plans in the works that will keep Gilt competitive into the future.
Flash sale sites could dominate the e-commerce industry in the years to come. If that happens, then the Gilt Groupe could be one of the major players in the industry. If they can shore up their structure and keep promoting sales, they could be one of the nine figure revenue giants that has staying power. If not, then the Gilt business model will be used as an example of what not to do in the flash sale industry.