Great news for super-rich bargain hunters: Flash-sales e-commerce pioneer Gilt Groupe is for sale, and it’s going for less than ever. The Wall Street Journal reports that Hudson’s Bay Co.—corporate parent of Saks Fifth Avenue—is close to buying the once-dominant Gilt for a mere $250 million. That’s less than a quarter of the $1.1 billion valuation the company received in 2011, and even falls below the $280 million it’s raised from investors since it debuted in 2007. For all that, it would be a mistake to describe Gilt as a truly failed enterprise. To the contrary, it’s very much a victim of its own success.
When it launched, Gilt was all about the illusion of urgency. The site would advertise clothes and accessories—all of them marked down, some of them steeply so—from brands like Marc Jacobs and Valentino. Accessible for only a few days before the company took them down, these sales encouraged impulse purchases by devaluing reflection—the “flash” component of the business model. Gilt didn’t invent this approach—founder Kevin Ryan learned about it from the French site Vente Privee—but it did help popularize it with apt speed.
Now, however, that strategy has lost some of its luster. In February, Business Insider’s Jillian D’Onfro wrote that Gilt was floundering, despite a recent $50 million round of funding. In this respect, it carried out a trend that had been in progress for years, representing the decline of flash-sales companies more generally. That may help explain why Gilt has distanced itself from its original format. Though the site’s home page still features daily sales, savvy shoppers know that any item that hasn’t sold out remains available through its brands directory. Gilt’s competitors, such as the Amazon-owned MyHabit, evince similar betrayals of flash marketing, giving consumers access to their entire inventories and effectively turning themselves into online-only alternatives to discount chains like T.J. Maxx and Marshalls.
To understand why this happened, you have to look to those competitors. Today, analysis of the flash-sales model frequently zeroes in on the fall of Fab.com, a Gilt imitator that mostly sold home design goods. Writing on the “failure of the flash sales model” today in Forbes, Ryan Mac gestures to Fab, noting that it “almost reached unicorn status, but was later bought by electronics manufacturer PCH International for about $20 million.” By comparison, Gilt’s $250 million valuation seems positively rosy, but that number might have been much higher if its very business model weren’t structured in such a way as to undercut itself.
As flash sales began to rise, a host of challengers presented themselves—not just MyHabit and Fab, but also companies ranging from Gilt clone Rue La La to the streetwear-specific Plndr. As more and more of them showed up, and as the recession receded, Gilt failed to keep up. The Wall Street Journal notes that the company “struggled to break out in an industry that has lost its allure in recent years as the economy recovered and discounts became commonplace.”
Nevertheless, it would be a mistake to blame Gilt’s failures entirely on its competitors, though they surely played a part. As Forbes’ Mac writes, “sales fatigue” contributed to the decline of flash-sales sites—largely because they’d helped teach consumers that everything would eventually be available at a discount. It is, of course, inevitable that copycats will pop up when a new business arrives on the scene. (In fact, something similar happened to the online coupon business after LivingSocial and Groupon proved there was money to be made in the business.) But Gilt’s doubles weren’t just competing for consumer dollars; they also undermined the company’s implicit promise, its claim to offer something unique, special, and—this is the key—exclusive.
The paradox of Gilt has always been that it proposed to let consumers grasp goods that were valuable precisely because they were out of reach. At first, its members-only model served to stuff this irony back into the dresser, suggesting, however disingenuously, that its customers were insiders. That sort of sleight of hand became untenable in an increasingly crowded marketplace, which found flash-sale sites bragging about the size of their user bases. (See, for example, the title of a book about the company by two of its co-founders, By Invitation Only: How We Built Gilt and Changed the Way Millions Shop.) But this shift was already in progress before other companies began to show up in Gilt’s market space: D’Onfro writes that it actually expanded its user base by offering additional discounts to those who encouraged their friends to sign up.
And it’s when users’ friends started showing up that Gilt’s troubles really began. By making the supposedly exclusive available to all, they buffed off that patina of exclusivity. Gilt’s competitors are therefore more a sign of its decline than the cause of it. As fashionable items become more common and accessible, they grow less interesting in equal measure. Perhaps, then, Gilt was always destined to be its own undoing, its triumphs taking away from the very thing that made it special. The larger it grew, the less it could make good on its promises. Thus, this isn’t just another story of a disruptor that didn’t. Instead, it’s the tale of a company that disrupted itself.