Want a Marc Jacobs Purse? Click here...No, Here! Which Discount Shopping Site is Right for You?

by Gillian Reagan 

Susan Lyne, the chief executive of Gilt Groupe, a members-only, luxury designer sale Web site, noticed something curious about the 20-somethings who were clicking their afternoons away at gilt.com: They were torturing themselves, drooling over deeply discounted outfits and accessories from high-end brands during the 36-hour “flash sales,” and watching as $3,175 ostrich feather jackets from Alessandro Dell’Acqua went for just $618, or as a silk, strapless Oscar de la Renta red-carpet-ready number that was slashed down to $2,398 disappeared. They weren’t buying. They were window shopping, from the cubicle.

“What we discovered was that, one, even though we discount significantly on the brands we carry on Gilt [up to 70 percent], it’s still expensive for them,” Ms. Lyne explained. “A $200 or $150 dress is still a big purchase for them. They say, ‘I love looking at the stuff but it doesn’t really fit my lifestyle. I don’t have a place to wear those clothes.’”

More on Observer.com: 

Sarah Palin's "Funny Shoes" End Up in FIT Museum
The New "It" Accessory--And Is It Really New?
Jon Gosselin's Favorite Designer: Trendy or Tacky?

So on Wednesday, Aug. 12, Gilt Groupe is launching a new site: Gilt Fuse, another private sale destination geared toward 20- and 30-year-olds on a budget—the kind of gals who shop at J.Crew and Saks Fifth Avenue on the same day and maybe swing by the thrift store for a gently used vintage dress. It’ll be the Barneys CO-OP of private fashion sale Web sites.

During Gilt Fuse’s first couple of weeks, they’ll offer frocks and stock from familiar brands including BCBG, Modern Amusement, Chelsea Dagger, Juicy Couture, Laundry, Guy Laroche and C&C, among “maybe less distributed but very cool brands,” Ms. Lyne said.

Gilt is also planning on opening up members to an even larger luxury world. Ms. Lyne told The Observer  that Gilt Groupe will launch “several more verticals in the fall,” she said. “By October, we should have both home goods and a dedicated men’s area up and fully operational.” A travel site is also in consideration.

Ms. Lyne, the former president of ABC Entertainment, who developed TV shows such as Desperate Housewives and Grey’s Anatomy, joined Gilt last year after leaving Martha Stewart Living Omnimedia as chief executive. (With her feathery, ash-blond hair, she looks a bit like her former boss.) Gilt already has one or two home sales a week, but they’d like to offer a wider range of products and nab those ladies who pore over shelter magazines or, say, Martha Stewart Living. “I’m a home junkie, so I can’t wait,” Ms. Lyne said.

Presumably, neither can Gilt’s 1.3 million members—or their investment firms, General Atlantic and Matrix, which together recently raised more than $40 million for the company, Ms. Lyne confirmed. Gilt is expected to make $150 million by the end of the year and is valued at $400 million, according to The Business Insider (whose co-founder, Kevin Ryan, also co-founded Gilt Groupe, but the Observer confirmed the valuation by sources close to the deal).

Recently, Gilt quietly acquired a warehouse in Massachusetts to store new inventory, adding to their space in Red Hook, Brooklyn, Ms. Lyne said. 
Currently, Gilt Groupe seems to be the most high profile of this increasingly competitive breed of eBay–meets–high-fashion sites. But for the past couple of years, sites like Ideeli, HauteLook.com, RueLaLa.com, EditorsCloset.com, BeyondtheRack.com and French pioneer Vente-Privee.com have also been gaining buzz in the fashion world for bringing the sample-sale model to the Web, and letting every woman from Portland to Paris get her hands on Anna Sui sunglasses and Christian Louboutin pumps at steep discounts—without having to fly to New York or L.A. for the blowout.

“I think that any kind of new business model that emerges that works—a lot of people jump into it,” Ms. Lyne said. “I think that there will be a number of people who enter but probably not that many who succeed at it.”

During the slumping economy, brands have been especially enamored with these sites—purging bags and heels and seasonal frocks piling up in storerooms. But as more users—and entrepreneurs—discover this new e-commerce model, Gilt and other sites will have to spar for loyal members and those precious brands, whose marketers will want to be careful not to unhinge an upscale image by unleashing all of their designs at discounted prices.

“When the economy just fell out from underneath us, that worked well for a lot of the companies,” explained Adam Bernhard, chief executive of HauteLook.com, which he co-founded in December 2007. “But as the economy starts to shake out a little bit, brands will start to be concerned about what’s happening with their image—the degradation and the reputation they have to hold. They’re going to want more control.”

Mr. Bernhard said HauteLook competes with other sites by offering a cultural immersion in each brand’s “boutique.” “They feel like they’re walking into a Gucci sample sale, only it’s online,” he said. Each boutique has video, behind-the-scenes blog posts and background information on the brands, making the shopping experience more informative and personal.

HauteLook, which has “more than a million members,” with 30 percent more joining each month, according to Mr. Bernhard, recently received $10 million in a round of investment led by Insight Venture Partners.

Mr. Bernhard was polite about the competition, like Gilt. “The more attention they bring into the space, the more attention we bring into the space, I imagine it will be a good thing,” he said. But! “Marketing members are going to choose who they’re going to want to be part of, and shoppers choose which they will go to,” he added. “There’s some girls who will only go to Bergdorf’s or Barney’s. Girls will get the product that resembles what they represent.”

Or what magazines they read.

In July, RueLaLa.com announced a partnership deal with Elle magazine. Members who join the luxury e-commerce site through ELLE.com will have access to “Editors’ Picks” sales, with brands and items selected by the mag’s editors.

RueLaLa.com has also been offering home and “experience” goods (like spa packages and hotel deals) since launching in April 2008. The site has just under 1.5 million members, according to Ben Fischman, chief executive and chairman.

“There’s a dramatic shift into the world of experience—well beyond travel—and into entertainment, services, restaurants and other traditional services,” said Mr. Fischman. “We need to force innovation and do everything we can to surprise and delight our membership; we always want a new and exciting boutique.”

RueLaLa.com has also tried to get ahead by launching a mobile site, so members can access sales, which open every day at 11 a.m., on their phones. A native iPhone application is in the works, too.

As for all the competition and efforts to stay ahead? This kind of online shopping model “brought some of theater back to e-commerce,” said Stacey Santo, vice president of marketing communications for RueLaLa.com.

Andrew Lipsher, a partner at New York–based venture capital firm Greycroft Partners who has looked “diligently” into investing in these kinds of sites, wonders if, as competition gets fierce, sites will create “premium club” memberships for their top users, possibly with a pay system attached, for first access to exclusive sales. “It’s the American Express business model,” he said, referring to the credit card’s color-coded hierarchy. “You’re parsing your database and serving your most profitable customer.”

Neither HauteLook, RueLaLa nor Gilt told The Observer they plan to create a kind of paid, “black card” membership—yet. But Mr. Lipsher said Gilt will be any new, or existing, luxury e-commerce site's toughest contender. He warned, however, that Gilt is at risk of getting “too complicated, with too many variables. If they get involved with travel, it’d be like walking into Barney’s one day and there was all of a sudden a travel store in there. It’s like, ‘What’s this doing here?’”

Ms. Lyne said although Gilt has their eye on other sites, they are focused on making sure that, however they expand, they stay true to those label-obsessed shoppers clicking in their cubicles. “They love the fact that it is simple, it’s fast and it’s fun," she said. "You’re never more than two clicks away from a product detail page and two clicks away from buying. We have to be careful as we grow that we hold on to that and we don’t become a giant bazaar.” 

More on Observer.com: 

Sarah Palin's "Funny Shoes" End Up in FIT Museum
The New "It" Accessory--And Is It Really New?
Jon Gosselin's Favorite Designer: Trendy or Tacky? 

Contact the author: greagan@observer.com