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What’s a Dress Worth?

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Sucharita Mulpuru, the Forrester analyst, questions whether Gilt Groupe, as a business, might be the equivalent of that $300 scarf. “To me,” she says, “there is a big possibility that there is a house of cards here.” There’s only so much finery in the world, and the more Gilt expands, the more it strains to offer the very qualities that have set the site apart: selectivity, community, and quality. Some early Gilt Groupe adopters complain that the site is now infested with labels they don’t recognize. The company currently works with over 700 brands, and has been expanding into new products far removed from its core business. There’s a spinoff travel website called Jetsetter, and Gilt Fuse, which features lower-priced brands like American Apparel. You can now buy men’s clothes, kids’ clothes, travel packages, household goods, wine, spa treatments, and the occasional motorcycle.

Shawn Milne, an e-commerce analyst at Janney Montgomery Scott, argues that diversification is vital to Gilt Groupe’s future. “Clearly, for these business models to really pay off, they are going to have to prove to investors that they can get outside of just female-oriented, luxury-related fashion products,” he says. Milne believes that Gilt Groupe, which was valued at $400 million during its most recent round of venture-capital financing, is scaling up in advance of an IPO. The moment may be ripe: Last year, Rue La La was sold to a publicly traded e-commerce company, in a transaction that could be worth up to $350 million, and there have been persistent reports that Amazon is considering a multibillion-dollar deal to acquire Vente Privée. (For the record, Kevin Ryan says he is exploring taking Gilt Groupe public, but not before next year at the earliest.)

“This is a much bigger industry than most people think,” Susan Lyne says. “If you look at T.J. Maxx, it’s a $20 billion company.” Of course, invoking the example of the strip-mall discounter—Ryan did it, too—takes us quite a distance from Gilt’s original mission. The company clearly recognizes the tension. Last fall, in response to the concerns that the site was getting too crowded, the company created Gilt Noir, a special truly exclusive loyalty program, which gives big spenders and VIPs advance access to sales, and brings private promotions with designers—the company won’t say which ones—who refuse to sell on regular Gilt. Over time, company executives say, the idea is to divide Gilt Groupe into ever-smaller segments, showing customers only those items that fit into their style, or their price range.

By putting every member in her place, Gilt hopes to preserve its aura of taste—and the premise of a luxury market. But it may be that the greater danger to Gilt, over the long run, is posed by the very thing that pulls so many people into the wave each day: those low, low prices. Paco Underhill told me that discounting “is sort of like heroin: The more you use it, the harder it is to stop.” Economists have their own term for this: They say prices are “sticky.” If you see a low number once, it’s a bargain; see it a dozen times, and it adheres. Each day at noon, Gilt meets its customers with more brands, more offerings, more markdowns. Yet its own brand identity is tethered to the very thing it undermines: perceptions of intrinsic value. Last week, a Marc Jacobs leather bomber jacket, retail price $2,420, was on sale for $548. Was that a deal? It depends how confident you are that someone else would have paid full price for it. A discount is like a shadow—it only exists in relation to an object of actual worth.


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