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What’s a Dress Worth?

One icy morning last month, I went to see how the company is meeting its problem of supply, accompanying a pair of buyers on a visit to the boutique jewelry-design firm Dannijo. The designers behind the line, sisters Danielle and Jodie Snyder, are both in their mid-twenties and were working out of an apartment in Battery Park City. For roughly an hour, they showed off rings, earrings, and necklaces that were arrayed across a coffee table, and buyers Renee Klein and Meredith Blacker sized up what would sell.

“I’m in love with this,” Blacker said, draping a Swarovski-crystal-plated bracelet over her wrist.

“A little aggressive,” Klein told Blacker as she tried on a spiky oxidized-silver necklace.

“Gilt doesn’t tell you, as a shopper, that it’s ‘exclusive for us,’ ” admits one designer. “They want you to think it is part of the regular collection.”

The buyers weren’t looking for surplus inventory. They were going to commission pieces specially made for Gilt Groupe—a growing segment of the company’s business. Susan Lyne told me that Gilt knows there are “sweet-spot prices” for its membership. “Anything that’s between $100 and $250,” she said, “the vast majority of our customers are comfortable with that.” With liquidation, where price is determined by what Gilt pays for existing merchandise, it’s not always simple to hit the sweet spot. But by commissioning pieces, Gilt can get a guaranteed supply designed to its own price specifications. At the appointment with Dannijo, the jewelry buyers were looking at the sisters’ latest collections to determine how they could be retrofitted for Gilt. “It’s the same quality, everything’s still handmade in New York,” Jodie Snyder said later. “It’s just different products that might not be as intricate, so that we can make them at a lower price point.”

Gilt Groupe is using much the same model to expand its inventory of clothing, commissioning designers to make clothes just for the site. This year, Lyne says, 35 to 40 percent of Gilt’s women’s apparel will be acquired through this channel. For designers, cutting clothes specifically for Gilt can be lucrative, because it offers a way to repurpose intellectual property, such as popular looks that may be a couple of years old. A designer may reduce production costs by using less-expensive materials, say wool from Scotland instead of Italy, or by using a little less stitching in the places buyers don’t see. More than one fashion executive told me that they had used flash sales as an opportunity to dust off some leftover fabric, turning a sunk cost into a substantial profit.

But neither Gilt nor the designers have any interest in letting customers know which items were made specifically for the site. “Gilt doesn’t tell you, as a shopper, that it’s ‘exclusive for us,’ ” admits one designer. “I think they want the shopper to think it is part of the regular collection.” The “discount” advertised on Gilt’s site is based on what the designer calculates a department store could have charged, even though the item was never intended to sell retail.

There’s some logic to this sleight of hand: Gilt operates at much lower costs than traditional retailers, and can pass its savings along to the customer. But Gilt has to be careful. It can’t afford to have its customers questioning whether that “retail” price is bogus; the allure of its sales is all about making its buyers feel like they’re smart enough, inside enough, to get in on a steal. Devoted shoppers and fashion bloggers watch the site closely, alert to any whiff of manipulation. On at least one occasion, reported in a January Wall Street Journal column, their vigilance exposed what Gilt described as a pricing mix-up. It involved a scarf, listed on Gilt as a $300 value before its discount, nearly identical to one a blogger discovered to be selling at retail at Neiman Marcus for $195.