From Rapid-Growth to Long-Term Success: How Gilt Groupe Changed E-Commerce

05.12.10

Founded in 2007, Gilt Groupe, a leading online retailer, is at the forefront of e-commerce innovation, having built a passionate consumer following by offering daily event-based sales to its members at Gilt.com.  General Atlantic invested in Gilt in 2009, providing capital to fuel the company's rapid growth. Since the investment, GA's strategic expertise has helped Gilt actively leverage its large and growing membership into new lifestyle categories, including Gilt Man and jetsetter.com.  GA has also helped Gilt expand its executive team, evaluate opportunities globally and continue to develop its strategic growth plans.

 In April 2010, GA sat down with Gilt Groupe's CEO Susan Lyne to discuss her experience with GA as an investor and active strategic partner over the last year.

 GA:  Thank you for joining us, Susan.  Could you describe the process you went through in selecting General Atlantic as a partner?

Susan Lyne:   We made a decision to run a tight process and limit our discussions to a half-dozen companies with strong track records. Some tried to win us over just by citing the other hot companies they had invested in, but what was impressive about GA is that they spent time to really dig in and understand the business model. It was clear that they had seen the kind of hyper-growth we were experiencing. They basically said that while everyone is going to love Gilt when the company is experiencing this kind of success, General Atlantic is a long-term investor who will stay the course, even when you hit rough patches. What impressed me and (Gilt Chairman) Kevin Ryan was that GA would act not just as investors but as strategic advisors.  

GA:  How have you managed to scale Gilt for such rapid growth over these first few years?

Susan Lyne:  Gilt's success is based on a number of factors, some obvious and some less so. We offer a great value proposition to consumers, which gets people to sign up, but what keeps them coming back is that the experience is so engaging.  We offer a new assortment of products every day -- literally, we change out our store overnight.  And there's a gaming aspect because it's a competitive shopping environment. Products sell out quickly, so the customer has to make a decision and act immediately.

Whenever a business model emerges that clearly works, you get competition.  We knew we needed to put some distance between Gilt and newer entrants, so we made a conscious decision to expand our category mix and to begin positioning ourselves as a lifestyle offering rather than just a fashion site.  After GA's investment, we launched Gilt Man and Jetsetter (for travel) and more recently Gilt Home and Gilt Children. By rolling them out as unique destinations on the site, we managed to avoid creating clutter and kept the experience simple, fast, and fun.

The new launches have been a big success with our customers and a big revenue driver. But the shift of product mix was not without challenges. One of the most valuable aspects of our partnership with GA is that as soon as we noticed one or two negative trends, the GA team jumped in and helped us identify the issues so we could address them and stay on a track to profitability. Ultimately, we're working together to make sure that we don't become a billion dollar company with only a 3% margin, which happens too often with companies in hyper-growth.
 
GA:  As Gilt has grown, how have you approached the process of adding the most effective professionals to your team?

Susan Lyne:  We've made it a priority to recruit great people into key roles, people we believe can scale with the business, and this is something that GA focused on very quickly.   A good example is that we knew we needed an exceptional Chief Marketing Officer, someone who was very analytic and had the experience and skill set to be able to take advantage of what's possible on digital platforms.  GA pushed us to aim high and we ended up pursuing Carl Sparks, the former CMO of Expedia and GM of hotels.com. Every recruiter in the country had tried at some point to woo him from Dallas.  Once we concluded that he was our guy, we all worked collaboratively to tell him the Gilt story, the opportunity it presented, and the impact we believed he could have on our success. Anton Levy [Managing Director at GA] has always been available to sit down with a candidate or make a phone call, and that has been a huge help.  We just recruited a new CFO, Andy Page, from PlayPhone and StubHub.  Again, it was a combined effort from Gilt and GA to communicate our goals for growth, and the fact that our assets include not just the Gilt team but the collaborative efforts of the GA team as well.

GA:  What sort of challenges have you faced while scaling operations at Gilt during this high-growth period?

Susan Lyne:  You know, the scaling challenges never stop, to be honest. We hit our first big tech challenge very soon after I joined the company.  Membership was growing at a crazy pace and our platform couldn't handle the many thousands of people trying to log in at the same second.  We began rebuilding the platform in early 2009 and successfully solved for the traffic challenge but by April our transactional capacity was totally stressed.  We held a shoe sale for a particularly coveted brand, where over 200,000 people were trying to add the same 1,300 pairs of shoes to their carts.  You really can't plan for something like that, but when it happens you suddenly have to rethink all your assumptions.

And it's not just tech; this is a very complex business from an operations perspective.  Most ecommerce is a replenishment business. Ours is the opposite of that: every look we sell is a different sku and we receive and ship out hundreds of thousands of items a month. At this point, it's about looking ahead and trying to forecast our needs based on the kind of growth we have seen to date.

GA:  What sort of opportunities do you see for Gilt in 2010 and beyond, and what ways will GA be able to help as you continue to evolve?

Susan Lyne:  I think there are a few things.  One is that we are always keeping our eyes on new technologies and platforms that will allow us to deliver a better experience.  The iPad launch is a perfect recent example of that.  Once the launch date was officially announced, we started working with Apple to create an app that would lift the shopping experience beyond what is possible on the internet right now. Ours was one of the only shopping apps to launch the day the iPad became available - and we believe that it's a cut above. In fact, that work is now informing a lot of our thinking about the user experience on our site.

We're also increasingly focused on personalization.  We have an opportunity to create a better, more targeted sales experience. We'll start gradually and test our way into it but over time the sales that you see may be very different from those I see. In addition to a better customer experience, this has all kinds of benefits for our business: it will allow us to buy inventory for subsets of our membership, and to move unsold inventory by targeting customers whose sizing, brand and price point preferences are a fit.

One area where we believe GA will be of significant help is their global network, establishing contacts and opening the way for possible partnerships, particularly with companies that have a dedicated customer base. We increasingly realize that what we have built here is a robust private-sale platform. Many companies are looking for new ways to create a differentiated experience, and we are always looking for smart ways to grow our membership base, so there may be mutually-beneficial partnership opportunities.     
 
GA:  If you were to advise another CEO in looking for an equity investor and partner, what would you say?

Susan Lyne:  Well, I can certainly speak to how GA has helped Gilt.  They have been great about referring talent to us, teaming with us to close a candidate, and introducing us to other portfolio companies that they think could be of value.  But most importantly, I think they have been valuable as a strategic partner, really helping us to sort through the many opportunities to focus on those that will have true long-term value.  They've also made sure we're investing in the systems and infrastructure that we'll need to grow, which may not be the sexiest part of our business but could be a key competitive differentiator and is critically important if we want to deliver the best e-commerce experience in the industry.