Building an ecommerce powerhouse
“By Invitation Only” is the story of Gilt Groupe. While Gilt may not have been a great outcome for some investors (it ultimately exited for $250mm but was at one time a unicorn), the book has a number of great take-aways for ecommerce businesses.
It’s easier to move a brand down market than up. In other words, “Alexis had also observed over the years that it was easier to start high end and expand into mass market later than vice versa. She could think of a slew of designer brands that had started successful secondary lines, either on their own or through collaboration with retailers like Target and H&M, and in the process attracted hordes of customers hungry for a piece of those brands’ cachet. But she could hardly think of any names from the middle of the spectrum that had succeeded in elevating their brands into the luxury sphere.”
Sell more than a product, sell an experience. “We spent weeks discussing in minute detail how to provide our customer with the best possible package opening experience. Should their purchase be wrapped in black or gold tissue paper? Should it include a personal, handwritten note of thanks? That summer we devised detailed packing instructions for our new warehouse that included information on how to fold various types of apparel; how to use rulers to make the folds neat; which items should be inserted first in the box; where the gold sticker should be affixed to the tissue paper and what customers should see upon first opening the box.” Another take-away here is to create an experience where there might not otherwise be one. Opening a box traditionally is not an experience, but Gilt Groupe pushed against that.
Your name needs to be simple. “First and foremost, the name had to be easy: easy to spell, easy to recall, eat to tell our friends about, and easy to type into a browser, search engine, or email. In fact, Alexis knew that a compact four letters were nirvana as far as website names went.” Your name also needs to be masculine. “A business that wanted to capture men needed to design and name itself specifically with them in mind. By doing so, it could capture women too — but not vice versa. Women naturally embrace fundamentally masculine design. But brands with distinct feminine sensibility, like Oxygen network, Lilly Pulitzer, or Vogue are almost never successful in their attempts to cross over and appeal to men. Inevitably, most male consumers find feminine aesthetics alienating.”
Create rarity and exclusivity. “Luxury brands would be hesitant to be associated with sales on the internet. But we hoped the fact that our site was members only and accessible only by password would help convince them. We’d sell direct to our members and nothing sold on Gilt would ever turn up in a Google search. And each sale would last only 36 hours.” Creating exclusivity creates buzz, similar to the time when Facebook could only be joined if you were attending university or when Gmail came out and was invite only.
Guilt disrupted shopping. “If shopping was traditionally a slow, leisurely activity that might consume an entire weekend (the exception being sample sales), it would now be competitive, addictive, urgent, thrilling- a rush delivered at the same time each day via the Internet. It would be the appointment you couldn’t miss, at a time we’d specified. We’d make shopping a game, and successful shopper would need to hone her tactics and skills. The essential ingredient was feeling that you were beating others to the best stuff.” The alternative wasn’t attractive: “Luxury boutiques were intimidation and often empty, making customers feel targeted by eagle-eyed salespeople and pressured to buy, rather than at leisure to browse. Besides, with free time so scarce, who wanted to spend a weekend browsing in store after store?”
Going high end and exclusive helps build your brand. “Making FirstLook not just high-end but member only would help it market itself. It would cultivate an air of mystery and imbue it with the allure of exclusivity. Designer brands would also lend a positive halo effect to the fledgling site.”
Make your product or site extremely simple. Gilt’s goal was “Building the simplest, fastest shopping experience on the Web, one that minimized the number of mouse clicks standing between a shopper and the pair of Michael Kors gladiator sandals she passionately desired.” Gilt’s engineers “were obsessed with the proper placement of buttons on the screen, and excising all needless word, links, and pages from the shopping experience.”
There will be haters. “You will never get brands like Valentino and Hugo Boss to agree to work with you.” He was adamant that they’d never want to sell through a third party, especially at discounted prices and especially online, when they already had their own successful, profitable outlet stores for liquidation purposes.” Likewise, there will be those that see the genius of what you’re doing. One designer executive “immediately saw Gilt as an opportunity to gain access to thousands of young fashion-conscious, educated, time-starved shoppers with disposable incomes. In other words, he liked the idea that people like us and our friends would become exposed to his brand. Our target demographic affluent but largely strapped to a desk, was increasingly hard to reach for brands whose in-store customer tended to skew older.” Furthermore, “Many of these established brands had no other way to reach Gilt’s specific shoppers so cheaply and efficiently.”
Interesting fun facts about Gilt: “We did 75 percent of our daily business in the first hour and a half of a sale.”
On customer service: “Not a single shopper contacted us via Meebo chat or phone, and we got a whopping one e-mail. The Gilt customer immediately revealed herself to be savvy, self-directed, and efficient, with no need (or perhaps time) for hand-holding. We got the immediate sense that she didn’t want us or anyone else to get in the way of her purchase. “Let me be,” roared this customer with her silence.”
Being first to market was important for Gilt. “In Japan, sluggish eBay was beaten to market by Yahoo!Japan, which introduced auctions to the country and preemptively poached eBay’s potential customers. eBay’s Japanese business eventually folded. On the other hand, eBay Canada managed to get a foothold before any competitors launch and become the country’s largest ecommerce business.” Furthermore “the Internet diminished the value of an idea and lessened the time and money it took to execute it. As technologies improved and new businesses required less initial investment, years turned to months or even weeks as launch cycles reduced dramatically.”
Listen to the customer, iterate, then go to market again. “Besides, before we speculated any more about what our customers wanted, it made sense to ask them: to host a few sales and gauge the response. Would anyone buy anything? What would people buy? It’s critical not to overinvest before getting a fledgling idea, product, or service out into the public market. After all, many businesses end up having to pivot in completely new direction after launching. Minimizing investment and maximizing consumer feedback in a start-up’s early days helps save critical time, cash, and resources. We didn’t want to do too much work or allocate too much money to building the site before we had proof that customers really wanted to shop this way. We believed so much in our strategy of launch first, tweak later, that Mike and Phong didn’t even build out the code for our returns process before the launch.”
Good Karma will come back to you. “Alexandra had been generous with her time over the years; she’d mentored friends’ and acquaintances’ kids whenever asked, facilitated introductions, send handwritten congratulatory notes after promotions, and even remembered anniversaries. She’d genuinely enjoyed keeping up with people; she’d never done it with an eye toward what they could provide in the future. And she’d asked for few favors. The result was that almost everyone she e-mailed for help with Gilt -advice, and introduction, a meeting- responded warmly and positively.”
Don’t be afraid to do things differently. “The members-only format, in which users were forced to register before accessing a site, was at the time considered e-commerce suicide. The prevailing view was that shoppers wouldn’t actually take time to register when they couldn’t first see what merchandise was behind the registration screen. But here’s where our word-of-mouth marketing came in: If she received a personal invite from a stylish friend or heard about how that friend just scored an amazing designer bag at 60 percent off, surely one hundred registration screens wouldn’t deter her from joining.”
Inventory, even if it’s a hard good, spoils. “Inventory is spoilable. It’s like having lettuce on the shelf. We learned that Zac and Susan had been cutting to order, which is fashion industry lingo for ordering just enough product from factories and fabric sellers to satisfy actual orders from retailers. But inevitably, they’d still end up with some extra clothes here and there. A lot can happen in the five or six months between when retailer places an order and when it’s filled.” The top designers destroy it to protect their brand from discounting: “what does Bulgari or Louis Vuitton do?’ Somebody had told me they burn their old things.”
Luxury brand building is a tricky thing. “If you let your reputation slip, it evaporates very quickly. So we were always very protective of it.” Susan didn’t want the inevitable excess merchandise to end up at a store like Loehmann’s, where it would hang alongside far lesser labels or worse, end up on the floor in a heap.”
Website design is critical. “On Web sites, eyes tend to scan from top left to bottom right; they skip around from visual cure to visual cure rather than reading paragraphs one after the next. Viewers experience Web site not unlike they do TV (and can you imagine anyone trying to sell something on TV with a written paragraph?) On Gilt, Alexis wanted photos to be content. But in order to make Gilt’s images compelling, it was important that there not be too many of them cluttering the page. Just the right amount of images and not so much selection that the customer would be paralyzed by the glut of choices, as on the majority of e-commerce sites at the time (in our opinion). Basically, we set out to building the anti-Amazon, where explicitly less become much more. A tight selection would emphasize Gilt’s high taste.”
Seed stage VC’s invest almost exclusively in the team. “Look, we know we raised money on this idea, but we really think we want to go in a different direction, “the partner said, “That’s fine; we never liked the first idea that much anyway.” The firm had invested in Kevin himself, trusting that he would eventually arrive at a viable business idea. Because there’s so little due diligence that can be done on most new start-ups, it’s natural that VCs concentrate most on the team involved.”
Raise money early, and raise lots of it. “We believe that raising money early helps protect a business from the inevitable ups and downs ahead in the market. It was nice to have cash reserves to help us weather the storm. The point is, you never know when some catastrophic event happen. Say, something costs more money to build than you expected, or a supplier disappears- might force you to raise additional money at an inopportune time.”
Marketing is not about spending money to acquire users. You’ve got to be more creative than that. “Alexis had also seen firsthand the power of a great viral marketing campaign at eBay. She and members of her team had traipsed all over the West Coast, trying to get the word out about the business by reaching the right circles of collectors, people who were passionate about buying or selling one thing in particular. They found these people on news groups and Listservs (precursors to blogs) and at all the stamp collecting and Star Trek conferences, not to mention the aforementioned South Dakota motorcycle rallies. Their grassroots efforts targeted large groups of like-minded people with similar obsession and effectively attracted these dedicated hobbyist to the site; once they discovered the wonders of eBay, the collectors were naturally incentivized to spread the word to friends with similar hobbies and interests. Again, people who are passionate talk about where they’re passionate about and are natural viral marketers.”
Spending too much to acquire the customer: “Though we hoped our customers would reap social and altruistic rewards from telling their friends about Gilt, we also wanted to offer a monetary incentive. That’s why we’d decided to offer a twenty-five dollar shopping credit to anyone who invited a friend to join when that friend mad her first purchase. This was hotly debated internally because it seemed like a rich sum. But Alexis recalled the eBay’s lifetime value of a customer was forty-nine dollars.”
College students are a fantastic viral market. “College and grad students live in one of the most innately viral environments in existence. Alexis gathered e-mail addresses for the presidents of every women’s, fashion, business, retail, technology, and entrepreneurial student group at the undergraduate and graduate level through each school’s Web site. Later we followed up with personal e-mails.”
Contact is key. “In any viral marketing campaign, it’s important to reach people more than once — preferably again and again, with new information each time. Customers need to have a reason to continue e-mailing, visiting the site, and talking about your business. A potential customer who heard about Gilt from a friend and also read about the site on her favorite blog and also saw it mentioned on a morning show was much more likely to sign on and become a member than someone who just saw us on the morning show. Hearing about Gilt from multiple trusted sources would help prospective customers remember the brand and feel inclined to register and support us.”
Send marketing emails from your personal account, because you are the brand. “Vente-privee’s e-mails were sent by a fictitious character names Cecile de Rostand. How fortuitous that Gilt had two very real women at the helm. Three of us knew that increasing A&A’s visibility would help us personalize and build trust in the brand. Gilt wouldn’t be remote or aloof, a faceless corporate behemoth like most online retailers. Instead, it would have a friendly human face, despite being a brand most customers interact with only via their computers. From the beginning, we personally answered as many e-mails from members as we possibly could. In January 2008, we began sending the daily e-mails alerting our members to sales from an account bearing our names. We thought this would help us speak directly to our customers — to create a sense of personal connection that is too often lost online. Whenever and wherever we traveled, we invited loyal shoppers to join us for coffee or a meal. Over time, we become friends with hundreds of our customers.”
Give everyone options. “We knew that one way to make everyone fell like an owner — in other words, as invested as we were — was to make everyone an owner. So we decided to give all new hires options in the company. Simon had always ensured that new hires meet as many members of a team as possible during the interview process. This helped the team feel empowered to shape the group and, more important, caused members to feel a joint responsibility for that individual’s success. Simon even had juniors assess potential seniors and peers assess peers. In Simon’s mind, getting these people on board with a hiring decision was important because they would be especially critical to the new individuals’ success.”
Gilt did not outsource engineering. “Many people ask us, and Mike and Phong, if they should out-source their engineering needs. To them we say: Is engineering core to your business? The code will be written much better by someone on staff — who’s going to need to maintain it — than by someone who knows they’re going to work on it for two months and then that’s it, they don’t have to see it anymore.” Additionally, “the best engineers are never looking for jobs, “says Mike. “Most have never interviewed in their lives.” Sometimes, it helps to lure them to the office by inviting them to give a talk or to just come meet some of the Gilt engineers. We’ve noticed that free food is also extremely effective in motivation engineers.”
Don’t be afraid to replace yourself as CEO. “At twenty-five million dollars in revenue, her job as CEO had already changed a lot over the twelve month of Gilt’s eventful existence. She enjoyed the creative, early stages of a business much more that its later stages, when emphasis necessarily shifts to the implementation of processes and controls.“
Kill unsuccessful products fast. “Debuting in summer 2009, the Fuse tab had a younger edgier feel than Gilt; it’s colors were icy blue instead of stately gold; the models younger. It sold clothing accessories, with a larger selection of denim and T’s. But while members liked the brands, they were not fans of Fuse. We’d added unnecessary clicks to their fast, easy, convenient shopping experience. After receiving consistent negative feedback for pretty much the first time in our existence, we eliminated Fuse in less than a year.”
Profitability is important. The Company raised hundreds of millions of dollars and ultimately achieved a billion dollar valuation in 2011. Gilt got very large (revenue estimates were near $650mm in 2014), the company’s growth slowed, and the business wasn’t profitable. In 2015, they raised one last round of $50mm. In January, Gily ultimately exited to Hudson Bay for $250mm.
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