New Gilt Groupe CEO on New Business Ideas, the Flash-Sales Bubble and a Future IPO (Q&A)
For a few years, Gilt Groupe was the model for how to build a fast-growing business on the back of e-commerce innovation. Then the flash-sales site got out a little over its skis, necessitating a course correction involving layoffs and scaling down new business units. Gone, for the most part, are the company’s business expansions into travel, food and full-priced men’s clothes.
The company also has a new leader. In late February, board member Michelle Peluso took over as CEO, replacing the company’s chairman, Kevin Ryan. Peluso most recently was the consumer chief marketing officer and Internet officer at Citigroup, and previously spent six years as CEO of Travelocity.
I sat down with her last week at Gilt’s New York City headquarters to discuss what she has been up to during her first 100 days. Short answer: A ton. Here’s an edited look at Peluso’s thoughts on some key topics, including new business ideas, acquisition targets and positioning Gilt for a possible IPO:
On doing everyone’s job
One of things I’ve been doing is getting to know the team on a more granular level. Being on the board, I knew the senior level mostly. I’ve spent two weeks in each department. I do meet-and-greets, meet with high-potential and top performers, and then do some of their work. In Kentucky, I picked, received and packed. I’ve shot photos, styled, cropped photos, re-cropped. I’ve done [quality assurance] … and pushed code to production. It’s been important getting to really know the team and key leaders two levels down that I didn’t know as much. And really knowing how they work at a very granular level.
On new ways Gilt may work with fashion brands
One of the things brands have asked is whether we could be more of a marketing platform for them around opening new stores, juicing new lines, thinking about new demographics. How do we do a better job beyond just selling excess?
With Banana Republic, we introduced their “Mad Men” collection first on Gilt. It wasn’t a flash sale, but it was exciting and nuanced. Or if Jonathan Adler is opening stores and wants to drive foot traffic and pays us a marketing commission off of everything those people buy. Or it could be advertising dollars. We are looking at advertising revenue a little more.
And as we become bigger, are there more parts of the value chain we can play in if there are brands who come to us and say, “We don’t know what to do with mobile,” or “We don’t really know how to distinguish ourselves in the e-commerce world”? Does it make sense for us to help?
On whether this means that Gilt could start a consulting business
Yes … or not. Maybe we are actually running the mobile apps for them or doing distribution. Maybe they send products to our warehouse, and we manage distribution and fulfillment of those products.
On all of these ideas, we looked at some models and started to launch some things to see what gets traction.
We got too unfocused and launched a few too many categories, and launched a few businesses that may have been exciting businesses and maybe under different circumstances could have built scale … but we got distracted from the core business.
On asking staff to come up with other new business ideas
We set teams in motion to come up with 30 ideas, with timelines and parameters, and they came back and pitched the exec team over a couple of days. We cut a bunch out and put a few through.
We’ve taken the net of the ideas and are now through the second round of evaluation of those ideas. The goal is to finish that by the end of June, because July first is our new fiscal year.
What some of the ideas might be
- International: We have done a very, very light touch on international; we allow shipping to other countries, but we haven’t really done local language translation or actually making shipping affordable by looking hard at vendors. We haven’t accepted returns. Everyone gets the same merchandise at 12 noon. There’s a lot to improve. International has grown without doing any of that from four percent to 8.5-to-nine percent without really trying.
- The sale of pre-owned/vintage clothes: We do some vintage sales that are highly successful — they’re incredibly pristine … On that strategy, one step is to diversify sources through third parties, another step could be truly getting into marketplaces like Threadflip and The RealReal. We could even acquire as one of our options.
- Mobile: We just crossed over 40 percent of revenue coming from mobile. We are a much more mobile company than the vast majority of commerce and e-tailer players. But can we think of some next-gen ideas? We just launched the ability to take a picture of your face and swirl through different glasses on your face. We’ve looked at a bunch of those ideas.
On boring ideas where there is opportunity
Then we’ll look at some things that are frankly really mundane, but also important. Things like chat and other ways to improve customer service — changing return policy. These are things we’re looking at, but we are pretty close actually to final decisions.
Whether she thinks further layoffs are needed
No. I think our goal is to grow revenue significantly faster than we grow our cost basis. Where we free up resources by doing some things less manually, we’ll put more resources on other things. I’d love to put more people on mobile development, I’d love to go after vintage a little more aggressively, and we think international is a big opportunity.
I asked for a full employee survey before I joined. We usually do it in May, but I asked for it to be done the week before I started. The questions around being proud to work here, being proud of the brand, and loving the people you work with — those scores are high 80s and 90s … which is really, really, really good.
And then some stuff where there’s real opportunity for improvement — we’ve grown so fast that we haven’t always done a good job of helping with career paths.
- Being adjusted EBIDTA-positive this year
- Starting to generate cash consistently from operations by the end of the calendar year
- Growing revenue by robust double digits
Are we a good target for an IPO? Yes. And if you asked me why I think that, I’d say a lot of banks come in here, so we have a good sense of the market. And we are the biggest, most powerful brand in the space. We have recently been seeing strong double-digit growth, we’ve been proving we can be adjusted EBIDTA-positive, which we have been for a couple of quarters [Gilt about broke even on an adjusted EBIDTA basis in Q1], we’ve got a bunch of upside in international. I think we have a compelling story for a public company profile. … We’ve been having some conversations.
Having said that, we’re not in a rush. … Going public has its consequences. We’ve seen in the last six to 12 months that it’s not so fun to be in a rush to go public.
I believe we’re a strong public-company target, and it’s our likely path, but we’re not in rush. It’s a very dynamic conversation. Part of it is what I think, part of it is what changes if a competitor goes public, for example.
On whether Gilt has room to grow, or whether it has reached most of its potential customer base
People ask that question about flash sales in general. When you step back and look at the total luxury market sold at discount, it’s still such a tiny fraction. We have done some things that give us a good idea that the market size is still really large, with room for growth. We’ve done a little bit of TV — direct-response TV — and have seen customer growth accelerate a bit. We’re really convinced that we have a relatively untapped market in front of us.
Then, with our new ideas on top of those, we think there’s some nice upside. So, for a variety of reasons, I feel good about the revenue growth opportunity in front of Gilt.
I think the story of a bubble around flash sales — we’ve been a little quiet around that, and maybe fed it by saying we’re not going to be in Jetsetter and not going to do [Gilt] Taste. I think the actual performance of the business is pretty compelling.
On whether Gilt City warehouse sales could lead to Gilt retail locations
They’ve been great, and done in a very brand-accretive way — very much in line with flash sales — a little bit of frenzy, fun, a little bit crazy. And we get to move some of our inventory at the end of the day.
But I don’t think brick-and-mortar is a big idea for us.
On the knock that Gilt holds too much inventory
It’s important to us have a reasonable amount of flexibility for our partners. I won’t give you percentages, but there are different kinds of ways we work with partners. Some of it we’re selling a first-look, others we’re getting a look at excess and don’t take inventory. For others, we buy the inventory we want, or we may do a take-all, and sell what we can and put the rest in final sale. For other partners, it’s effectively drop-ship.
That’s one of the things I don’t want to be talking about. We have talked about that in the 2012 calendar year we had gross revenue of $600 million, but that included Jetsetter, which just got sold. We’re not giving the number for calendar year 2013, but if you stripped Jetsetter out of both, we’d have robust double-digit growth.