Height of fashion

Thought sample sales were just for the fashion elite? Meet Susan Lyne, the woman who has brought them online — so we can all pick up designer goods for less. Nancy Hess reports

SUSAN LYNE had fans. She was, after all, one of the ABC executives behind Desperate Housewives, and she ran Martha Stewart’s design empire when Stewart was in prison for insider trading.

But Lyne was unprepared for her newfound ‘fame’ when, in 2008, she took the reins at the Gilt Groupe, the e-commerce company that Wall Street expects to be 2013’s most anticipated initial public offering.

“People tag me by the sleeve and tell me it’s changed their lives,” she says. “They tell me their stories of how, at 12:01pm, every day life just stops for them.”

At 12:01pm daily, thousands of people, mostly women, in offices (and cars and cafes and at their kitchen tables) sign in to gilt.com, where, for a few tense moments, they vie for discounted designer merchandise, just a piece or two in each size, from a Marni blouse to a pair of Casadei stilettos.

Within 60 seconds, much of it is snatched up in the ‘flash sale,’ leaving everyone plotting the next day’s strategy.

“It’s magical,” says Dawn Olmstead, a Hollywood producer. Olmstead logs on from her phone app while she is driving the kids to school. It reminds her of when she lived in New York and shopped at sample sales, the insider-only seasonal events (that inspired the creation of Gilt) where fashionistas line up to pick through leftover designer goodies.

“When you win, it’s fantastic, and even when you lose, the site is your guidepost. You see what went fast, and you know that’s what’s hot. It’s better than Vogue. It’s better than anything,” she says. She may even read By Invitation Only: How We Built Gilt and Changed the Way Millions Shop, a business book released this month by Alexandra Wilkis Wilson and Alexis Maybank, two Harvard business school pals whom Gilt founding partner and CEO Kevin Ryan recruited to create the look and feel of the site and to be the demographically perfect public faces.

Lyne, a wry, elegant 61-year-old blonde, shakes her head with disbelief. “When you have that kind of engagement with your customers, when they think they can’t live without you, you can go anywhere,” she says.

Gilt is going there fast. From its start, with five founders at two long tables in a sublet office, it has 900 employees and a sleek loft on lower Park Avenue, and a market value of $1bn. It’s the second-most-valuable e-commerce company with its own inventory, after the much-larger Amazon. It has five million members, ships 10,000 packages a day, and has expanded with ‘verticals’, including Gilt Kids, Gilt Home, Park & Bond (for men), the travel site Jetsetter, Gilt Taste for gourmet foods, and Gilt City, a competitor to Groupon. You can get more than a cute new pair of Missoni beach sandals on Gilt these days; there are $175 cuts of sushi-grade yellowtail, four private training sessions with Gwyneth Paltrow’s trainer, and trips to Balinese eco-resorts. And unlike many hyped digital operations hurling toward a stock offering, Gilt is expected to break even by the end of the year.

“I think that Gilt is Susan’s perfect platform,” says Charles Koppelman, who was executive chairman of Martha Stewart Living Omnimedia when Lyne was CEO. Unlike Stewart’s company, which was a well-defined brand when Lyne arrived, Gilt has given her a chance to sculpt a new entity. “It’s creative, fast moving, and innovative, which describes her perfectly,” Koppelman says.

Paco Underhill, the environmental psychologist and author of Why We Buy: The Science of Shopping, says the success of the flash sale is obvious. “The concept of brands has penetrated everywhere from the favelas of Brazil to the streets of Brooklyn. And we’ve created an aspirational population obsessed with getting things at discount.”

The flash sale has advantages over bricks and mortar. Members who lose out on a sale put their names on a waiting list, sometimes hundreds of names long, so if the item is returned, as are 20%, the package is shipped out to the next person on the list. Gilt is rarely stuck with merchandise, the bane of department stores. But bringing Gilt into a new decade as an IPO looms has not been without challenges. Online flash sales hit their stride during the recession, because they were a godsend for designers who produced more than they sold.

The sales were a ‘safe’ place to wring profit from unsold items; better to sell discreetly over the internet than to consign your label to the dreary fluorescent-lit outlet floor.

But with the US economy on an upswing, critics worry there won’t be excess merchandise. Competitors have sprung up, and while Gilt has mostly beat them back — the next biggest is one quarter of its size — plenty of rivals are vying for choice items.

Ryan says it is harder to get pieces from edgy designers. “It’s been a long time since we’ve had a sale of Christian Louboutin shoes, it’s true,” says the bespectacled, Yale-educated CEO, 47, a tech veteran who cut his teeth as CEO of DoubleClick, the online ad behemoth Google bought for $3.1bn.

These days, Gilt sales are more likely to include ‘accessible luxury’ brands like Kate Spade and Cynthia Rowley than wares from Balenciaga or Narciso Rodriguez.

Some fashion-industry observers say Gilt has lately taken inferior goods manufactured for the site, a strategy that can backfire. (The company denies the practice.) “It isn’t good if they lose the kind of customer who made them, if that customer stops coming back because the thrill is gone,” says a former Gilt executive. “If it feels like a bait and switch, there can be a real backlash.” Underhill says “A brand that’s cool and can’t maintain that is just one stumble from destruction.” The fashion blogosphere lit up in January when Gilt laid off 90 employees, a tenth of its workforce (executives said they shed the jobs to better the balance sheet for the IPO).

Lyne’s job has been to transform the company into more than the epicentre of the flash sale. She is yin to Ryan’s high-tech yang, a connected insider with ties to both coasts who understands fashion and consumer psychology and is known for her empathy and instincts about people. She extended Stewart’s reach with a Sirius radio component and a partnership with KB Home to build Martha Stewart communities. “She brings a real stability to the table,” says Koppelman. “And she exudes confidence and makes everyone — from investors to employees — feel good.”

Someone of Lyne’s stature will assure Wall Street that this is a mature company with a deep management bench.

While Gilt says it is focused on keeping great merchandise flowing for flash sales, the bigger goal is creating a luxury-marketing platform for companies to debut their sexiest models. And not just clothes. Last month, Infiniti sold a single crossover on Gilt at half the sticker price. It went in 2.5 seconds, with 10,000 names on the waiting list — and free publicity.

Being the place to be seen by a monied audience will solve the problem of lack of inventory, says Ryan: “A brand like Valentino, which wants to become more attractive to a younger customer, can give us a few pieces,” he says, “and we’ll photograph them mixed with some other things by younger designers. They’re getting exposure with the right audience, and that’s really valuable for them.”

The company is slowly moving toward — shh — full price. “We want to be looked at mainly for curation,” Ryan says, “for direction and taste, not just a bargain.” Eighteen months ago, 100% of the company’s revenue came from discounted goods; that percentage is below 90 and falling.

While womenswear, which constitutes 40% of sales, is still operated on a discounted flash-sale model, Park & Bond is full price. Men are less interested in running to their computers at 12:01pm to score the perfect James Perse sweater in persimmon.

Gilt Taste, under the editorial direction of former Gourmet editor Ruth Reichl, sells ‘value added’ food ‘experiences.’

Jetsetter is 40% full price; several hundred freelancers report on the resorts it features, and the photography is lush.

Olmstead is sold. After she’s scored the perfect cashmere tank top, she and her sister play what they call “Jetsetter roulette,” to decide where to take a weekend together away from the kids.

“Will it be Anguilla or Tahoe?” she says, “We see what looks good. I listen to what they tell me. I let them let me feel smart.”

(c) 2012 Newsweek/Daily Beast Company LLC.


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