Gilt Groupe Needs to Focus on Profitability

According to comScore, during the first quarter of this year, online retail sales grew 17% over the year to $44 billion. The quarter was the tenth consecutive quarter of positive growth, and the sixth consecutive quarter of double-digit growth. Online retail sales were driven by growth in digital content and subscriptions, computer software, consumer electronics, jewelry and watches, and event tickets, each of which reported 17% growth over the year. Retail sales are also being spurred by the growth of flash sales sites. Researchers estimate that the discount flash sales market will be worth $6 billion by 2015. Within the U.S., flash market leader, Gilt Groupe, is rumored to be preparing for its IPO to ride this big wave.

Gilt Groupe’s Financials

The members-only service, Gilt Groupe, is known for their flash sales of luxury, designer label clothing and accessories. Sales last anywhere between 36 and 48 hours, during which time members can buy designer products at 50%-70% discounts. Gilt has more than 5 million members and ships more than 10,000 packages a day.

Gilt Groupe has seen strong revenue growth over the past few years. Analysts estimate that gross revenues grew from $25 million in 2008 to $605 million last year, translating to an annual growth rate of 189%. However, the revenues have not ensured profitability. It is still struggling to report a profitable year. Gilt Groupe has suggested that it will turn in a profit by the last quarter of this year.

Gilt Groupe’s most recent round of venture funding of $138 billion, held last year, brought its total funding to $236 million. The round, funded by Matrix Partners, General Atlantic, Goldman Sachs, New Enterprise Associates, Draper Fisher Jurvetson, Pinnacle Ventures, TriplePoint Capital, Eastward Capital Partners and SoftBank Capital, had pegged the company’s valuation at over $1 billion.

Gilt Groupe’s Consolidation

Gilt Groupe is now working toward an IPO by next year. As part of its IPO plans, controlling costs, and streamlining operations is a major area of focus. Earlier this year, it cut its employee count by 10% to control costs.

As part of focusing on its core strengths, it also announced plans to shut down Park & Bond. Instead of limited period sales, Park & Bond let members buy regular priced fashion products for men through the site. Because the offering was entirely different from the concept of a flash sale, Gilt decided to merge it with their men focused offering. Since its launch a year ago, Park & Bond had done good business and had brought in $10 million in revenues for Gilt.

Gilt is also winding down its grocery business, Gilt Taste. Gilt Taste offered high-end grocery products that were normally available only to chefs. The site will now only sell wines, champagnes and grocery products during the holiday and festive seasons.

Last year, Gilt added Jetsetter, an invitation-only travel sales site. They are now looking for a buyer for this product. They initially priced Jetsetter at $100 million, but given the market’s condition, the price tag is said to have been altered to $50 million. Analysts believe that Jetsetter is being sold off because it did not “operate as cheaply as some of its competitors.”

Gilt Groupe hit the jackpot with its flash sales business. However, its more recent attempts at growing into a full-priced retailer, or to alternate verticals such as travel and food haven’t got them the results that they were looking for. At more than $600 million in revenues, the company is still to turn in a profit. It needs to focus on its core flash sales value proposition, and streamline operations so that the P&L shows a healthy, sustainable business model.