By Marie Griffin Photography by Mindy Best
Michelle Peluso brought dazzling credentials when she joined online discount luxury retailer Gilt Groupe, Inc. as CEO in February 2013.
Most recently, she had been global consumer chief marketing and internet officer for Citigroup, and, previously, was CEO of Travelocity. She joined Travelocity in 2002 after the company purchased Site59, the last-minute-travel-deals site she had led as CEO since its inception in 1999. She had also been a case leader for The Boston Consulting Group and a White House Fellow and senior advisor to Labor Secretary Alexis Herman during the Clinton administration.
Peluso had started to outshine most of her peers back in high school, when she was one of only 150 students in the country to receive a 1989 Coca-Cola Scholars Foundation scholarship, which recognizes young people who have shown leadership potential and a desire to make a positive impact on society at an early age. She went on to earn a bachelor’s degree from the prestigious Wharton School of Business at the University of Pennsylvania and a master’s degree from Pembroke College at world-renowned Oxford University.
Peluso, who had served on Gilt Groupe’s board of directors for more than three years before she became CEO, took over the job from founder Kevin P. Ryan, who assumed the role of chairman.
In an Inc. magazine interview published in February 2013, Ryan explained why he handed over the reins of the e-retailing company he founded in 2007. “It’s no secret that in the next year, maybe two, Gilt goes public. I only work three days a week on Gilt right now. You can’t go public spending three days a week at the company. I had to really cut back or hire a CEO,” he said. Ryan’s time at Gilt was limited because the serial entrepreneur was also actively involved in Business Insider, a popular and fast-growing news website he founded, and MongoDB, a leading open-source database he co-founded.
“Gilt is in a pretty good situation, and it’s very stable, so I don’t need someone to make radical changes,” Ryan told Inc. “I wanted a great manager. I wanted someone with an internet background as opposed to a fashion or retail background. I wanted someone who felt comfortable in a start-up environment but could manage at scale.”
Peluso fit that bill. She has led internet businesses in both the travel and financial verticals, and ran both an internet start-up and the 5,000-employee Travelocity. Peluso is credited with returning Travelocity to profitability when revenues soared from $395 million to over $1 billion during her five-year tenure as CEO.
Although Ryan says Gilt was stable, it was apparently not ready for its long-discussed Initial Public Offering (IPO) when Peluso came on board. Peluso declined to discuss a possible IPO with SmartCEO, but media reports suggest that she has already made progress toward that goal.
In November 2013, Jason Del Ray of AllThingsD reported that people familiar with the company’s plans said Gilt could file an IPO as early as the fourth quarter of 2014. Although Peluso was only nine months into the job, company and industry sources were telling Del Ray that Gilt’s star was rising because it was “performing exceptionally well” under Peluso’s leadership.
In February, Bloomberg reported that Gilt Group had “picked Goldman Sachs Group Inc. to manage its IPO, according to people with knowledge of the deal,” but neither Gilt nor Goldman Sachs has commented on the report.
In a Fortune magazine article published on June 30, Ryan would not be pinned down on a time frame for an IPO. “Every press conversation we’ve had is like, ‘When are you going public?’ We’re always like, ‘I don’t know, at some point … we’ll go public,’” he said.
NOT A ‘FLASH IN THE PAN’
Considered to be the largest U.S.-based flash-sale e-retailer, Gilt does not release revenue numbers, but its 2013 sales have been pegged at around $600 million. Although flash-sale e-retailing was pioneered in France, Gilt is the first such company to take off in the U.S. Gilt and the competitors that quickly followed earned the appellation “flash-sale” retailers because they offer limited quantities of merchandise, likely to disappear quickly. At Gilt, new sales start every day at the strike of noon (Eastern Time), and will typically only last 36 hours.
Over the past seven years, flash-sale retailing competition has incrementally increased and skyrocketing growth rates inevitably slowed. Over time, flash selling matured into a niche within digital retailing, and the financial community, the media and some of the flash-sale retailers themselves cooled on the concept.
Sucharita Mulpuru, senior analyst at Forrester Research, explains that the flash-sale movement “probably matured faster than investors hoped it would. The companies were heavily capitalized to support explosive growth, but there were too many players trying to get a bite out of a market that couldn’t support them all.”
The flash-sale niche has stabilized and, “compared to reasonable expectations, its growth would be pretty strong,” Mulpuru advises. “But, internet businesses have high expectations and so there’s different math you use when valuing an internet company.”
Undeterred, Peluso maintains that flash sales are still “at the core” of Gilt. “The word ‘flash’ carries a lot of baggage, but, to me, it speaks to the emotional aspects of shopping that are the very reasons we love shopping. There’s the thrill of discovery, the social aspects, the competitive aspects,” she says.
A key principle at Gilt, of course, is to provide value, but Peluso is broadening the definition of that word. “Value could mean 60 percent off the retail price, but it also could mean the first time a shopper is going to see a particular new collection or it could be exclusive colors or cuts designed just for Gilt,” she points out.
Although Gilt may be best known for its discounts, Peluso asserts that her team’s most noteworthy accomplishment is its ability “to put on a show every single day at 12.” What might appear to be an upload of product photos, descriptions and prices requires organization, creativity and planning. “We have incredible creative capabilities. What Gilt does exceptionally well is to shine a spotlight on something, tell the story behind it, tell you why you should care. I’d argue that Gilt is second-to-none in this area,” she says.
“The role of curation is really important at Gilt,” adds Peluso, referring to the way the retailer organizes merchandise around a story or theme, such as a single brand or designer, a style trend, a color, a holiday or
In June, for instance, Gilt held a sale tied to the hit Netflix series Orange Is the New Black. One of the episodes featured a prison job fair, so Gilt created a collection of work-appropriate fashions for that sale. “We had a special video with the stars and there was also a feel-good charity component. For each purchase, we made a donation to Dress for Success,” Peluso explains.
In early July, Gilt ran a sale on designer boys’ clothes and accessories in its Baby & Kids section with outfits selected by 6-year-old Instagram “style icon” Alonso Mateo and his stylist/mother Luisa Fernanda Espinosa. The mother and son duo has more than 400,000 Instagram followers, and the sale was written up in People.com’s Moms & Babies section.
Another one of what Peluso calls “the principles we hold dear” is providing merchandise that is “aspirational” — products that might ordinarily be beyond the reach of the customer because of price, exclusivity, fashion-forwardness or lack of familiarity.
Nikki Baird, managing partner at Retail Systems Research (RSR), agrees that high-end brands are looking for partners who can introduce their products to aspirational consumers. “Brands participate with Gilt as a clearance method, but it’s also a way for them to get in front of shoppers who may eventually become full-price customers.”
“For a long time, Gilt and all of the flash-sale retailers have positioned themselves to brands as a customer acquisition opportunity,” adds Mulpuru. “But I don’t know how true that has ultimately proven to be.”
THE GILT EDGE: CONNECTING CONSUMERS WITH BEST BRANDS
Personalization is becoming an increasingly important aspect of the Gilt proposition. “One of the benefits of being a membership website is that we know exactly what each shopper is doing on the site, not only what they’re buying, but also what they’ve looked at, what they’re putting in their cart and not checking out, and what they have added to their waitlists,” Peluso reveals.
Personalization at Gilt started years ago, when members received different pre-sale reminder emails that guided individuals to the merchandise in the daily sale in which they were most likely to be interested. As technology advanced, the website experience became more personalized. In August 2013, Gilt publicized this feature with a Your Personal Sale badge that indicated to shoppers which merchandise had been algorithmically chosen for them based on their shopping behavior and personal preferences.
Gilt’s move from being one giant online bazaar to a purveyor of personalized shopping experiences is intimately linked to one of Peluso’s key strategic initiatives — deepening the retailer’s relationships with luxury brands.
“One part of our job is adding more value and growing faster with consumers, but the other part is being more indispensable to brands in a digital world,” Peluso says.
Luxury brands and flash-sale e-retailers like Gilt have historically had a somewhat ambivalent relationship. On the one hand, the cachet of these brands is tied to their exclusivity, and steep discounting diminishes that. On the other hand, high-end brands appreciate the online flash-sale distribution channel: “They’d much rather sell that merchandise in a flash sale, which is a one-time deal, because that supports the brand in continuing to achieve a high-end price point,” says RSR’s Baird.
“The limiting factor in growth for flash-sale retailers is on the supply side,” Baird explains. Gilt and other leading flash-sale retailers have achieved scale and a number of them now sell hundreds of millions of dollars’ worth of merchandise annually. Thus, the industry as a whole will inevitably run up against this limitation.
Since she became CEO, and for all the years she served on the Gilt board of directors before that, “I have never once felt supply constrained,” Peluso asserts. But not all merchandise is equal when it comes to the upscale brand names that can really pump revenue and continue to attract the affluent, young consumers Gilt depends on.
Because the supply of the highest-priced merchandise is the most limited — and therefore the most coveted — Gilt stands to gain a major competitive edge if its relationships with prestigious brands gives it access to more exclusive merchandise. For example, consumers would consider an Oscar de la Renta gown originally priced at $3,500 to be a fabulous deal at $1,299; that revenue figure might also be equivalent to the sales of 50 bangle bracelets, improving Gilt’s efficiency immensely.
“We have brought on dozens of new brands over the last 18 months,” Peluso says, “but it’s not just a matter of new brands. It’s about having a deeper relationship with the brands we work with.” More of these partnerships are based on full-price merchandise. She points to a recent Gilt sale celebrating the 20th anniversary of Stuart Weitzman’s 5050 up-to-the-knee boot. Even at full price — and with a few exclusive designs priced at $10,000 apiece — Gilt reportedly sold more than $1 million worth of 5050 boots.
A MOBILE WORLD
With a young and affluent customer base, it’s not surprising that more than 40 percent of Gilt’s revenue is currently attributable to sales on mobile devices. “For Gilt to be exceptional in mobile is really critical,” Peluso says. “We’ve had to do a lot of work to make sure the shopping experience is unique. For instance, because an iPhone has a small screen, we’ve put a greater focus on the product itself in our images.
“The other thrust of our work is maximizing mobile’s capabilities,” she adds. “For example, we released a feature last year that uses the camera. Consumers can take pictures of themselves and try on sunglasses [virtually].”
Like many U.S.-based businesses, Gilt is becoming “really aggressive in building up our international presence; it’s just the right time,” Peluso points out. “Mobile is very important to us from an international perspective because certain countries are bypassing the desktop altogether in favor of mobile devices.”
Gilt currently has an arrangement with Borderfree, a leader in facilitating international e-commerce, to handle shipping, currency conversion, taxes and duties, customs clearance and other logistical aspects of getting Gilt products to customers overseas. “As we get bigger internationally, we will look at having regional hubs for distribution. In-market fulfillment will be important, although the facilities could either be owned by us or a third party,” Peluso says.
All in all, says Mulpuru, “Michelle has a great reputation and she seems to be focused on continuing to build the business and to produce profitability and good economics. Gilt has pared down, exited businesses that were unprofitable or draining resources from a technology or creative standpoint. That was definitely a good thing, it seems.” CEO
Marie Griffin is a freelance writer based in the New York City area. Contact us at email@example.com
GILT GROUPE AT A GLANCE
Chief Executive Officer: Michelle Peluso
Chief Operating Officer: Tracey Weber
Revenue (2013): Estimated at $600 million
Year founded: 2007
Founders: Kevin Ryan, chairman; Mike Bryzek, chief technology officer; Phong Nguyen, vice president research & development; Alexis Maybank; and Alexandra Wilkis Wilson, head of strategic alliances
Headquarters: New York, NY
Employees: More than 1,000 worldwide, including more than 150 employees in the technology department
Consumer members: More than 9 million active members
Ratio of female to male members: 68/32
40% of members have household incomes greater than $100,000 per year*
More than 50% of Gilt visitors are under the age of 34*
What does management look like for Gilt Groupe CEO Michelle Peluso?
Collaboration: Peluso includes other top Gilt executives in leadership decisions. “We work like a cabinet,” she explains. She and other executives go through 360-degree reviews, so Peluso gets feedback on her performance from her team, as well as the other way around.
Involvement: To ensure that she is neither physically nor consciously cut off from employees, Peluso doesn’t have a permanent office or desk. She temporarily sits amidst one of the teams at Gilt, moving from one to another every few months.
Transparency: Peluso shares the company’s performance metrics, including the profit and loss (P&L), with people at all levels, saying it helps build their confidence in the company’s future and teaches financial and business concepts to employees who would not traditionally be exposed to them.
Reaching High: Peluso does not use top-down management, but she also holds the organization to high standards, as she does herself. “Gilt can’t for a second rest on its laurels,” she says. “It’s a cultural imperative for us to make sure we never get complacent or self-satisfied; we’re always pushing ourselves.”
Balance: This concept plays out in multiple ways, from Peluso’s personal commitment to balancing work and family — she leaves the office at 5 p.m. religiously — to the mix of people on her management team. “In all my jobs, I’ve cultivated a healthy mix of three elements,” she says, “people I know really well and worked with before,” talented company veterans and, “up-and-comers, people with big potential to shake things up.”
The year before Michelle Peluso joined Gilt Groupe, Inc. as CEO was a bumpy one for Gilt. In 2012, then-CEO Kevin Ryan streamlined the company by deciding to close and downsize businesses. In the end, Peluso inherited a leaner, more focused company.
Jetsetter, a website launched in September 2009, sought to replicate Gilt’s flash-sale model in travel. Like Gilt, it offered curated, upscale experiences in limited quantities for a limited duration. Ryan later revealed that Gilt had spent $3 million to get Jetsetter off the ground, although that might not include the value of Gilt’s list of members, to whom Jetsetter was regularly marketed.
In November 2008, Groupon launched. While both flash sellers and Groupon promised daily deals, the two models are fundamentally very different. Flash-sale sites sell actual merchandise nationally and internationally, while Groupon offers coupons on behalf of companies that provide various goods and services in local markets. By the end of 2009, Groupon had become the new internet darling, with glowing media reports touting its 2 million subscribers, sales of 1 million Groupons and valuation of $250 million.
Along with a host of Groupon imitators, Gilt joined the daily deals fever with its own offering, Gilt City, which opened its first market, New York, in April 2010.
In 2011, Gilt ventured outside the territory of flash-sale discounting with the launch of Gilt Taste — which offered hard-to-find, chef-quality gourmet foods — and Park & Bond, a brand designed to give men a luxury shopping experience with high service levels, upscale brands and exclusive merchandise. Both websites charged full retail prices.
By January 2012, Gilt’s newly diversified empire started to crumble. The heads of Gilt City and Park & Bond both exited and roughly 100 people were laid off. Gilt City operations were closed in six smaller cities, leaving its core cities of New York, Los Angeles, San Francisco, Chicago, Boston, Washington, DC, and Miami. It has since added Atlanta, Dallas, Houston, Philadelphia, San Diego and Seattle.
In February 2013, Park & Bond was shut down and in May 2013, Gilt Taste was folded into Gilt.com.
Jetsetter was finally sold in April 2013 to TripAdvisor. Although the terms of the deal were not disclosed, SmartCEO estimates that the price for Jetsetter landed in the range of $10 million to $20 million based on subsequent TravelAdvisor disclosures.