These days, walking into a Saks Fifth Avenue(SKS) store is confusing for most shoppers. To your left is a bizarre T-shirt for $58 and on your right is a pair of lace-up ankle boots for $524.99 (and that’s the sale price).
For the past year, the luxury store has taken to the tightrope -- trying to lower prices enough to survive while maintaining its elite, fashion-forward status. Despite its efforts, economic conditions have sent consumers flocking from high-end department stores to discount stores, such asT.J. Maxx (TJX), which reported a 10% increase in revenue for the third quarter compared to Saks’ 8.5% drop.
But as the masses started to migrate, Gilt Groupe was there as a tempting new gathering point.
The online re-seller offers designer clothes, shoes, and accessories at a discount, but is still structured with an elite flavor: Its “invitation only” membership scheme (anyone can join for free, but wannabe members have to wait for an opening) and its time-limited sales allow customers to experience the thrill of a designer sample sale without having to throw elbows. Online shoppers do have to act fast, however, as items only stay in virtual "carts" for 10 minutes before becoming available again to the other 2 million members.
Gilt stocks its online sales by acquiring excess inventory and merchandise from well-known brands, and even has some of its own signature products in the works. The site begins a sale every weekday at noon (when most of its shoppers are at work pretending to be busy with a spreadsheet), and offers products for up to 70% off, but ends the sale exactly 36 hours later. Many items sell out within hours. While women’s apparel was at the company’s core when it started two years ago, it has since expanded to include men’s clothes and travel deals. It's also grown its customer base; while most of Gilt shoppers are in the US, the company now caters to a sizable Japanese market.
The non-Saks business model that offers Saks-like merchandise has caught on like wildfire. Gilt rarely goes a month without being mentioned in high-profile publications such as Vogue,Marie Claire, and InStyle, and the site was named the E-tailer of the Year by Footwear News.
“At Gilt, people who would be deeply uncomfortable spending full price feel like they've saved money, not spent money,” CEO Susan Lyne, formerly president of Martha Stewart Living Omnimedia (MSO), once told BusinessWeek magazine. “There is a psychological lift. And there is pent-up demand. I think people want to shop. It makes us feel better.”
But the new competition isn’t making Saks feel any better. The department store held its own 36-hour private online sale in October.
“We are still very early on in understanding the business opportunity,” said Denise Incandela, president of Saks Direct, in a Wall Street Journal interview. She added that the store will evaluate results of the sale before deciding “how we would proceed next year.”
Jami Stapelmann, a New York City resident and occasional Gilt customer, said she and all her friends who used to frequent Saks Fifth Avenue no longer live the Sex and the City lifestyle that might include a full day of beauty treatments, shopping, and long lunches -- but they still covet the Manolo Blahnik shoes and the bling.
“We know what we want and we shop from the comfort of our own home,” she tells Minyanville.
But retail analyst and Minyanville contributor Kristen Graham says that Saks shouldn’t be completely shrugged off. She says consumers, especially those willing to spend thousands of dollars, value the personal attention they can only get in a brick-and-mortar store with trained associates. “The ability to physically inspect and try on an item, and receive special attention, becomes increasingly important as the price goes up,” Graham explains.
However, retailers are coming face to face with the “new consumer”, who is choosing lower prices over almost everything else -- a shift that Graham says is likely to stay and one that will help Gilt transform the high-end retail industry.
Gilt made about $200 million in revenue last year and expects $500 million this year. With such rapid growth, there have even been rumors about an initial public offering in the works.
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