From Unicorn To Unicorpse: Gilt Gets Acquired

| About: Gilt Groupe (GILTG)

Summary

Gilt Groupe, the pioneer of flash deals in the US, was valued at $1 billion way back in 2011.

But it has joined the ranks as a unicorpse when it was recently acquired for just $250 million by Hudson Bay.

Gilt was founded in 2007 as an online portal for by-invitation-only sample sales based in New York.

A few years ago, the flash and daily deals market was the rage and we saw several deals companies like Groupon (NASDAQ:GRPN) and Zulily (NASDAQ:ZU) waltz into the Billion-Dollar Unicorn Club, riding high on its hype. But the fad has passed and has left in its wake some unicorpses including LivingSocial. Gilt Groupe (Private:GILTG), the pioneer of flash deals in the US, was valued at $1 billion way back in 2011. But it has joined the ranks as a unicorpse* when it was recently acquired for just $250 million by Hudson Bay.

Gilt was co-founded in 2007 by DoubleClick CEO Kevin Ryan, eBay executive Alexis Maybank, and a Bulgari and Louis Vuitton marketing executive Alexandra Wilson as an online portal for by-invitation-only sample sales based in New York. Gilt was focused on being a flash sales site for designer products and luxury brands. The members-only shopping site allowed consumers to shop for curated styles, goods and services at prices that were as much as 70% off the retail price.

Gilt basically offered unsold inventory that they picked up from designers and wholesalers at a steep discount. Gilt passed on this discount to its members and kept a share for itself. The model worked well during the economic downturn when retailers and brands had a lot of excess inventory that Gilt helped get rid of.

In 2010, at the height of its popularity, it moved beyond apparel. It added Jetsetter, an invitation-only travel sales site offering travel deals for more than 200 properties spread across 20 countries. It also launched a Groupon-like location-based deal site called Gilt City. It also started expanding internationally and set up its international headquarters in Ireland.

According to market reports, Gilt was making 50% gross margins on all sales and was estimated to have been EBITDA positive in 2011. Gross revenues grew from $450 million in 2011 to $550 million in 2012 and $600 million in 2013.

But over the past few years, with the economy picking up, excess high-end inventory has become hard to procure at low costs, affecting margins. Flash sales and daily deals have therefore become a difficult business model.

In 2012, Gilt laid off 10% of its employees and shut down or sold its non-core verticals. In 2013, it changed CEOs. In 2015, it raised $46 million in a round led by General Atlantic that valued it at $600 million.

Overall, Gilt has raised $286 million from investors including GSV Capital, DFJ Growth, Pinnacle Ventures, TriplePoint Capital, Eastward Capital Partners, Matrix Partners and General Atlantic.

It' a disappointing outcome for Gilt to be acquired for just $250 million. Hudson's Bay, the owner of Saks Fifth Avenue and other department store chains, expects Gilt to add $500 million to its 2016 fiscal year sales and about $40 million in adjusted EBITDA by fiscal year 2017. It expects that combining the businesses would result in savings and operational efficiencies from reduced shipping costs, increased purchasing power and shared inventories across Gilt and Saks Fifth Avenue stores. Saks may be able to address Gilt's inventory procurement challenge, and Gilt may act as a clearing house for Saks' unsold inventory.

And it's still a better outcome than floundering on its own like LivingSocial.

Moral of the Story

Don't get carried away by market hype, unsustainable valuations and excess venture capital funding. As my friend Ashmeet Sidana said recently, investor money is like candy. If you take too much of it and get addicted, it becomes hard to remain healthy. Focus on providing value, and do not ignore fundamentals. Customers, revenues and profits are the proteins and vitamins that you should stay focus on, not candy, even if it is being offered to you easily.

* The term Unicorpse was first coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Disclosure: None.