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Posted Date: 4/7/2011

Exclusive From Gilt Groupe: Flash Sales, Flash Delivery

By Masha Zager
Everybody loves a bargain. Everybody loves to be in the know. And everybody loves to shop online. So, what’s not to love about Gilt Groupe?

Four years ago, Alexis Maybank and Alexandra Wilkis Wilson, former college classmates who loved to shop (and who had established serious cred in the Internet and fashion worlds) came up with a plan to bring the New York sample sale to the Internet. Together with a founding team that included current CEO Kevin Ryan and CTO Michael Bryzek, they launched Gilt.com in 2007 as an invitation-only site for luxury women’s apparel and accessories. Gilt’s basic model is the flash sale: exclusive, high-end products available in limited quantities for 36 hours, usually discounted by 50 percent to 70 percent.

The site took off like — well, like a flash fire. By mid-2009, an Abrams Research survey rated it as one of the top two destinations for online shopping. At a time when many other retailers struggled, Gilt Groupe grew to more than 3 million members and expanded to include men’s and children’s apparel, home furnishings, vacation travel and local services. It also launched a flash-sale site in Japan.

An aura of exclusivity
Merchandise arrives at the Gilt site in a variety of ways. Some items are overstocks; others are made specifically for the site. Gilt’s buyers initiate some deals, while others are initiated by designers. Some buys are planned, and others are opportunistic “take-all” transactions. According to Christopher Halkyard, vice president of operations for Gilt Groupe, sellers increasingly approach Gilt, rather than vice versa. “We’re the highest-in-demand online retailer, and they want to be associated with us,” he explains. Some luxury-goods manufacturers appear to be willing to sell non-overstock items to Gilt Groupe at discounted prices, essentially for advertising purposes.

Membership is now open to anyone, even though Gilt Groupe cultivates an aura of exclusivity. Customers can request membership — and be automatically approved — at the Gilt.com site or on its Facebook page, and they can forward invitations to their friends. They’re even rewarded with credits when their friends respond to their invitations.

Thousands of new members join every week; Halkyard says the company doesn’t target any particular demographics, though the site is especially popular in large cities.

Although the model seems self-limiting on its face — after all, how many luxury items can be sold at discount, and how many customers can afford luxury items even when they are discounted? — Halkyard says the limit is nowhere in sight. In fact, when he arrived at the company a year ago and asked whether the “well would run dry,” he was told there was plenty of opportunity — the merchandising staff was having no trouble recruiting additional designers.

If the economy turns around and luxury-good manufacturers become less willing to sell at steep discounts, Gilt Groupe will have a plan for that, too. Chances are that the company will carry more stable items and that more merchandise — even specialty buys — will be sold at full price. In fact, Gilt announced in November that it would launch a full-price men’s business as a dedicated website. The new site, which will open this summer, will offer a “tightly edited selection of men’s apparel, accessories, athletic gear, gadgets and more.”

Scaling up
To date, Gilt Groupe’s biggest challenge hasn’t been finding merchandise to sell or customers to sell it to, but managing its rapid growth. As Halkyard says, “One of the pitfalls of companies’ growing so fast is … the supply chain gets inundated, which can bring a company to its knees if they’re not able to deliver.”

In its first few years, Gilt Groupe shipped products from the Mercedes Distribution Center in Brooklyn and later added a facility in Andover, Mass., that was owned and operated by Quiet Logistics. When Halkyard joined the company in April 2010, he found that the Andover facility, which was more automated, was difficult to scale, and that both facilities were located in the wrong part of the country for efficient nationwide shipping.

“I did an overall snapshot of the supply chain model,” Halkyard says. “It wasn’t rocket science. I realized we’d be out of space before the holiday.” Halkyard had about four months to open a new facility and move into it in time for the holiday rush — a far cry from the 9-to-12-month period usually needed to do the job right. Even more challenging, he decided not to create a “Band-Aid for the holidays,” but rather to develop a facility that could accommodate the company for the next several years.

He quickly assembled a team of experts, including Abco Automation, an integrator from near Carlstadt, N.J., and Johnson Stephens Consulting, a supply-chain specialist from the Atlanta area, and charged them with designing and setting up a distribution center that would meet Gilt Groupe’s needs. He selected the Louisville, Ky., area for its proximity to the UPS Worldport hub, its ability to ship quickly to almost anywhere in the country, and its stable workforce.   

Moving to Louisville
A difficult aspect of the move, Halkyard realized, would be setting up IT systems quickly. But there was one piece of luck: Quiet Logistics’ warehouse system already meshed nicely with Gilt.com’s e-commerce system. So he invited Quiet Logistics to manage the new Louisville distribution center and bring its management system with it. “I couldn’t have replaced that in a short time,” Halkyard says. “We didn’t have the expertise to run fulfillment centers at that time.”

However, the new facility, along with all the materials handling equipment and other infrastructure, would be owned by Gilt Groupe. This means Gilt has the ability to take over operation of the center in a few years, if doing so becomes practical.

The home division moved into the 303,000-square-foot Louisville facility in August and September, and the men’s division in October. This allowed Halkyard to close the full-to-bursting Andover center. “We had a really super holiday with regard to distribution and fulfillment,” he says proudly. After the women’s division moves from the Brooklyn facility to Louisville in April, followed by the children’s division in May, the new facility will handle 90 percent of the company’s fulfillment. A small operation will remain in Brooklyn to handle one-of-a-kind take-all buys — and then, of course, there are occasional drop ship orders, such as the three Volkswagen Jettas sold on Gilt.com in December for an incredible $5,995 apiece, that don’t go through Gilt distribution centers at all.

Robots and no-bots
Because the Andover center used robots from Kiva Systems for picking inventory, Halkyard took a close look at how best to use robots in the new center. In a company driven by flash sales, only a small percentage of SKUs are selling at any given time; if the facility were 100 percent automated, most of the robots and pods would be sitting idle. However, the robots could be enormously helpful in handling the top-selling items.

Working with Kiva Systems, Halkyard designed a hybrid facility, where a replenishment area is stocked with items scheduled to be in the next few days’ flash sales. In this area, robot-operated storage pods are preloaded with the items expected to be best sellers. When flash-sale orders begin to flood in through the website, they are sent to the warehouse management system, which in turn feeds the robots; the robots then transport the items in their pods to the pickers. Though the automated handling area occupies only a small percentage of the total square footage, it moves a large percentage of the total volume.

For items that aren’t yet scheduled to be in flash sales, a three-level picking module with 100,000 shelves serves as a long-term storage area. This area is served by 2.5 miles of conveyor belts with plastic totes — a materials handling system that is simpler and less expensive than robots, yet makes the entire inventory easily accessible. When an order for a non-sale item comes in, a tote is scanned with the information and sent by conveyor belt to a picker. The picker places the item in the tote, scans it again, and sends it to a packing station. “Any item we own, we can now sell,” Halkyard says. (This system was about to go live when we spoke with Halkyard.)

This ability to “shop the distribution center” will allow Gilt Groupe to personalize the website shopping experience far more than it can today. For the first time, the Gilt.com website will be able to suggest non-sale inventory items as accessories. Because the database contains detailed information about both customer preferences and the items in stock, it should be able to match the two and make appropriate recommendations. The personalization project is still under development, but is expected to have great potential.

Fast — and accurate
Meanwhile, the robotic system is proving its worth in moving flash-sale items quickly and efficiently. In the best-case scenario, Halkyard says, an item can be out the door within four minutes of the time the distribution center receives an order. Mick Mountz, CEO of Kiva Systems, calls Gilt Groupe an “ideal customer” for Kiva because it exploits the inherent flexibility of Kiva’s model. In most distribution centers, different types of merchandise are kept in different locations, each of which is filled with a different type of storage container. Kiva’s storage pods and software are easily reconfigurable, so that Gilt can “put coffee pots in the bins today and use them for blouses tomorrow.” The robots don’t care what products they are delivering — which is perfect for a company that sells different products every day.

This storage flexibility eliminates what Mountz calls “product gymnastics.” For example, garments on hangers can stay on hangers until they reach the picker — they don’t have to be folded up or put in rubber bands to avoid catching on conveyor belts. In fact, products need to be touched only twice — when they first arrive on the receiving dock and when they are picked.

The Kiva system allows pickers to fill multiple orders for the same SKU at once — also useful in a flash-sale environment. For example, if a black dress goes on sale and a customer orders one, the robot in charge of black dresses starts moving its storage bin toward a picker. By the time the robot arrives at the pick station, five more customers may have ordered the same item. The pick operator will have access to all these orders and can pick them all from the storage bin before sending it back. Mountz explains, “We try to keep the pick worker as busy as possible with as little equipment as possible. That maximizes the productive use of equipment.”

During the first holiday shipping season, Halkyard says, key performance indexes at the Louisville facility were in the 99 percent range. Overall, “perfect orders” — orders that arrive on time to the customer and are complete and correct — are now tracking at about 96 percent, up from 79 percent. “It’s been a super exciting project,” he says. “I’m very happy with the results, and with what all our providers have delivered. Our customers are satisfied, too.”

What’s left to look forward to? “I really want to be at 99.99 percent,” Halkyard admits. “And I’m confident we’ll get there.”

Masha Zager is a New-York-based Apparel contributing writer specializing in business and technology.


systems at a glance
• Warehouse management system: Quiet Logistics
• E-commerce system: In-house
• Administrative/back-office system: In-house
• Warehouse robotics: Kiva Systems
• Warehouse control system (conveyors/scanners): Knighted  
• Shipping: UPS

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