Is It Over Already?
News came out earlier this week about Gilt Groupe cutting 10% of its staff. Funnily enough, when the news came out, some of the more shocking news focused on the companies purported decision to eliminate its free snacks. Forget cutting back on people, you know a company is in trouble when it decides to save that few extra thousand a month on caffeinating and calorie-ating its employees. Fortunately for the remaining 90%, the snack selection did not disappear completely. The company decided to cut back by the same percent that it did its workforce.
For many women and not an insignificant number of men, Gilt Groupe has become a household name. The company did not invent the flash sales, but they were the first fast follower of Europe’s pioneering firm, Vente Privee, and in a time when luxury goods makers had overproduced only to find demand sucked away faster than a black hole, the timing of Gilt seemed too good to be true. For a while, it seemed as though the adage about things being too good to be true did not apply to Gilt. The company’s growth skyrocketed, its brand remained strong, and to pour salt into the wounds of performance marketers everywhere, the company garnered millions of new subscribers without having to pay a penny. A severely black site, impressive photography, and just the right amount of scarcity seemed all that was needed.
More recently, and excluding the layoffs, the luster around Gilt’s business has started to erode. There were some business decisions that put financial pressure on the business, namely its decision to warehouse the merchandise which means it takes the financial risk. Additionally, the company started to experience some backlash from the brands it serviced. Designers were relying less on the site, and the overall quality of the inventory and deals diminished – understandably given the modest rebound in the economy and a right sizing of inventory production. The site became a channel but not the channel. In addition to expanding its core offering rapidly, it also went into every other conceivable segment of the flash industry – home good, kids, pets (not really), travel, and local among them. Of all, the travel business has been one of the standouts, partly due to good leadership, but more so due to a huge vacuum in the consumer market.
Gilt, though, is not the only seemingly invulnerable new commerce company to show signs of change. Shoedazzle, to which Kim Kardashian’s name is attached, has decided to shut down their UK operations…after only four months. Shoedazzle, which offers more than just shoes has proven that subscription businesses can work for more than just standardized items like DVDs and acai. Or can it work? Judging by the article it might seem as though, that may not be the case, which if true would spell bad news for the many clone businesses, a good number of whom took the expensive route of also adding a celebrity to their roster. Then, of course, there is Apple, THE Apple, who just released their fourth quarter earnings. They were astoundingly good. The company earned something like $43 billion in revenue. That’s like everyone in the entire country spending $10 on an Apple product the last three months of the year. If we thought consumers weren’t spending, all of a sudden it’s time to think again.
If we thought Gilt and Shoedazzle had issues, though, just look at the daily deal space (as it was here that many of Gilt’s layoffs occurred). According to my inbox with companies wanting to sell their databases and a recent industry report saying that almost 800 daily deal companies shut down, the world would seem quite tumultuous or just plain scary. So what exactly is happening, as the messages are mixed? On one hand, it seems as though some of the high flying consumer facing companies are hitting roadblocks, while on the other hand, we have proof that consumers are spending big. The answer is probably an unsatisfactory one – business nature.
Consumers are spending, but their spending habits are shifting. They spent big on holiday items, but the beginning of the year is when they re-evaluate other purchases. It’s also a time of re-evaluation for those who try to reach them, from daily deal sites to subscription services. The easy money days are over for all of these businesses. For the marketers who service them, it also means time to re-evaluate. It’s not about just getting customers but getting profitable customers. The fun isn’t over, but the fun times might be if they were only defined by easy money. Everyone is learning that is no longer the case. That is why it’s not a bad thing that the joker sites are finally going out of business. It means the real guys can get down to business and crush it.
