Gilt Groupe was once one of the hottest startups in fashion. After its launch in 2007, the site soared on its model of selling discounted, off-season designer clothes in short “flash” sales to reach a private valuation of $1 billion by 2011. But it struggled to become profitable, and despite years of flirting with the idea, the company never went public as investors hoped.
Today (Jan. 7), the company announced that Hudson’s Bay Company, the owner of Saks Fifth Avenue, will acquire it for $250 million in cash.
It may not be the outcome Gilt and its investors expected a few years ago—the company has raised about $300 million in venture capital over the years—but it could offer the company a good chance at a turnaround.
In addition to Saks Fifth Avenue, Hudson’s Bay also runs Saks Off 5th, a designer discount chain that it has been aggressively expanding both in North America and Europe. In a press release, Hudson’s Bay said it plans to create Gilt “concept shops” inside its Saks Off 5th locations, and that it will let Gilt shoppers return their purchases at Saks Off 5th stores. That would increase foot traffic for Saks Off 5th, and put Gilt in front of a lot of potential shoppers. Presumably it might also help move Gilt away from its reliance on the dying flash-sale model.
“HBC and Saks Off 5th are the ideal home for Gilt and our members,” said Michelle Peluso, Gilt’s CEO, in a statement. “Our members will find having a brick and mortar presence valuable and a positive addition to the Gilt experience.”
The acquisition could be good for Gilt customers, too, since it should make Gilt’s offerings look a little more like they did in its early days. A contributing factor in Gilt’s success was, paradoxically, the global recession. Consumers cut back on their spending, leaving designers loaded with overstock that they were more than happy to let Gilt sell at a reduced prices (paywall). But as the global economy and sales recovered, Gilt’s influx of inventory shrank. Hudson’s Bay, however, says it will share inventories across Gilt and Saks Off 5th, putting more high-end goods back on Gilt’s site.
Undoubtedly Gilt has fallen from its previous heights, but Hudson’s Bay thinks it can be profitable yet.