Today Gilt Groupe (via All Things D) sought to clear the air about its growing fashion-food-travel sales business. CEO Kevin Ryan clarified that Gilt Taste will not be disbanded, Gilt Travel will not merge with Gilt City, and plans for an IPO later this year are still a go. While the first two are uninteresting, the third tidbit was a bit of a shocker when brought into context. All Things Digital goes on to note that, according to Ryan, Gilt “is setting its sights on transitioning the business from a money-losing organization to cash-flow break even this year.”
Wait, what? You want me to invest in your stock this year when one of your goals is to break even in 2012? And while Gilt has been on a meteoric rise since launch, it ain’t no Amazon. Amazon was losing money when it began public trading way back in May of ’97, but by that point it was clear that the online sales hub was months away from printing money. Sites like Groupon (whose passion for throwing money in abysses is unmatched in start-up land) and Gilt are simply too volatile for sustained investment. Their entire business plan is based around one-time sales at fractions of MSRP. Of course you’ll attract millions of clicks, but as Groupon’s merchant-patrons have found, converting those opportunistic purchases into regular buyers hasn’t gone too well.
Furthermore, the poor retention figures point to a larger problem when I’m pushed to invest in a company like Groupon. Publicly traded stock is nothing like successful venture capitalism – I’m not looking to buy 50 shares in 20 companies and pray 2 of them take off. I’m investing in companies that have shown potential, but need short or long term investment in material goods to build out their business; Google funding server farms case or Toyota needs cash to purchase large car plants are examples. With Groupon or Gilt (and,so it seems, Zynga), I’m investing in normative marketing fluff to help stem the tide of lost customers.
Groupon needs money to market in order to acquire new members, and Gilt likely is thinking the same thing. Though, unlike Groupon, Gilt is planning on eliminating (according to Ryan) about 5.5% of its workforce because of overzealous acquisitions. All things considered, I’d like to see more than a hope for breaking even before investing in a company whose business plan resolves around merchants paying money to sell their goods for less.