NEW YORK ( TheStreet) -- I'm an insider. An email has arrived with an exclusive deal on some fine jewelry by Movado ( MOV) and reduced-price handbags and shoes from rock star Gwen Stefani's line, L.A.M.B. (It stands for Love Angel Music Baby, in case you didn't know.) I can also buy Tateossian cufflinks for my man at lower-than-normal prices or reduced-price travel to San Diego and the Hard Rock Hotel -- if I act fast enough. The sales expire in a few short days, and there are a limited number of items. These are the kind of perks you can get when you know somebody, and that somebody vouches for you to Gilt Groupe. There are 3.5 million of us insiders on Gilt.com. Gilt has created a following based on the allure of high-end retail apparel, home goods and travel at affordable prices, and sold it with the feel of word-of-mouth referrals as opposed to advertising. The company positions "members" to feel like they are part of an exclusive club -- something that might seem like just another online-marketing ploy, but has proven to be golden for Gilt. Four years ago, it was but a glimmer of an idea in co-founder and CEO Kevin Ryan's mind. But since its official launch in November 2007 as a women's end-of-season flash sale site, the company has grown from a 10-person team to more than 600 employees (and growing). Between its expansion to men's discount, home goods, children and travel under the Jetsetter label, Gilt membership has surged, bringing in more than $400 million in revenue last year. "I don't think it's different for any business; your product has to be really good," Ryan says in an interview with TheStreet. "There is a fundamental trend of more people buying online," Ryan says. "The product is different. There wasn't an easy way for you to go to a sample sale, either because you don't live in New York or because you have a job and can't leave at 5 p.m. to go to a sample sale. It's all about creating a better product, a differentiated product, and that requires great people and good strategy."
Joan Broughton, interim executive director of Shop.org, the digital division of the National Retail Federation, says Gilt's success lies in the word-of-mouth approach that makes consumers feel like they're part of the "in crowd." For retailers, being on a website with other high-end brand names is "a great way for luxury brands to move merchandise in a way that doesn't detract from their brand image," Broughton says. That being said, sites such as Gilt, Rue La La, Swirl by Daily Candy, HauteLook and Modnique.com can be hit or miss -- but that keeps consumers coming back to check in, playing "on a sense of urgency and scarcity," Broughton says. Gilt may not be the place to go for specific items, such as a black pencil skirt, Broughton says. The experience is more entertainment, "almost aspirational" for some users. But the sales must be of value eventually for most users to return. "No company stays online very long if they don't do a good job of backing up what they say," Broughton says. "If they're meeting the needs of the consumer in the way the consumer expected to be treated, then they will make the sale." Ryan acknowledges that the company has to constantly ensure it is delivering on its promise. "It forces you -- when you don't have advertising -- to make sure the product is really good. Then you have to get a little bit lucky and distinguish your product from everything else," he says.
'It forces you -- when you don't have advertising -- to make sure the product is really good.'
-- Kevin Ryan, Gilt Groupe CEO
More recently, the company has launched Gilt City, a deals site for restaurants, spa services, tickets and other local businesses. The site launched in New York in May and has since spread to Boston, Chicago, Los Angeles, Miami, San Francisco and Tokyo. Gilt City plans to expand further in select cities in the U.S. and abroad. "It's really a way to take the stuff you buy on Gilt that you wear and wear it in a restaurant" or to an event, says Nate Richardson, Gilt City's president. "There is a huge amount of demand for differentiated, curated experiences."
Gilt's start-up -- Ryan has been involved in several, including Business Insider -- was really a shot in the dark. Between his own contacts and those of co-founders and the first employees, roughly 8,000 initial promotional emails were sent. Recipients in that first round were encouraged to pass along the site's address to their friends, family and other contacts. The company did not use outside financing, he says, although Gilt has since raised several rounds of venture capital and at some point may consider an initial public offering, Ryan says. "Gilt could go public this year if it wanted to, but I don't think there is a big reason to go public right now," Ryan says.
'Gilt could go public this year if it wanted to, but I don't think there is a big reason to go public right now.'
-- Kevin Ryan, Gilt Groupe CEO
Fashion brands find Gilt's site design, photography, warehousing efficiency (the company uses robots), and personalized email and website entry appealing, and Ryan says other high-end retailers have started to ask for Gilt's help running their own e-commerce business. While Ryan says the company is not quite ready to do that, it's clear he's confident of success if Gilt goes that route. "Very few people do things like this, and we continue to get more and more sophisticated on it," he adds. The company faces challenges as it grows, including keeping its anti-fraud software up to date and improving reporting for its financial team. Perhaps the greatest challenge is keeping the "wow" factor alive for members. Ryan says that by having additional channels, such as for children's fashion and home goods, customers are more likely to return to the website. "Why does a typical person buy a lot of things from Amazon ( AMZN) and not 25 sites? Because it's easier," Ryan says. "I think the different sections make it a more attractive product. You don't have to go to the different sections, but you can." Plans to expand start in July, when Gilt will launch a full-price men's apparel site, Ryan says. "We're going to go head-to-head against the department stores, leveraging off the fact that we have hundreds of thousands of customers -- and hundreds of thousands of men who come to our site. They're buying things from us right now. We think we can sell them full-price items as well," Ryan says. "Nothing we really did was linked to discount," he says. To contact the writer of this article, click here: Laurie Kulikowski. To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski To submit a news tip, send an email to: firstname.lastname@example.org.