Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from Research Paper:
CEO, Gilt Groupe
Re: Strategy 2014-2020
The purpose of this report is to understand where the industry is today, and where it is going for the future. Recommendations are also given with respect to strategy going forward for the Gilt Groupe, as one of the industry leaders.
The online clothing flash sale industry grew rapidly initially, but that growth has tailed off recently. One of the major barriers to growth lies in the supply chain, where there is a shortage of merchandise for the deep discount market. Suppliers have incentive to minimize the amount of goods available to this market. However, Gilt is the industry leader with a 30% share, which means that it has the opportunity to forge better relations with suppliers than other companies in the industry. Knowing that supply chain constraints are the most significant barrier to entry and barrier to growth in this industry, Gilt can solidify its leadership position in the business if it becomes the supply chain leader. To this end, it is recommended that Gilt Groupe restructure from a horizontal functional structure to a balanced matrix structure that places emphasis on cross-functional work teams. In particular buyer teams can work together to meet supplier needs to a greater degree than the company's competitors, giving Gilt a key competitive advantage.
The flash sale industry is an emerging business within B2C e-commerce wherein companies offer discounted merchandise -- usually clothing -- at deep discounts (IBIS, 2012). Discounts can range from 50-70% off MSRP, which makes the flash sales deeper than most discount stores (Deogirikar, 2013). The industry is young -- Gilt was one of the earlier entrants in 2007 -- and while it has achieved strong growth to this point, there are signs that the industry is beginning to slow -- growth in 2012 was 12.4%, down from 26.3% in 2011. IBIS predicts an average annual growth rate of 11.7% for 2012-2017. The slowing growth in the industry is mirrored by the slowing growth at Gilt:
Source: IBIS (2012)
This graph shows that growth is still fairly strong, but that it is nowhere near the steeply sloping growth from a few years ago. Gilt needs to be able to continue this growth going forward, however, and that is the biggest challenge that the company faces. This slowing growth combines with an estimated 150 new entrants expected by 2017 (versus 100 in the industry today) to mark a dramatic increase in competitive intensity (Brown, 2012). There are several expected outcomes of this new competitive dynamic, none of them good. It is within this context that the report has been prepared.
The flash sale industry is an emerging niche market within apparel retailing. The flash sales business model consists of online sales. There is no regular merchandise, but merchandise is acquired directly from apparel producers who need to liquidate old stock, samples, and other items that can be difficult to sell to large retailers. These items are put on sale at deep discounts for a short period -- at Gilt this is usually 36-48 hours -- in order to liquidate the merchandise as quickly as possible. Many companies in the industry use a membership model -- Gilt is one of them -- wherein the consumer pays to become a member of the site can gain access to the sale goods. Thus, there are two sources of profit -- high margin membership and low margin merchandise. If they are not charging a small fee for membership, they probably should be. The breakdown of merchandise sales is as follows:
Source: IBIS (2012)
The target market is females aged 18-44. This group has a high level of broadband adoption, is tech-savvy, and generally more fashion-conscious than the older demographic. Broadband access is one of the key drivers of growth in this industry, an IBIS notes that the number of broadband connections continues to be on an upward trajectory. It was around 100 million in 2007 when Gilt started, sits at just over 200 million today and will plateau around 260 million by 2017 (IBIS, 2012).
Gilt Groupe was an early entrant into the flash sale industry, and today commands a 30% market share. As of 2012, the industry has around 100 players, but the top four players account for 60.6% of the market. The Herfindahl-Hirschman Index (HHI) of industry concentration is around 1300, making this a moderately concentrated marketplace (Investopedia, 2014). This means that concentration is not a significant barrier to entry yet, but there could be antitrust implications if Gilt wanted to expand through acquisition -- buying the #2 in the industry would increase the concentration to the 'high' level, getting the attention of the Department of Justice.
A good way to understand the desirability of an industry is to examine the forces that drive profitability. Porter's Five Forces model is a good way to do this. The five forces are the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitutes, and the intensity of rivalry within the industry.
The bargaining power of suppliers is one of the most interesting elements of the industry. Right now, it is the buyers who are driving the industry's growth. The benefit of the industry to suppliers is rapid liquidation of stock, but this is a service that is provided by a lot of different operations, including discounters like Marshall's, not just the flash sale industry. Flash sales might be more desirable for many companies in the fashion industry, but there are options for suppliers. That means that they have some bargaining power. Furthermore, many suppliers would prefer not to have excess stock -- liquidation to a company like Gilt essentially costs these suppliers money. With many new competitors in the flash sale industry, the bargaining power of suppliers increases (Porter, 2008).
The bargaining power of buyers is suprirsingly high. The industry caters especially to buyers who are seeking deals -- in some respects the deal is more important than the actual good in question, which is seemingly irrational. Brown (2012) identified bargain fatigue as something that was slowing down the growth in the industry, and it relates to this phenomenon of the deal being more important that the good. For the consumer, if everything is a deal, then the deal is not special. Consumers who are fans of flash sales are likely to sign up to multiple flash sale sites, and this creates a barrage of emails. Marketing messages blend into each other and the consumer begins to tune them out -- again, they stop caring about deals because the deals are not special, and begin to tune out the offers unless it is a product they genuinely need (Yi, 2013). Consumers therefore are becoming more rational. It is also worth noting that the flash sale fatigue is not just limited to fashion -- while Gilt competes only in fashion, consumers receive flash sale marketing from a wide range of companies using this business model (Sachs, 2012).
The threat of new entrants is quite high. Starting a site is very easy and low-cost, as evidenced by the millions of sites with e-commerce functionality. The most significant barriers to new entry are in the supply chain. Flash sale sites require inventory, getting goods from suppliers that can be sold at deep discounts. There are discount chains, and a large number of flash sale sites, all competing for what ultimately is a sliver of the fashion market. As fashion marketers improve their information systems and management, they are aiming to reduce their inventory that would be unsold and have to go to the discount market. Thus, the biggest challenge to success in the flash sale industry is to secure inventory. For a large company like Gilt, this is an opportunity because its track record of success makes it more attractive to sellers, but it is also a threat because it has to provide enough merchandise to justify membership for tens of thousands of users.
The threat of substitutes is also quite high. There are two reasons for this. First, there are many ways to acquire clothing, including other discount retail stores. Second, if the main attraction for many consumers is the deal itself, that basically means that flash sales are discretionary spending, and compete with all other discretionary spending, including deals on non-fashion items. Convincing consumers to spend discretionary money on clothing deals is quite a bit more difficult than convincing them to spend their clothing budget at Gilt. Consumer behavior is an important variable in the true competitive field of this industry.
Within the industry, rivalry is expected to be high. There are 100 firms in the business, with another 150 on the way, but growth is slowing and the growth in supply is not matching the growth in the number of retailers. This means the players in the industry are going to engage in intensive competition, not just for customers, but for supply chain partners as…[continue]
"Gilt Groupe Strategy" (2014, May 04) Retrieved December 7, 2016, from http://www.paperdue.com/essay/gilt-groupe-strategy-188858
"Gilt Groupe Strategy" 04 May 2014. Web.7 December. 2016. <http://www.paperdue.com/essay/gilt-groupe-strategy-188858>
"Gilt Groupe Strategy", 04 May 2014, Accessed.7 December. 2016, http://www.paperdue.com/essay/gilt-groupe-strategy-188858
Competitive Forces Analysis for Gilt Groupe Five Forces Analysis of Gilt Groupe company Many managers look at competition too narrowly. According to Michael Porter, there are different forces of competition that should be looked at by any business. A business will not gain a return on investment of the forces are too intense in the industry. When the competitive forces are favorable, many of the companies in the industry are profitable.
Amazon.com: Technology and Market Share Much of what drives Amazon is technology. As it states in its mission statement, Amazon sees that their "vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online (Amazon.com 2011)." This tradition is taking another step into the future with the advent and development of Kindle. This new