Fab.com Screenshot | Source: Fab.com

Yesterday, BoF was first to bring you the news of the recent $18 million investment in Farfetch.com. Today, we continue a week focused on e-commerce by examining the historical challenges faced by online retailers and how recent innovations and infrastructural advances have fundamentally improved the economics of e-commerce, setting the stage for a renaissance in online retail.

SAN FRANCISCO, United States — Following the burst of the dot-com bubble in early 1999, e-commerce suffered from a lack of venture capital investment. The unrealised, over-hyped expectations for e-commerce — at a time when the market, consumer technology and infrastructure were less evolved — and the subsequent burns left venture firms with a nasty aftertaste. Perhaps the most spectacular fashion e-commerce failure was that of Boo.com, which launched in the Autumn of 1999, burned through $135 million in venture capital in just 18 months and was liquidated in 2000.

But on closer inspection, e-commerce has also faced additional complexities and capital inefficiencies that, for years, continued to push investors away.

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Gilt Groupe warehouse | Source: Fantabulously Frugal

Today, BoF takes an in-depth look at the past, present and future of Gilt Groupe’s business model and speaks with Gilt Groupe CEO Kevin Ryan on his plans to continue the company’s ascendance.

NEW YORK, United States — Back in November of 2007, BoF was amongst the very first media outlets to write about Gilt Groupe, the New York-based start-up that went on to dramatically reshape the online retail market for fashion, building a community of high value consumers around limited-time, members-only “flash sales” for designer apparel at steeply discounted prices.

The timing of Gilt’s launch couldn’t have been better. In the months that followed, fashion and apparel brands began to feel the impact of a global recession that would ultimately give rise to one of the most challenging macroeconomic environments in the history of modern retailing. Seemingly overnight, wholesale inventories became unmovable as retailers drastically reduced product assortments and orders.

As a consequence, many fashion brands were forced to liquidate excess inventory positions, causing a sudden and significant supply glut for “cut out” goods. Prior to the Great Recession, brands would have sold this excess inventory through off-price channels like Loehmann’s, T.J. Maxx and Century 21. But as the economy sank, these retailers were asking for discounts as high as 90 percent, while merchandising clothes in a haphazard fashion which did nothing to protect the high-end image brands had spent years cultivating.

What’s more, the extreme market conditions of the Great Recession created an acute financial imperative for retailers — off-price, as well as full-price — to convert their own excessively large inventory positions into cash, leaving many brands almost without any viable sales channel, let alone one that would protect brand equity.

Gilt charged onto the scene like a knight on a white horse, providing a novel, efficient and brand-sensitive way to liquidate excess inventory and enjoying explosive growth in the process. Based on this momentum, Gilt Groupe raised $138 million last May in a new round of financing, valuing the four-year-old company at $1 billion.

But fast-forward to the end of 2011 and flash sales are facing significant challenges. Here, BoF examines the rise, stumble and future of Gilt Groupe’s business model.

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Gilt Groupe Screen Shot | Source: Gilt Groupe

Gilt Groupe consider going public in 2012 (FT)
“Gilt Groupe, a ‘flash’ sales site for designer clothes, plans to join its peers Groupon and Amazon as a public company, perhaps by the end of next year, when the company will be close to generating $1bn in annual sales… Gilt and rival sites… Are among the fastest-growing segments of online retail, which is itself expanding faster than traditional retail amid economic malaise in the US and Europe.”

Jack Wills debuts in Hong Kong (Red Luxury)
“The ‘fabulously British’ clothing company, Jack Wills, will make its Asia debut with the opening of two stores in Hong Kong. Mark Parker, the company’s president of Asia and the Middle East, said: ‘Harbour City has a high percentage of mainland customers. It’s a very, very large window into China, and greater China is a very important market long-term. In Causeway Bay…there’s a large number of [mainland Chinese] customers, local consumers and international travelers.’”

Why Deco Now? (On the Runway)
“Every fashion designer, they say, is an architect manque, intent on imposing a structure on the wayward human form. That observation seemed especially apt in a season of spring runway shows filled with dresses constructed to glide over the body and embellished to echo the linear symmetry of Art Deco design.”

Alexander McQueen’s McQ label (Telegraph)
“The founder of the Alexander McQueen label, Lee McQueen, may have tragically passed away last year, but his legacy lives on through his brand’s expansion. The luxury label’s younger, more renegade outpost, McQ, has announced the opening of its first stand-alone store and its debut on the catwalk at London Fashion Week.”

Elle Macpherson: the brains behind The Body (Telegraph)
“Macpherson insists that the financial revelation that struck in her early-to-mid twenties was her own, unprompted by some agent… . It came, she says, after ‘working for Sports Illustrated for so many years, and recognising that working for a business in which I did not have a profit share was not attractive’.”

Inditex Headquarters in La Coruna, Spain | Source: Inditex

How Zara clothes turned Galicia into retail hotspot (Reuters)
“The green, rainy region of Galicia in northwest Spain is best-known as the destination for pilgrims hiking the Camino de Santiago to pay tribute at the remains of apostle Saint James… But a different kind of pilgrim also makes the journey here — retail sector analysts visiting the headquarters of Spain’s most successful modern export, Zara clothes, which has made the founder of Inditex one of the richest men in the world.”

The Future Of Fashion, Part Nine: Azzedine Alaïa (Style.com)
“Fashion will last forever. It will exist always. It will exist in its own way in each era. I live in the moment. It’s interesting to know the old methods. But you have to live in the present moment. The evolution today is in the machinery. There are machines that did not exist before. It allows you to be a lot more of a perfectionist.”

Luxury Daily Deals Site Gilt City Picks Up BuyWithMe at a Discount (All Things Digital)
“Gilt City, the daily deals site operated by fashion and luxury online retailer Gilt Groupe, has acquired BuyWithMe… Gilt will be purchasing BuyWithMe’s assets, including its member and vendor lists, as well as some of its technology. Other companies also exploring offers included San Francisco-based Bloomspot and the No. 2 player, LivingSocial.”

UnitedStyles Lets You Play Fashion Designer (TechCrunch)
“Based in Shanghai, UnitedStyles is a Facebook Connect-enabled service that lets any user create customized women’s apparel, allowing them sketch out, adjust and share a design via an online interface and customized 3D preview… Co-founder Marc van der Chijs tells me that his objective is to recreate the entire fashion design experience for Internet users, ‘It’s very strange that you cannot [already] design your own clothes online.’”

Rise: Anna-Sophie Berger (Dazed Digital)
“Graduating next year, 22-year-old Anna-Sophie Berger has a mad obsession with humanness and geometry. The Austrian student also likes to work around the concept of limitation and simplifying clothes to a very basic shape. For her mainly black and white collection ‘m/m2′, Berger chose the square that was transformed and disrupted, before shown as an installation pinned to a wall to visualize the two dimensional aspects of the flat squares and contrasting that in the look book, when the model’s body wearing the clothes creates a three dimensional volume.”

Gilt Groupe screenshot | Source: Gilt.com

Online flash sales less flashy as inventory shrinks (Reuters)
“The flash sales business has lost some of its flash, forcing online luxury clothing merchants such as Gilt Groupe, Ideeli and Rue La La to radically change their business models. These businesses burst onto the fashion scene during the recession to try to move a mountain of unsold clothes. Now there is less luxury inventory and flash sales sites are bigger. That has forced these companies to pay more or find other ways to get their products.”

Storm Clouds Loom Over China’s Red-Hot Luxury E-Commerce Market (Jing Daily)
“With China’s luxury industry expected to become the world’s largest by 2015, and the country’s online population swelling, dozens of companies have jumped on the high-end online retail bandwagon… With online shopping moving up the value chain, more competition looking to crack the market, and more individual brands expressing interest in adding e-commerce functionality in China, there’s plenty to be optimistic about. But as an extremely young and untested market, full of similarly young and untested companies, storm clouds may be looming.”

LVMH confident on 2011 as Q3 sales rise (Reuters)
“LVMH , the world’s biggest luxury group, posted forecast-beating third-quarter sales growth on Tuesday and said it was confident for the rest of 2011, showing no signs of a slowdown in the luxury industry despite the slowing economy… The company said like-for-like sales rose 15 percent to 6.01 billion euros ($8.27 billion) in the three months to Sept. 30.”

India’s Luxury Market Up 20% in 2010 (Forbes)
“It’s not just the new wealthy in China that is enjoying a life of luxury. Its neighbor India is showing that it has a taste for the good life as well. The luxury market in India is grew 20 percent to 5.8 billion in 2010 and this growth is expected to continue into the near future, according to a survey by the Confederation of India Industry andA.T. Kearney Ltd.”

London To LA (Vogue UK)
“The British Fashion Council has taken the cream of British design talent to Los Angeles for the first time, as part of its London ShowRooms series… The initiative, which regularly takes the country’s most promising designers to Paris and New York to meet with potential stockists, will allow London-based names… To meet LA’s key press and buyers at a showroom.”