Gilt-y Conscience: How the Online Retailer Creates Fake Discounts

When it comes to scouring the Internet for high-end designer merchandise marked down, beyond the badly photographed world of Ebay and Etsy, one company immediately comes to mind: Gilt.

Founded in 2007, Gilt offers online flash sales, meaning that, through membership to the site, you get designer label clothing, jewelry, accessories and more at discounted prices. This is noted explicitly with a "slash-through price" which tells you what an item originally retailed for and then what it retails for on Gilt. Every day there is a new sale of merchandise, most of which is overstock merchandise from other labels. Gilt is a company that brands itself heavily as a website for insider access—though, with nine million members and counting, Gilt is arguably more populist than its marketing would have its users believe.

As for the designer duds themselves, they're no sham, and they run the gamut in terms of prices. A vintage Louis Vuitton and Karl Lagerfeld designed bag in "never used - Pristine" condition runs for $5,000. An Armani Collection cap sleeve dress, given the "designer workwear" label by Gilt, has had its $396 price slashed down to $279. 3.1 Phillip Lim, Jean Paul Gaultier, Nicole Miller—these are just some of the designer labels offered on Gilt, all of which have had their prices lessened by hundreds of dollars.

But among the designer names are some more unfamiliar: Alex + Alex, Zoe + Sam, McCarren & Sons. "This brand is available exclusively on Gilt," the product copy reads. What isn't made entirely clear is that these brands have never had, and will never have, the opportunity to appear on any other site. These are brands that are actually made by Gilt but are made to look like they are discounted merchandise from other labels, both explicitly, via a slash-through price label, and through context, since most merchandise on Gilt is not made through Gilt. But Alex + Alex, Zoe + Sam: they're essentially all created by the same people.

The practice of creating in-house Gilt brands dates back to late 2011, which is when the company launched its first exclusive label. As of now, there are 32 registered brands under Gilt, and a company spokesperson told Broadly over email that the site has trademarks pending. It's clear that that the motivation behind this brand creation is to serve the needs of the typical Gilt customer, whom the company knows in detail. "We know what our customers are looking for," a Gilt spokesperson said over the phone regarding the design process. "So we were very deliberate in the kind of products we went after."

They offer polyester blend shirt-dresses in jewel-tones for $69, grown-up, asymmetrical sheath dresses for $85, men's leather belts for a mere $25. They're stylish basics, nothing too flashy, all at arguably low prices, especially in comparison to the rest of Gilt's merchandise. As for who is actually making this clothing, the product copy specifies the items were "created in collaboration with our preferred brand partners"—"brand partners" meaning the literal factories in which this merchandise is constructed. "We have a team that helps to design it and we work with manufacturers to execute it because we don't have our own garment shop and plants to make everything on site," said Gilt's spokesperson.

Is it out of the ordinary for a fashion retailer who specializes in designer sales to create their own brands at affordable price points? Not quite. The department store Macy's, for example, sells merchandise under labels such as Bar III, American Rag, and Alfani, all of which are in-house brands. Some stores are a little more transparent, like Barney's in-house "New York" brand. And back in 2011, Bloomingdale's made Womens Wear Daily's cover for simply overhauling its in-house Joseph & Lyman and Metropolitan View menswear labels to focus on their new collection, simply titled "The Men's Store" at Bloomingdale's.

What is out of the ordinary is the aura Gilt has created around their in-house labels. A retailer making in house merchandise is normal; a retailer subtly pretending that this merchandise can retail for way more at other stores enters afar murkier territory. "Fashion Web site's bogus brands a 'Gilt' trip," read the headline of a small New York Post story on Gilt's in-house brands, published in 2012. "Since October, the Manhattan-based business has applied to trademark 25 brands with tony names such as Avaleigh, Renvy and Moncollet," read the piece. "One label, Alex + Alex, is undoubtedly a nod to Gilt Groupe's founders, Alexis Maybank and Alexandra Wilkis Wilson." Because Gilt's image hinges on seriously marked-down deals and designer merchandise, the idea that in-house brands constitute a hoax is doubly damaging: suddenly Gilt appears to be disinterested in giving customers actually good deals and in obtaining real designer products.

The New York Post piece reported that in 2012 the private-label merchandise accounted for 1% of Gilt's business. According to a Gilt spokesperson, however, by 2015 this merchandise will account for "less than 10%" of the company's business. While there are no plans to launch more brands in 2015, the fact that seven brands have been added in the past three years—plus the additional pending applications in the works—may indicate that Gilt's future includes much more in-house label production. And considering the current landscape of flash-sale sites, that future might be even more conceivable.

In February, Gilt raised $50 million dollars in new capital, money that Gilt's CEO Michelle Peluso says is going towards the ability to make sure Gilt is always offering deals that its affluent members will want to get in on. Back in 2008, flash-sale sites found success in the failed economy, with designer brands saddled with huge amounts of leftover inventory that they could sell through sites like Gilt at severely discounted prices. But now that the economy has settled, websites like Gilt have to re-think their flash-sale site model and figure out how to keep churning out inventory outside of designer deals. "Many of Gilt's recent initiatives seem to be addressing an inventory shortfall," wrote Russell Brandom on this issue back in 2013. "The brand has expanded its purchasing from European brands and increased private label contracts with manufacturers that don't require discounting."

While Gilt prides itself on designing and curating private label merchandise that is "seasonally appropriate, on-trend and…affordable," it's difficult to not interpret the company's steady influx of exclusive label brands as compensation for the designer merchandise they can't get ahold today as easily as they did when the company first started. This isn't Gilt's fault, but rather an inevitable decline in what critics repeatedly refer to as the "excitement" surrounding flash-sale sites.

A business model that relies solely on sales and outsourced designer merchandise is slowly dying. "Despite the excitement initially generated by the combination of bargain and limited access found on flash-sale sites (Get it cheap now before it disappears!), consumers actually gravitate toward e-tail because of its flexibility," wrote Vanessa Friedman in her article "Flash-Sale Sites: Do They Still Matter?" for The New York Times. "You can shop whenever you want, from wherever you want—and flash sales ultimately cannot deliver on that promise." So while brands like Ava & Aiden, Alex + Alex are not the designer goods that made Gilt thrive in its beginnings they ensure one thing: when you log onto Gilt, there will be "deals" for you to browse, even if those deals are for polyester-blend dresses masquerading as much nicer pieces of clothing.

While private-label brands are no big deal for a department store, for a flash-sale website like Gilt they can be a double-edged sword. For a website that touts itself as "insider" and "exclusive" with a huge, accessible membership, the question remains whether or not these private brands hurt Gilt's image as a hub of designer markdowns and deals. "When they started doing the in house brands I definitely noticed," says Alexis Wolstein, a regular Gilt shopper. "For one thing, the pieces in those lines seemed more like basics or wardrobe stand-bys then the other sales for brands I immediately recognized; they just weren't as interesting. Also I would search the name to see how good the deal really was and see that it was only available on Gilt and eventually put two and two together."

Last year Mindy Ramaker, a blogger at the website Arc Line Space, wrote a comprehensive post about buying a pair of Ava & Aiden wedges she thought were a heavily discounted "high-quality designer brand" ($169 seemingly got knocked down to $89). "Learning about these brands has completely changed the way I use Gilt," Ramaker tells me over email. "I'd scroll through ALL of the day's flash sales. But now, knowing some brands reflect arbitrary discount prices (since they were never sold anywhere else for a higher price), I only look at Gilt when there's a brand I know."

Clearly these brands are necessary for Gilt to keep giving consumers marked-down items, but they're also not items that are actually marked-down to begin with. "I do think it's misleading," says Wolstein. "Because there's no place that's going to try and charge you $244 for that Ava & Aiden Sweetheart dress; it was always meant to be sold on Gilt for $119. So how much of a deal is it really?"

"It's such a clever scheme!" writer and regular Gilt shopper Tyler Coates writes over email. "How many times have you been able to rationalize to yourself, 'Wow, this item is $120, but it was originally $300!' The item should just be $120, but if we're told it's WORTH MUCH MORE you're more likely to buy it, because capitalism works best when it takes advantage of our stupid emotional responses."

For exclusive brands, Gilt tells Broadly that the "slash-through price is based on prices of similar but not necessarily identical products." Overall, there are many different factors in how a Gilt item—in-house brand or designer—draws in customers. You would think that marking a $300 Jason Wu dress down to $200 would reveal the arbitrary nature of its price in the first place. In fashion, value is based on so much more than the material process: trends, seasons, designers, etc. all come into play. But at Gilt, it seems, the biggest value indicator is the illusion of getting a real deal.

Gilt is transparent about the fact that they have exclusive brands and that these brands are only available on their website, but to shoppers not in-the-know, the print reads metaphorically smaller than you think. Considering that Gilt also does separate, exclusive collaborations with actual designers the likes of jewelry maker Dannijo or shoe designer Stuart Weitzmann (something department stores also do), customers browsing Gilt could understandably think Ava & Aiden is an outside company, like Ramaker did. Coates didn't know Gilt had their own brands but wasn't bothered by their existence, or surprised by them. "I really know very little about fashion, and I think, for the most part, the prices for clothes are incredibly inflated and stupidly so," says Coates.

What's clear among the Gilt consumers I've talked to is that shopping through flash-sale sites always requires a bit of homework. "When I first learned about Gilt's in-house brands, I took is as a huge, but unfortunate reminder that the burden is always on the consumer whenever we buy," says Ramaker. "I wish it wasn't that way, but it's very rare to find a true "deal" out there." "I think you have to be savvy as a consumer," Wolstein says. "Because getting you the best deal isn't what retailers have in mind, it's making the most money for the company." Gilt even says so themselves in their slash-through price FAQ. "Nothing can replace your own comparison shopping, however, and notwithstanding our posted slash-through price quotes, if this is an important factor for you in your purchasing decision, we recommend you conduct your own individual search as well," reads their website.

Gilt is going to have to change, and other flash-sale sites will too if they want to survive. This change is going to come in the form of more exclusive products, even if they're made by in-house brands. The irony of Gilt customers disliking the these in-house brands is that these brands were created for Gilt shoppers specifically. What makes the presence of these Ava & Aiden frocks and Sam + Alex cashmere sweaters so unnerving to customers might be the fact that they put even just the slightest nick in Gilt's reputation as a place for real designer deals and insider steals, and consumers can't help feel a little duped. "Retail overall is pretty fucking shady and consumers should wise up to that," says Wolstein. "That shadiness isn't going anywhere."