Digging for Deals, Fashionistas Turn Sights to Web

April 7, 2011— -- Look around Megan O'Brien's jewel box of a New York City apartment and you'll find evidence everywhere of her shopping obsession.

"My sheets, my pillow cases, most of the books on that shelf and down there, my throw pillows, the jewelry behind there," O'Brien pointed out as she took us on a tour of her apartment. She estimated that about 30 percent of the clothes and shoes in her closet also are from the online shopping site Gilt.

Twenty-something, single, and fashion-conscious: she's the ideal customer for online luxury retailers like her personal favorite, Gilt Groupe.

Checking online, as she does each day, she pointed out a few of the deals. "A cashmere wrap from $350 to $149... That's not bad."

Gilt Groupe is a club--the latest trend for all fashionistas. Once they join, they have the chance to buy designer items at 40- 70 percent or more off retail. Clothing, shoes, and accessories for women, men, and children. Toys and books. Home furnishings such as linens, furniture, and dishes. Even discounts on hotels and vacations.

Those discounts may be deep, but the selection is top drawer. For many, it can be addictive.

"My favorite is when they give you the price that it was, and they slash it and give you the price that they'll sell it to you for," said O'Brien. "That's what gets you every time!"

Insiders know new offerings are posted at noon, and like O'Brien, they're ready to pounce.

"12:02 they go live," said O'Brien. "Me and my coworkers, it's like the whole building kind of shuts down for like 15 minutes."

Four years ago, entrepreneurs and glamour girls Alexandra Wilkis Wilson and Alexis Maybank figured out how to take the New York designer sample sale global.

"We took that experience of always sneaking out of work to try to get some of these terrific insider deals and try to bring that online to nationwide audience," said Maybank.

In the beginning, Gilt's popularity was fueled by word of mouth.-- you had to know someone to be invited to join. Then members would sign on to get deals, such as a $1,600 designer dress for $500--still pricey, but more than half off. Gilt still requires membership, though to be honest, anyone with a computer and a valid credit card can join.

Gilt Groupe CEO Susan Lyne shows took ABC News on a tour of the company's Brooklyn warehouse. It's 200,000 square feet of designer clothes, jewelry and shoes--all waiting their turn on the web.

Prior to online shopping, shoppers would have lined up to be the first when designers had sales like these. "But we make it a lot more rational by doing it online," Lyne said. Gilt usually sells out of offered items within minutes of the sale going live online. Merchandise being photographed for the website the day we were there would be gone in about two weeks, she told us.

Gilt's success has spawned competition. Hautelook boasts 3.2 million members. Another upstart, Rue La La, has 2.2 million. But Gilt remains the golden girl with 3.5 million members.

Many major labels credit Gilt and other online luxury discounters with keeping them afloat during the economic downturn. Zac Posen was one of the first designers to sign on with Gilt and has been quoted as crediting Gilt Groupe with helping to keep him afloat. Still, there are other designers who refuse to sully their names by discounting online. Gilt Groupe representatives would not share which ones.

Susan Lyne says that most merchandise runs from $25 to $20,000 (for a strand of pearls), there is a "sweet spot" at which they are almost guaranteed to sell out. "It depends what the goods are, but certainly anything between $150 to $250 moves very quickly on our site."

The formula appears to be working. Sales grew from $25 million the first year in 2007, to $450 million last year.

"You have to remember that half our membership is between 20 and 30, and they're in their first or second professional job," Lyne said. "These are people who were probably less impacted by the downturn than anybody else. They did not have a 401k… they don't have mortgages. So they spend on their rent and they spend on themselves."

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