— At Zulily’s Seattle offices, models strut in
leather boots and flowery dresses; assistants carry toys
and baby pajamas back and forth. Racks of ballerina
outfits and rainbow angel wings crowd in among the
dozens of writers and photo editors charged with touting
about 60 new mom-oriented "flash sale" deals
that go on its website every day, seven days a week. It’s
a cross between a newsroom and a vaudeville backstage.
by former Blue Nile executives just four years ago,
Zulily Inc. has become one of the hottest names in
e-commerce, making a big splash last November with an
initial public offering that valued the company at $2.6
billion — a figure that nearly doubled on the day of
Monday, the 950-employee company will unveil its first
quarterly financial results since going public — which
means investors will get the first inkling of whether
their lofty expectations for continued breakneck growth
can be met. To grasp how high those hopes for Zulily
are, consider this: The company, which had $439 million
in sales for the first nine months of 2013, is now worth
about $5.1 billion. That’s approaching half the market
value of Nordstrom, whose latest nine-months sales were
19 times larger than Zulily’s.
high-profile Internet companies have recently
disappointed investors. Twitter Inc., which became a
publicly traded company a few days before Zulily and
sparked a similar buying frenzy, saw its shares drop 20
percent after it posted its first quarterly earnings
earlier this month.
of the flash-sales model, which relies on limited-time
discounts that are supposed to spur consumers into
action, will be looking at Zulily for anything that
might reek of Groupon Inc., a daily-deals website that
had a red-hot IPO in 2011, but quickly lost its luster.
company’s challenge is to successfully scale up a
business model that relies on a large army of
merchandise-sourcing experts seeking novel products and
a hands-off approach to handling inventory that results
in relatively slow deliveries.
rise of Zulily comes at a time when online retail seems
to have gained a definitive upper hand versus its
published last month by market research firm ShopperTrak
indicated that foot traffic among retailers dropped 14.6
percent in the holiday season versus the previous year,
despite 2.7 percent growth in overall retail sales.
weather played a role, but analysts and executives have
pointed to an enduring migration away from malls, as
consumers increasingly shop from their desktops and
Zulily is competing in an increasingly crowded
landscape, not only with giants such as Amazon.com Inc.,
but also with the online sites of traditional retailers
such as Gap Inc.
flash-sales sites, such as Gilt, Rue La La and Nordstrom’s
Haute Look, also offer apparel for kids. Not all have
had smooth sailing: Both Gilt and Rue La La laid off
staff in 2012.
experts say Zulily needs to keep people coming back by
offering a pleasant experience and endless, but well-curated
go to these sites because they build brands for
themselves," said Sucharita Mulpuru, an analyst
with Forrester Research. "It’s almost like a
grocery store in some ways. You go intending to buy
something and you end up with something else."
of Zulily, who were not available for interviews ahead
of the earnings news, have extensive pedigrees in online
retailing — and are therefore familiar with the
industry’s ups and downs.
Executive Darrell Cavens was a high-ranking executive at
online jewelry store Blue Nile. Chief Financial Officer
Marc Stolzman is also Blue Nile’s former CFO. Chief
Information Officer Luke Friang was at Drugstore.com
before joining Zulily in 2011. Mark Vadon, Zulily’s
co-founder and chairman of the board, founded Blue Nile
and held its reins as CEO until 2008.
company has outgrown its original Seattle offices and is
moving hundreds of workers to new waterfront
headquarters on Elliott Avenue West. Last month the
company also leased a 48-acre distribution center in
Nevada for an initial $1.3 million a year.
are increasingly using e-commerce as a form of
entertainment, in addition to satisfying their need for
specific products, Zulily said in its IPO documents. Key
to its strategy is to constantly offer a fresh crop of
time-limited sales on new items, which users can glimpse
on its website only after signing up and signing in.
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recent visit showed discounted furry Bearpaw boots,
children’s socks from Swedish maker Happy Socks or
Fisher Price, and a $34.99 throw pillow urging onlookers
to "Keep Calm and Walk the Dog." The pillow
was deeply discounted from the original suggested retail
price of $85.
events are heralded by targeted emails and push
notifications. The average item on the Zulily site
retails for more than 50 percent off the suggested
retail price, the company says.
products, Zulily says, come from boutique retailers and
emerging brands that otherwise would be hard to find.
That gives vendors an audience of millions, and
customers the sense of discovering new things.
make this all happen, Zulily relies on 314 buyers tasked
with finding the next hit.
a lot of buyers, says Forrester Research’s Mulpuru —
and their sheer number explains how Zulily was able to
grow as fast as it did.
comparison, TJX Cos., the owner of T.J. Maxx and
Marshalls, with nearly $7 billion in quarterly sales as
of November, has 800 buyers.
Wright, an independent digital market strategist, says
Zulily’s staff of buyers allows it to seek deals from
new designers at a reasonable cost instead of relying on
retailer overflow — a reliance that crushed the
business models of many flash-sales sites as that
overflow dried up when the economy emerged from the
recession. It also keeps things fun.
want some originality," Wright said.
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key part of Zulily’s strategy: Producing its own
content — lots of it. Some 50 writers come up with the
prose to pitch its newfound wares, which are
photographed at the company’s 43 in-house studios.
most online retailers, Zulily typically doesn’t hold
items in inventory: It gets them from the manufacturer
once a Zulily customer has placed an order.
allows the company to offer a wider variety of products
than would otherwise be possible. On a typical day, a
customer can find more than 4,500 types of products on
it also means delivery is slower than with competitors,
a fact the company acknowledges in its prospectus. Also,
said Forrester Research’s Mulpuru, not owning its own
inventory makes it difficult to get the attention of
some of the biggest apparel makers, which could hinder
you want to scale and be a billion-dollar business,
there’s not that much inventory they can sample
without owning," she said.
obstacle for growth is that the baby market is finite,
said Mulpuru. But Zulily already seems to be branching
soon discovered that moms like shopping for themselves
as well as for their children, so the site offers a wide
variety of shoes, bags, yoga mats, scarves, dresses,
lingerie and jewelry. Items other than children’s
apparel accounted for 54 percent of units sold in the
first nine months of 2013, up from 45 percent during
far the formula has resulted in exponential growth.
About 2.6 million customers purchased at least once from
the site in the 12 months ended last September, a 96
percent increase from the previous year. Of those
shoppers, 83 percent were repeat customers.
startups have grown along with the online retailer:
Jelly the Pug, a children’s apparel maker in San
Francisco, had fewer than five employees when it began
its association with the online site in 2011. Now it has
its own factory in Pakistan and employs between 250 and
300 people, and its shipments rose from about 10,000
units a month to 50,000 units last January, said Jelly
the Pug CEO Adnan Mehmood.
have a large customer base so we can take a lower margin
and move a higher volume," he said. "That’s
been the biggest win-win."