You might've thought Zulily was throwing a flash sale of its
own the way investors snapped up shares of the mom-focused
daily-deals website when it made its stock market debut on Nov.
But investors didn't walk away with a discount.Zulily (
) shares rocketed 71% from an offering price of $22, and
market-opening price of 39, to close that first trading day at
37.70. The stock since stepped down below 35 before making its
way back near 37 by Friday afternoon's closing bell.
Zulily, which started in January 2010, is a bit of a rare
breed among retail websites. Every morning the mom-focused site
launches new flash sales on more than 4,500 products, typically
lasting for 72 hours. The average item is priced more than 50%
off retail, and products range from children's and women's
clothing to home appliances.
Flash Sales In Fashion
As with other popular flash-sale sites, which sell everything
from high fashion to hotel rooms, the idea is that the goods are
available for only a limited time and in limited quantity. It
creates an impulse-driven shopping experience while helping move
excess inventory sourced from a variety of vendors.
What's the draw for investors?
"It's a very unique and fast-growing company," said
Renaissance Capital analyst Stephanie Chang.
"When they launched in 2010, they generated only $18 million
and last year they did over $300 million. They're ramping up very
quickly. It's unique in that it only caters to moms. There are no
other websites operating at similar scale that cater solely to
There are sites out there that attract mothers, she adds, but
they are typically much smaller than Zulily and not as
well-known. Meanwhile, well-known flash-sale operators such as
Gilt Groupe, Rue La La, HauteLook and Jetsetter tend to target
luxury buyers, and not specifically moms.
Cindi Profaca, managing director of IPOFinancial.com, concurs
that Zulily is a "growth story."
"They've been able to create a certain amount of buzz by word
of mouth," she said. "They're more in the beginning stages of
developing their platform."
Zulily sources its products from thousands of vendors,
including emerging brands and boutique vendors as well as
national names. The company showcases its offerings with photos
and editorial content to tell each brand's story in a fun
Its approach has scored a hit with customers. Sales soared to
$331.2 million in 2012 from $142.5 million in 2011 and $18.4
million in 2010.
In the first nine months of this year, Zulily rang up a profit
of $155,000 vs. a loss of $13.6 million a year earlier. Sales
more than doubled to $438.7 million from $202.8 million. Zulily
operated in the red in prior years.
As of Sept. 29, Zulily had 2.6 million active customers who
purchased at least once in the last year, up 95.8% from the 1.3
million active customers a year earlier.
"They've really put effort into making the site an enjoyable
shopping experience," said Chang. "Their site is a browsing
experience moms actually enjoy."
She notes that in the 12 months ended Sept. 29, 83% of U.S.
orders were placed by repeat customers.
"Obviously people like the site," said Chang.
Limiting Inventory Risk
Another aspect of its business model that's unique, says
Chang, is that Zulily doesn't purchase a product from the
merchant until a customer places an order for the product from
"Everything in its warehouse has been paid for," she adds.
"That's great from a business perspective. With traditional
retailers there's an inventory risk. With Zulily, they don't buy
the goods until the customer places the order, which boosts cash
Profaca says Zulily is the first U.S.-based flash-sale website
to go public.
She cites one other website that specializes in flash sales
that has done an IPO in the U.S. -- China-basedVipshop Holdings (
). It is an online discount retailer that sells apparel,
household goods, cosmetics and other branded lifestyle
But it didn't get the kind of initial reception Zulily got. It
went public on March 23, 2012, at an offering price of $6.50,
only to see its shares sink 15% to 5.50 at the close in its first
Profaca says there's a "certain allure" to flash-sale websites
such as Zulily and Vipshop, and the platform "appeals to a lot of
"Vipshop is one that has been able to gain a lot of support in
the market," she said. "Zulily was able to pivot off the success
Chang is upbeat about Zulily's growth prospects.
"Their main growth strategy is to keep plugging away at what
they've been doing," she said. "They have 2.6 million active
customers and there are 39 million households in the U.S. with
children under 18. There's a long runway for growth there."
Still, she adds, Zulily's "biggest threat" is competition.
"If one of the e-commerce incumbents decided to enter the
space, Zulily's gross margins would be pressured, and it would
have to spend more on marketing to acquire customers," she
Though its appeal differs, Zulily faces competition now from
e-commerce players such asAmazon (
) and big discounters includingWal-Mart Stores (
) andTarget (