Zulily Flash Sale Site, Fresh From IPO, Courts Moms

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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. 15.

But investors didn't walk away with a discount.Zulily ( ZU ) 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 moms."

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 tone.

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 Zulily.

"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 flow."

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 ( VIPS ). It is an online discount retailer that sells apparel, household goods, cosmetics and other branded lifestyle products.

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 day.

Profaca says there's a "certain allure" to flash-sale websites such as Zulily and Vipshop, and the platform "appeals to a lot of people."

"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 of Vipshop."

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 said.

Though its appeal differs, Zulily faces competition now from e-commerce players such asAmazon ( AMZN ) and big discounters includingWal-Mart Stores ( WMT ) andTarget ( TGT ).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AMZN , TGT , VIPS , WMT , ZU

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