Till a few years ago, the flash deals market was a big deal in itself. Companies like Groupon soared into the Unicorn club, riding high on this hype. Other companies like Zulily (Nasdaq: ZU) made the flash deals offering even more attractive by providing niche products. But soon, profitability pressures coupled with high cost of customer acquisition and retention hurt these companies. Many of them have fallen into the unicorpse* status. Zulily may still be worth over a billion dollars, but its valuation has reduced to a fourth since its golden days.
Former online jeweler, Blue Nile’s founder, Mark Vadon and executive, Darrell Cavens set up Zulily as a daily deals site to offer flash sales on clothes for moms and kids. Customers could sign up with Zulily and get access to high-end products at discounts as big as 70%. Zulily’s tie-ups with over 2,200 vendors enabled such heavy discounts. Like other flash deal sites, Zulily publishes its deals each day at 6:00 a.m. Pacific Time. Deals are available for a limited stock and a limited time.
To make its products more attractive, Zulily also set up a dedicated team to tie up with smaller businesses and boutiques to help them deliver their unique products to the wider market. Zulily maintains minimal product inventory by sourcing products from these vendors only when the sale has been completed.
Zulily’s impressive product listing was well liked by its target market – the moms. This translated into good revenue growth and market valuations as well. Net sales for last fiscal grew 72% to $1.2 billion. For last year, net income increased 16% to $14.9 million. Customer operating metrics were also strong, with active customers at the end of last year growing 54% to 4.9 million and total orders placed on the site for the last quarter of the year grew 42% to 6.8 million.
Zulily also managed to attract strong valuations from VCs and other investors. Till two years ago, Zulily was venture funded with $139 million in funding from investors, including Maveron, August Capital, Trinity Ventures, Meritech Capital Ventures and Andreessen Horowitz. In November 2013, Zulily went public and listed on the Nasdaq at $22 per share at a valuation of $2.6 billion. The stock did well initially and began trading at $39.26 with a market capitalization of $4.79 billion. By February 2014, the stock had reached a high of $73.50 translating to a market capitalization of $9 billion.
But Zulily’s good days weren’t to last forever and soon enough investors and customers began demanding more from them. Zulily had a few execution issues that led to its failure. A year ago, a significant e-mail outage resulted in several customers not getting their daily email blast. Zulily’s business model works on sending a daily mail to its subscribers showcasing the new deals for the day.
Additionally, customers were now getting flustered with Zulily’s slow shipping times. Zulily’s model of sourcing products from vendors only on placement of an order translated to shipping times as high as 13 days. It tried to address the issue by allowing vendors to place goods in its fulfillment centers for a fee and opening more fulfillment centers. But despite the moves, shipping times reduced marginally to 11.6 days. Compare that with the likes of other online sellers like Amazon and large retail stores like Macys who offer next day or, in some cases, same day shipping services as well.
Zulily also began investing heavily in advertising and marketing to make sure it had repeat customers instead of one time buyers. To compete better with other etailers and retailers, Zulily even began allowing customers to return the merchandise.
But all the efforts were too little too late. By the second quarter of this year, Zulily had grown its active customers to 4.9 million – a number that was flat at fiscal 2014 levels. Total orders placed grew a modest 7% compared with the stellar 92% reported a year ago. Furthermore, average order value reduced, for the first time ever, by 1% to $53.62.
The market was understandably unhappy. By May this year, the stock had tumbled to a low of $9.09, translating to a valuation of just over $1 billion.
Luckily for Zulily, it managed to find a buyer who was interested in its niche market reach. Liberty Interacitve’s QVC television platform decided to purchase Zulily in August this year at a valuation of $2.4 billion. QVC believes that Zulily is a good fit for them because QVC’s products target women aged 35–64 years old and Zulily’s prime demographic is Millennial women who are 25–45 years old. The addition of Zulily will add to the QVC’s target market. QVC is also counting on Zulily’s strong mobile platform which records more than half of Zulily’s orders. Even after the acquisition, Zulily will remain a separate consumer-facing brand, but the acquisition will provide Zulily with access to global scale, curation, vendor relationships and video commerce expertise that QVC offers. Most importantly, Zulily no longer has to operate under the scrutiny of the public market as starkly.