Commentary

QVC Sees Something Special In Zulily

The flash-sale site Zulily is being snatched up by Liberty Interactive, the parent of home-shopping network QVC, for $18.75 a share — almost 15% less than the $22 a share it fetched at its initial public offering 21 months ago. The discount reflects some admittedly poor marketing choices by Zulily even as its stock hit more than $72.75 a share in February 2014.

“Many shoppers who visited Zulily’s website in the past year made a single purchase and didn’t return,” reports Serena Ng for the Wall Street Journal. “Company executives blamed marketing efforts that had focused too much on chasing short-term sales growth.”

But “QVC CEO Mike George said his company is ‘not fundamentally looking to change how the [Zulily] brand operates,’ writes Ángel González for the Seattle Times. “What Zulily does on the Internet — sifting through thousands of products and highlighting those that might be appealing to each individual — is ‘extraordinary,’ and similar to QVC’s philosophy of offering a curated assortment of items, he said.”

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“Zulily offered deep discounts thanks to an unusual business model that allowed it to hold little inventory. It orders goods from vendors only after customers purchase them, takes two to three weeks to deliver and doesn’t accept returns,” Ng explains.

“But in its eagerness to keep growing, Zulily began to add more established brands,” points out Ng’s WSJ colleague, Miriam Gottfried, in a sidebar. “This led to greater churn as shoppers looking for big labels could easily buy them elsewhere, including on Amazon.”

“Zulily’s quick ascent, and subsequent slump, shows just how tough it is for a pure-play e-commerce company to make it in the cutthroat world of online retail, where shoppers have fewer and fewer brand allegiances and more than a quarter of U.S. online sales are still rung up by industry leader Amazon.com,” Shelly Banjo agrees on Quartz. It’s “a lesson today’s hot e-commerce startups like Jet.com might heed.”

But Liberty Interactive obviously sees upside synergies and Greg Maffei, its president and CEO, told CNBC’s Jim Cramer yesterday that this was no impulsive buy on its part.

“Zulily really is the QVC of the Internet for a younger generation, so it was a natural thing to pay attention to and think about,” Maffei said on “Squawk on the Street,” CNBC’s Tom DiChristopher writes. “Many traditional retailers are having problems growing and the trend continues to be towards online.”

DiChristopher also points out that in the second quarter 2015, “about 56% of Zulily's orders were placed from a mobile device, up from about 49% a year earlier.”

But television is very much in the picture. 

“Executives at both companies told analysts in a conference call Monday that they viewed the two as taking aim at a similar customer: higher-income women who like to shop, and shop often,” write Michael de la Mercer and Chad Bray for the New York Times. “Acquiring Zulily would give QVC a chance to bring the flash-sales site’s vendors onto its own platforms, particularly on television.”

Analysts, as is often their wont, were equivocal.

“Zulily has taken steps to reaccelerate their business through a shift in marketing strategy, but the fruits of this strategy shift have yet to be realized,” Wedbush Securities analyst Gil Luria tellsUSA Today’s Brent Molina. “With the premium paid by QVC, Zulily must reaccelerate their growth to justify the acquisition valuation.”

Indeed, the price is a 49% premium on Zulily’s Friday closing. 

“The company has always been ‘a bit of an oddity,’ GeekWire reported when stocks were plummeting earlier this year,” observes Ted Bayless for Inc. “Zulily put little stress on fast delivery or holiday sales. The company’s chairman, Mark Vadon, was quoted as saying Wall Street didn’t understand what motivated the customers.”

“They think it has to be low-priced, and a commodity, and that you have to get it to them fast — two-day is good, one day is better and same-day is best,” he said.

The IPO for Zulily, which launched in 2010, made a billionaire of founder Vadon, who made his first fortune with online jewelry retailer Blue Nile, writes Clare O’Connor for Forbes. Vadon, however, lost his spot on the Forbes Billionaires list when the stock tanked. “Monday’s news saw his net worth get a boost to around $800 million,” O’Connor reports.

Well, it will when delivery takes place. That will be some time in the fourth quarter.

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