'Flash sales for kids stuff' site Zulily files for $100M IPO

Zulily is going public.

The daily deals site for parents, babies, and kids filed a $100 million initial public offering (IPO) today. 

Zulily presents flash sales that last for an average of 72 hours. Users receive an email every morning with the daily offerings and have access to around 35 new sales a day. Members can get up to 70% off items like clothing, toys, and kid-centric home goods.

“Zulily is a disruptive e-commerce company built to address a retail experience for moms that we believe has become uninspiring due to the concentration of sales among mass retailers and the commoditization of merchandise,” the company said in its S-1 filing. “At the scale at which we now operate, the combination of our customers, vendors, and fulfillment infrastructure has resulted in powerful network effects, which we believe is a significant competitive advantage. Our large and growing customer base in a highly desirable demographic has allowed us to attract and retain vendors offering high quality and unique products. The breadth and quality of our vendors’ merchandise, which we curate daily to provide a fresh selection, enables us to attract new and repeat customers.”

Zulily’s team seeks out new and unique brands, creates high-quality content around the site, and sells the products in an “impulse-driven” shopping experience at low cost. It acts as an intermediary, with minimal inventory, and uses data analytics to personalize the site to each user’s preferences and to quickly fulfill orders.

Since launching in January 2010, Zulily has worked with over 10,000 brands, featured 1.6 million product styles, and sold over 42 million items to a total of 2.9 million customers.

The company is valued at over $1 billion. It currently has 2.2 million active customers who are generating an average of $214 each. Zulily raked in $272 million in net sales in the first six months of 2013 alone and reported a net loss of $10.3 million and $2.4 million in net income.

A significant number of Zulily orders are placed from mobile devices, and the platform is optimized for mobile shopping. Mobile commerce and e-commerce are growing fast, and Zulily has carved out a niche in a highly lucrative market — moms.

According to the U.S. Census Bureau, 39 million U.S. households have children under the age of 18. Moms generally control an outsized share of spending, particularly on children’s apparel, women’s apparel, and home decor.

This sector of the retail market is “highly fragmented” — a majority of sales come from emerging brands and smaller boutique vendors, and therein lies Zulily’s opportunity.

“A new wave of e-commerce is emerging,” the company said. “First generation e-commerce companies were generally vertically focused product websites that answered a consumer need for directed product search (for example, “I need a camera”). We believe moms are increasingly looking to the Internet to browse and be inspired through entertaining and engaging discovery-based online shopping (for example, “I want to go window shopping”), especially while they are out and about and on their mobile devices. We believe moms are increasingly using e-commerce as a form of entertainment in addition to satisfying specific product needs.”

Vendors appreciate this approach because it puts their products in front of a highly engaged target audience.

Zulily crossed the 10 million member threshold last year, and Andreessen partner Jeff Jordan said it is one of the “fastest growing businesses we have ever encountered.” However, the company has been around for less than four years, which is significantly shorter than most companies that hit the public market. Zulily said this makes it difficult to assess future prospects.

“We have incurred significant operating losses in the past, and we may not be able to generate sufficient net sales to achieve or maintain profitability,” the form said. “Our recent net sales growth may not be sustainable, and a failure to maintain an adequate growth rate will materially and adversely affect our business, financial condition, and operating results.”

Consumers are fickle. Zulily’s continued success depends on the continued growth of the flash sales/daily deals model, which other companies (like Jetsetter, Living Social, Groupon, and Fab) have struggled with. Fab.com’s founder even admitted that flash sales is a “flawed business model” and pivoted the business to a more traditional model, and no deals site since Groupon has gone public.

However Zulily has been a standout success story among these e-commerce companies. We will see how it does on the public markets; it could create a precedent for other large e-commerce companies like Fab, One King’s Lane, and Gilt Groupe,

The Seattle-based startup raised $138 million in venture capital, with the most recent round closing in November 2012 to expand internationally and scale the platform. Maveron, August Capital, Andreessen Horowitz, Trinity Ventures, and Meritech Capital Partners are its investors.