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Taking a look at zulily (ZU)

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August 19, 2014 – Comments (1) | RELATED TICKERS: ZU , TJX , AMZN

zulily, Inc. (NASDAQ: ZU) 
Sector: Consumer Cyclical 

Business in One Sentence 
zulily is an online retailer offering customers a fresh selection of new product styles and deals launched each day. 

Value Proposition 
zulily launches a fresh sales event from different vendors every morning which lasts for 72 hours, with deals typically more than 50% off the suggested manufacturer’s price. Most of the products sold through zulily come from emerging brands and smaller boutique vendors -- providing an opportunity for these smaller brands to gain exposure by offering great deals for a short amount of time to a large consumer audience. 

Competitive Strategy and Advantage 
zulily sees several strategic areas to expand the business. First, testing new marketing channels and campaigns to attract and retain new email subscribers and convert existing email subscribers into customers. zulily also wants to boost customer loyalty and repeat purchases, which is currently pursued by offering compelling deals in a fun format each day. The company aims to add new vendors with unique merchandise to its lineup of vendors, further boosting the value proposition to zulily’s base of customers. In addition, zulily continues to invest in its mobile platform as well as international expansion outside of North America. 

zulily’s competitive edge comes from its niche focus, targeting moms who are purchasing products for their children, themselves, and their homes. By building its network of vendors, zulily is offering deals that cannot be found elsewhere. zulily itself has minimal inventory -- the company doesn’t usually purchase inventory from vendors until customer orders are placed -- and can experiment with a wide array of products and vendors on a regular basis. Because particular deals on zulily are short-lived, there is a sense of urgency for customers to take quick advantage of a deal that is appealing to them on zulily (similar to the “treasure hunt” at TJX stores). 

Other Business Details 
** Children’s apparel is zulily’s largest product category, making up 43% of total sales in 2013 (down from 55% in 2012). 

** In addition to children’s apparel, zulily’s other current product categories are women’s apparel, children’s merchandise, and “other merchandise.” 

** The average value of an order placed on zulily during 2013 was $54.75. 

** 83% of sales in 2013 came from repeat customers. 

** In the 4Q 2013, roughly 45% of North American orders were placed from a mobile device (up from 31% in 4Q 2012).

** Cofounders Mark Vadon and Darrell Cavens together own 24.3% of all shares outstanding. 

Risks
** zulily typically doesn’t have long-term agreements or exclusive arrangements with its vendors, but its business model depends on having a substantial number of vendors, new products, and deals. 

** eCommerce is obviously a very competitive field, and zulily is a much smaller player compared to behemoths like Amazon.com

** zulily has significantly slower shipping/delivery times and higher shipping costs for consumers as compared to other eCommerce players. 

Big Few 
1. Are there any international eCommerce players with a similar business model to zulily? 

2. What is the rough size of the children’s/women’s apparel market? Is zulily planning to branch out into other product categories, or focus on these niche markets? 

3. zulily cofounders Mark Vadon and Darrell Cavens came from Blue Nile (which Vadon cofounded). What is their end game with zulily, and do they have a longer-term focus with zulily than they had with Blue Nile? 

Questions and input always welcome! Any zulily shoppers here? 

David K

1 Comments – Post Your Own

#1) On August 20, 2014 at 12:14 PM, EnigmaDude (85.96) wrote:

I don't like the name which sounds silly but I think it could sway people's opinions. Also sounds like a Groupon type of business which does not seem sustainable. But I have not looked at their web site nor am I interested in children's apparel so my opinion may not matter!

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