1 Mom-Focused Online Retailer Is Primed for Growth

There is no denying the fact that bricks & mortar retailers are losing market share to their online counterparts. Among online retailers, Zulily stands apart from its peers.

Jun 30, 2014 at 5:53PM
Zulily

Source: Zulily

Zulily (NASDAQ:ZU), an online retailer focused on moms, has been one of the fastest growing retailers in the past few years. It has expanded its top line from a mere $18 million in 2010 to $696 million in 2013. Looking ahead, Zulily has guided for close to $1.2 billion of sales in full-year 2014, which will represent 69% year-over-year revenue growth.

What are the reasons for Zulily's past success? Is Zulily likely to replicate the same winning formula and meet its 2014 sales target? It's worth comparing Zulily with other retailers such as Blue Nile (NASDAQ:NILE) and Destination Maternity (NASDAQ:DEST) to have a better understanding of its competitive advantages and growth prospects.

Online
The U.S.online retail market is forecasted to grow at a 14.5% CAGR between 2012 and 2017 to reach $360 billion, in contrast with a 2.9% CAGR for the bricks & mortar retail market during the same period. This statistic should come as no surprise to anyone who either is a shopper himself or tracks the performance of both listed online and offline retailers. But Zulily isn't your average online retailer, and it has successfully differentiated itself with its unique business model.

Most successful online retailers are typically focused on a specific product niche, with the aim of meeting the needs of consumers already actively looking for specific products they have in mind. These products are usually non-unique, and customers look at price and convenience as key purchasing factors.

One example is Blue Nile, an online retailer of high-quality diamonds and fine jewelry, whose key selling point is affordable diamond engagement rings. Blue Nile's customers can buy a one-carat diamond ring for $6,500, approximately half of what it will cost to buy something similar at a competing bricks & mortar retailer.

In contrast with other "conventional" online retailers, Zulily provides consumers with a discovery-based, experiential shopping experience. Most of Zulily's customers (mainly moms) are usually in "window-shopping" mode, surfing around to discover new brands without any active intention to purchase anything specific.

Moreover, this group of consumers tend to be habitual shoppers visiting Zulily's website daily, resulting in stronger customer loyalty. In comparison, consumers visit conventional online retailers' driven by needs. For example, couples will go to Blue Nile's website when they have marriage plans and are looking for engagement rings.

In response to the browse-and-discover stance of its customers, Zulily has in place a unique merchandising strategy where it offers a daily selection of new and diverse products at attractive prices. It typically conducts flash sales events lasting for as long as 72 hours, where more than 6,000 product styles are available for purchase on any single day at half of the manufacturer's suggested retail price.

The results validate the popularity of Zulily's merchandising strategy with its customers. In the first quarter of 2014, Zulily saw the number of orders placed and average order value grow by 91% and 4% year over year, respectively. It's also telling that Zulily's gross margins (28%) are higher than Blue Nile's (19%), despite selling lower-priced items (clothing versus diamonds).

Unnamed

Source: Zulily.

Moms
Anyone who has tried to sell products to kids will understand the difference between end-users and economic buyers. While kids are the ones who play with toys, moms have the biggest say in what gets bought and what doesn't.

A 2010 comScore survey indicated that women made up close to half of the U.S. online population but accounted for 61% of online purchases. Another 2009 study by the Advertising Age showed that women controlled almost three-quarters of household spending.

Notwithstanding the economic significance of women (and moms in particular), their needs haven't been satisfied. The market for children's apparel, women's apparel, and home decor products is very fragmented, reflected in the fact that 65% of Zulily's domestic sales are contributed by vendors that sell $50,000 worth of product per event. With more than 13,000+ brands featured and in excess of 100 daily flash sales events, Zulily has become a one-stop shopping destination for moms.

Similar to Zulily, Destination Maternity, the country's largest maternity-apparel retailer, is another company that has satisfied its customers' needs with multiple brands. While Zulily's brand diversity provides choices and discovery for moms, Destination Maternity's brand portfolio serves the purpose of cornering the maternity-apparel market at various price points.

Destination Maternity's Motherhood Maternity brand (average unit price is $20) is targeted at budget-conscious customers with lower price points, while its A Pea in the Pod brand collection (average unit price is $125) has a line of exclusive designer label products to justify its premium prices. In addition, demand for maternity apparel is relatively stable, because it is a non-discretionary product category with little fashion risk from the perspective of moms.

Zulily hasn't stood still; in fact, it has evolved in line with the growing and diverse needs of moms. Children's apparel's share of Zulily's sales has declined from 55% in 2012 to 39% in the first quarter of 2014. This reflects Zulily's shift in product assortment, introducing more children's merchandise and other items in the home, kitchen, and pet categories.

Foolish final thoughts
With revenues of $238 million in the first quarter of 2014 representing 87% year-over-year growth, Zulily raised its 2014 full-year sales expectations from the $1.10-$1.15 billion range to the $1.15-$1.20 billion range, reflecting management's confidence in its own prospects. In my opinion, Zulily promises exciting growth prospects, as I expect its positioning and business model to gain further traction with more moms.

Leaked: This coming consumer device can change everything
Innovation isn't confined to products, Zulily has differentiated itself from its online retailer peers with an innovative business model. Imagine the multi-billion dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the radar company at the epicenter of this revolution that makes this all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers