How distracted moms fueled this red-hot tech IPO
Unlike most digital startups, flash-sale site Zulily ignores top brands and fickle teens in favor of boutique products and reliable moms who increasingly shop online for fun.
By Kyle Stock
Zulily (ZU), a fast-growing flash-sales platform, is a rare animal in today's tech ecosystem. It could care less about selfies by skater kids and celebrities, and it has little interest in wooing billion-dollar brands for product placements or advertising dollars. No, Zulily is all about selling small-batch stuff to moms.
That's one way to boil down the company's 170-page prospectus for its initial public offering. One could argue it has more in common with Sears (SHLD) in the 1980s than Snapchat in 2013, and as a result the tech press has virtually ignored the startup.
Yet institutional investors gobbled up Zulily stock in an IPO last week. Shares almost doubled when they started trading publicly Friday, before settling back to around $37, almost 70 percent higher than their initial price.
Why the big pop? Kids may be the kingmakers of cool in Silicon Valley -- the chosen target for every Fortune 500 executive looking to burn through a digital advertising budget -- but moms are way more dependable.
Zulily notes that women handle most household spending and, by some measures, account for almost two-thirds of all online shopping. What's more, they are apparently shopping just to kill time. While Facebook (FB) and Twitter (TWTR) are trying to distract young adults -- however briefly -- by sneaking a taco ad into their feed, Zulily is getting its demographic base to grab a cup of tea, sit down and just steep in its sales for a while.
"We believe moms are increasingly using e-commerce as a form of entertainment in addition to satisfying specific product needs," the company noted it its IPO prospectus.
While ignoring the most coveted audience in tech, Zulily also pays little attention to the most common customer base: billion-dollar brands. It has stocked its flash-sales with stuff from "smaller boutique vendors" and "emerging" companies -- 12,000 different sources in all.
This wide-net strategy looks savvy for a number of reasons. First, tiny vendors are likely to have little in the way of bargaining power. Zulily may not have much luck squeezing a hefty margin and a major discount out of Mattel (MAT), but a mom-and-pop outfit is a different story.
In fact, smaller vendors by and large welcome the exposure and all the other things Zulily brings to the table, including professional photography and editorial content. How else would smaller brands reach 2.6 million "active" shoppers who spend about $215 on the site every year?
The small-batch strategy works with shoppers, too, who seem keen to see a unusual mix of stuff they don't often find on the Barbie-lined shelves of Wal-Mart (WMT) and Toys 'R' Us (TOYS). Shoppers also are likely to have little idea how much the goods really cost. While a lot of moms with kids of a certain age probably have a good sense of the going rate for a Furby ($40.99 on Amazon.com (AMZN)), the market for Monchhichi monkey-like dolls featured in a Japanese anime series is far less transparent ($18.99 on Zulily). Both products are equally creepy.
Zulily still has a lot of the problems that plague many of its e-commerce contemporaries. Profit, for one, has been elusive, and sourcing a steady stream of interesting products is a labor-intensive process. But its target market is both engaged and a little out of touch -- a rare combination in the digital world.
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