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Nordstrom Buys HauteLook for $270M

Retailer also reports 35 percent increase in profits.

The HauteLook.com home page.

Nordstrom Inc. is acquiring HauteLook Inc., a leading Web site staging private, time-sensitive “flash” sales, in a stock deal valued at up to $270 million.

This story first appeared in the February 18, 2011 issue of WWD.  Subscribe Today.

The purchase marks the beginning of what is likely to be a pivotal year ahead for Nordstrom as it ventures deeper into cyberspace and advances its “multi-channel customer-centric model.” The retailer will also be testing mobile checkout, equipping sales people with other advanced point-of-sale tools, as it accelerates its mobile and social networking strategies. YiFi has already been added to the stores.

According to Blake Nordstrom, president of Nordstrom Inc., in two years as many people will be accessing the Internet via mobile devices as with computers.

The cyberspace moves reflect the increasing popularity of the online and mobile channels and the limited opportunities for opening additional full-line stores. Three are planned for this year, along with 17 Nordstrom Rack outlets.

While competitors such as Neiman Marcus and Saks Fifth Avenue have toyed on their own with the flash-sale format, Nordstrom is diving in head first, becoming the first retailer to buy a private sale site. It’s a marketplace estimated at more than $1 billion in sales and ballooning.

“It’s clearly one of the fastest-growing ways of shopping. The growth rates are pretty astounding,” said Jamie Nordstrom, president of Nordstrom Direct, in an interview. “We have to do a better job of responding to customers. They are really changing the way they shop.”

He said HauteLook “has capabilities in enhancing service and doing it fast. We are a big company. We don’t move as fast as a small start-up company as HauteLook. This will help us innovate faster and become nimbler.”

HauteLook last year generated more than $100 million in volume. Executives would not disclose whether the privately held Web site is profitable. Generally, it takes a few years after starting up for companies of this nature to make money. The deal is expected to close in the first quarter of this year.

HauteLook, founded in 2007, is considered an online pioneer of the private sale format, along with Rue La La, Gilt Groupe and Ideeli. But it differentiates itself with an offering emphasizing a casual California lifestyle and denim and contemporary brands, such as Seven Jeans, Diane von Furstenberg and Juicy Couture. The site sells 11 categories, including men’s, women’s, accessories, children’s, beauty, home and travel, and gets remerchandised every night. Sales typically last 48 hours, thereby providing an element of discovery and anticipation to members. They can see what sales are scheduled three days in advance. Discounts range from 50 to 75 percent off and there’s no fee to join. The site takes credit as the first to do a private sale on Facebook, which was in November with Diane von Furstenberg.

The company said it has about 4 million members and that, in the last two years, about 1,000 brands have staged more than 2,500 private sales on the site. The deal, disclosed today by both companies, includes an up-front payment of $180 million in stock, and an additional $90 million in stock spread over three years, which is an “earn-out” subject to HauteLook’s performance and management’s vesting requirements. It’s designed to provide incentives and retain the team.

“It’s a no-brainer. We are going to learn from this amazing retailer,” said HauteLook’s founder and chief executive officer Adam Bernhard. He also thinks the deal could bolster the offering. HauteLook partners with brands to conduct flash sales without actually purchasing any goods and capitalizes on excess inventories. “We think this will help us be a better partner with our vendors,” Bernhard said. With both companies being West Coast based, “Socially, it was a very good fit. This positions us for long-term success as a retail leader, to learn from Nordstrom’s expertise.”

The executives said HauteLook will operate autonomously, with Bernhard reporting to Jamie Nordstrom, and without any acknowledgement of Nordstrom’s ownership visible on the Web site. “We’re not thinking about integration of systems and capabilities,” Nordstrom added. “We are really thinking about giving the customer more options. We really want HauteLook to focus on its business. Both our companies have very strong relationships in the vendor community. We really want to keep the focus. This is more about the customer than the vendor.”

One issue with HauteLook could be the availability of goods. As the economy improves, there could be less excess inventories. Some Web sites, such as Gilt Groupe, recently got into the manufacturing game, getting suppliers to produce product just for them, so they don’t just rely on overruns. But Bernhard said that’s not been HauteLook’s strategy.

“We have not had a problem getting great supply. We continue to grow. It’s not been a constraint,” he said.

“There’s zero concern about availability of merchandise,” Nordstrom said.

The retailer revealed the acquisition as it reported fourth-quarter net earnings increased 35 percent to $232 million, or $1.04 a diluted share, from $172 million, or 77 cents a share, in the year-ago quarter.

Fourth-quarter same-store sales increased 6.7 percent and net sales were $2.82 billion, up 10.9 percent compared with net sales of $2.54 billion during the same period in fiscal 2009.

Nordstrom reached $9.31 billion in sales for all of fiscal 2010, a record for the Seattle-based retailer.

Top-performing multichannel merchandise categories included jewelry, dresses and shoes. The South and Midwest were the best regions for full-line stores in the fourth quarter.