Inside the Gilt shop at Saks Off 5th.

When Helena Foulkes, the new chief executive officer of Hudson’s Bay Co., said there are no sacred cows, she apparently meant it.

HBC has agreed to sell Gilt Groupe to Rue La La, just over two years after plunking down $250 million to buy the business. HBC also has a separate deal to sell Gilt Japan.

The deal with Rue La La, expected to close in July, and Foulkes’ comments earlier this year that “we’re looking at every part of the business to improve performance and everything is on the table,” raises speculation that HBC will seek to sell off other weak divisions, such as Kaufhof in Germany. It’s been refusing offers from Kaufhof’s biggest competitor, Karstadt.

While terms of the deal were not disclosed, sources believe Rue La La paid a fraction of what HBC spent for Gilt.

Asked if HBC is considering other divestments, a spokeswoman said, “As part of our normal business practices, we make decisions based on the best interests of the business and our shareholders.”

Asked specifically about HBC’s European operations, which include Galeria Kaufhof in Germany and Galeria Inno in Belgium, the spokeswoman said, “HBC remains committed to our European business and continues to believe in the opportunities the market presents.”

Gilt was already performing poorly, running double-digit declines according to sources, when HBC bought it. Plans to build it up and roll out Gilt shops inside HBC’s Saks Off 5th offprice stores never panned out, and only one in-store Gilt shop, at the Saks Off 5th location on 57th Street in Manhattan, was opened. By purchasing Gilt, HBC did gain some technology, notably personalization technology, which helped other HBC banners. Customers and talent were also picked up.

Eventually, Gilt, known for its flash sales and fashion deals up to 70 percent off, and Off 5th were integrated to form HBC Off Price. But HBC Off Price, along with HBC’s Germany operations and Lord & Taylor, have been dragging down the corporation’s results. HBC is scheduled to report its first quarter on Tuesday.

Gilt also casts a pall over Saks Off 5th, HBC’s off-price chain. Sources tell WWD that Off 5th has been running around flat and performing better than Gilt. One of the issues is that Gilt has been lacking in luxury and designer merchandise partly due to vendors leveraging their relationship with Saks Fifth Avenue to deter Gilt from selling their brands. Much Gilt merchandise would come from third-party distributors.

Saks Fifth Avenue, as well as Gilt and Saks Off 5th, are headed by Marc Metrick, president of Saks Fifth Avenue, who added the off-price role after the departure of Jonathan Greller last spring, who led the integration of Gilt into Saks Off 5th. At one time, HBC referred to the integration of Gilt inside Saks Off 5th as the “power couple.”

“As part of the actions taken to strengthen the foundation of the company and position HBC for profitable growth, we have made the decision to divest Gilt. We are pleased to have found homes for the Gilt businesses in the U.S. and Japan that are more synergistic with Gilt’s core operating model,” a spokeswoman told WWD. “These transactions will allow us to focus time and resources on growth drivers that will have the greatest impact on our results.”

The deal creates the Rue Gilt Groupe, with 20 million members and 60 percent of sales being generated via mobile.

“It’s probably, in my career, the single deal that we worked the longest on to make happen,” said Michael Rubin, Rue La La executive chairman and founder and ceo of Kynetic, which owns Rue La La. “I originally bought Rue La La in 2009 and we immediately thought that putting Rue and Gilt together made sense. Over the past nine years, we’ve had off and on discussions every year, every other year.…I think it’s no different than when T.J. Maxx and Marshalls came together. It’s two similar type business models that can leverage one technology infrastructure, one buying and merchandising team [and] one fulfillment infrastructure. For us, it really doubles the scale of the business immediately.”

The company is expected to add some 150 new hires across merchandising, creative, fulfillment, technology and marketing for Gilt’s New York and Boston offices in addition to its Kentucky fulfillment center.

Rubin said Rue La La has been profitable but didn’t specify further. Sales are reportedly at about $400 million annually, though the company wouldn’t confirm. Rubin said the combined group in the next few years is expected to hit about $1 billion in sales.

“The business has really always been about unique customer engagement,” said Rue La La ceo Mark McWeeny. “This gives us access to a much larger platform to understanding that customer, mine for more data and understand where they are.”

The two businesses are expected to continue operating separately. Rubin and McWeeny said the businesses has different customer bases with only about a 15 percent overlap.

“Both the businesses launched about 10 years ago and Gilt launched a couple of months before us and certainly they’re a very polished brand [with] a lot of contemporary merchandise and certainly attracts a very urban customer,” McWeeny said. “We [at Rue La La] tried to be a little bit more fun and a little bit more approachable.”

“The key for us is to have each brand continue to have its unique identity and continue to serve its own customer base, leveraging the strength of one of the best of breed organizations on everything we do, from technology, member fulfillment, buying and the merchandising team,” Rubin said.

That organization would be Rue La La parent Kynetic, whose portfolio also includes the sports-centric Fanatics and the membership-based online retailer ShopRunner.

The question now is whether the acquisition and newly formed group can speed past the competitive set, which includes players such as Zulily, which sold to Liberty Interactive’s QVC Group for $2.4 billion in 2015, along with Vente-Privee in France and Vipshop in China.

Rubin confirmed there’s potential to continue to add to the Kynetic portfolio, but the near-term focus remains on the growth opportunities for Rue La La and Gilt online.

“That’s years out,” he said of any additional acquisitions. “That’s not something we’re thinking about today. Today, what we’re thinking about is how do we do a great job for the Rue La La and Gilt customers.”

The deal for the most part, he added, essentially sets the stage for the major players to duke it out with the wave of consolidation largely now completed for the flash sales landscape.

“I think the consolidation [within the industry] has basically now happened for the most part,” Rubin said. “When the flash sale space started, it was like a gold rush.…Could there be some additional acquisitions, sure, but I think the majority of the consolidations have happened. There’s four global players that are significantly profitable, big companies, and I think there could be some additional, small acquisitions. I think you’ve gone through the rush, the consolidation, and now you’ve set the global framework.”


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