The streetwear drops that fashion is enamored with at the moment are nothing new in the flash-sales world.
It’s what makes sites such as Zulily tick. Zulily sits in an enviable position within that world with $1.5 billion in revenue last year and a business built on the mantra of fresh and new. By the numbers, that’s 9,000 products launched daily across more than a dozen categories with each comprised of additional subcategories. All of that’s powered by a merchandising team of more than 500 and hundreds of technologists behind Zulily members’ personalized e-mails and home pages.
Outgoing chief executive officer Darrell Cavens, the former Blue Nile chief technology officer, is as excited about where the business is headed as the day he and Mark Vadon, another Blue Nile alumnus, started Zulily. The company, as Cavens sees it, is still young with plenty of runway to grow.
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Cavens met with WWD at Zulily’s Seattle headquarters to talk about the flash-sales model. Not long after that visit, parent Liberty Interactive Corp. revealed news of an executive shuffling that will make Cavens president of the newly created New Ventures division within QVC Group. Cavens’ new gig was announced as part of an executive restructuring in preparation for Liberty’s acquisition of HSN Inc. with all changes going into effect once the deal closes later this year.
The role, creating new ways for people to shop, would seem fitting of the techie executive whose interests appear to rest more on what’s next than, say, fashion, where he called his “blue-shirt-and-black-pants uniform” at the office “fairly dull.” The ability to play around with what retail can be in the future is afforded to those companies with the size to do it, the executive pointed out.
“That’s the great thing about being at scale at retail,” Cavens said. “A lot of the offline players have it. I think we have it, but there’s not that many e-commerce players that have scale where they can experiment. There’s a lot of small players, but if you look at players over $1 billion in sales there’s maybe two hands you can count them on and if you look at those that are profitable over $1 billion in sales, I mean pure play, I think it’s us and Amazon.”
Cavens was unable to discuss his new role at any length following Liberty’s announcement, although in a prepared statement the ceo reiterated many of the themes discussed with WWD.
“I’m incredibly excited to be leading a new division, effective as soon as the deal closes, that will drive innovation, invention and defying convention for the collective group as we continue to redefine shopping,” Cavens said in his statement. “I look forward to leading a team that will be pivotal in creating the next generation of shopping that combines commerce, content and media to create the world’s most engaging shopping experiences — all while retaining the uniqueness of our well-known brands.”
Below, Cavens discussed the Zulily way of doing flash sales, where e-commerce is going and ambitious hopes to take a site originally started as a place to buy children’s clothing to a multibillion-dollar behemoth.
WWD: What do you think has allowed the flash-sale model to continue to be successful today because, obviously, the landscape is very different from when you started Zulily?
D.C.: It is great product and great pricing. We have a merchandising team of about 500 people who are sourcing product every day… We’re working with our suppliers to get incredible pricing every day. We talk about this idea internally that great product priced well is the heart of Zulily and I think that’s why the model works because it is fresh. It is new.
What we saw with a lot of other players in the flash space was a lack of freshness over time, so the same brands run over and over again. The same products run over and over again, even down to the point with the editorial. We don’t use an image more than once. You think about the expense of that. It’s expensive but we want to make sure the site is fresh and different. Can you imagine the newspaper — the L.A. Times is not going to run the same photo they did four weeks ago even though it’s the same long-running story on something. It’s going to be fresh. It’s going to be new.
Our model is different on the inventory side because most of the items we’re selling on the site today, we don’t have them in our warehouse today. We take a lot more risks and chances with the products there. We’re not taking the inventory into the warehouse in advance. So the challenge we saw with other players in the flash-sales space is they’re buying inventory and if you buy 100 [units] and then your first sale, you sell through 40, your natural inclination is three weeks from now to put them back on the site. Then you sell another 20. Then, later, because you’ve got to get the inventory out to get your open to buy up, go through [the remainder]. So what you saw with a lot of players was buying inventory that wasn’t selling, causing them to re-run the same product over and over again and the freshness goes away and the customer gets bored, right? We’ve really tried to avoid that.
We’ve tried to keep it fresh, keep it interesting, keep it differentiated. I’d say we’re not perfect at it, but we’re pretty good and I think that’s why you’ve seen the business here continue to grow.
WWD: Do you think it’s possible for a new flash-sale entrant to come into the market today and grow up to the scale that someone like yourself has?
Darrell Cavens: You know, I think it’s always possible. When you look at how retail is going through reinvention, that reinvention comes because people are looking at the problems differently. They’re looking at the opportunities and so I think anyone who is obsessed about the customer experience and great product and great pricing has the potential to win.
If you step back to 2010, when we started this business, it was very much the same question we would get asked. If you go back and look at the Wall Street Journal, look at Women’s Wear Daily, look at The New York Times, at that time it was about how Amazon was taking over retail and e-commerce. They were going to dominate everything and the category was all about same-day shipping, one-hour shipping and a lot of the same stories you see now. I used to joke with my wife that I quit my perfectly good job to start a retail and e-commerce business right when everyone said it couldn’t be done.
And so we had a lot of pessimists. One of the analysts time after time would get quoted saying “It’ll never work.” So I bring that up only to say I do think somebody who is innovative and going after a white space that is not covered by any of the rest of us has a great opportunity. I think it is potentially a little harder right now to get financing due to people being anxious about the category, but I think we’re going to continue to see new innovations happen, new product categories and ways of shopping. Mobile’s changing the game a lot.
I also think the set of choice folks are having is phenomenal, but it’s also intimidating. So I think folks are going to come along to find new, creative ways to help drive or guide it along.
So, long way of answering, yes, I absolutely think we’ll continue to see innovation and people starting new things. They may not look exactly like flash does today, but when we started we looked different than the prior cohort of e-commerce businesses. The next ones will look a little different as well. The successful ones have customers at the center, followed by great product and great prices.
WWD: Zulily is known as this go-to place for moms, parents. Do you ever think about broadening that group?
D.C.: Absolutely. One of the challenges we have is exactly that. Folks think of us that way, but we are already so much more. Our largest category now is women’s apparel — which surprises a lot of people — followed by home, footwear. We’ve got big businesses in these categories. A lot of these categories are multimillion-dollar categories and so we have a tremendous amount of customers now that don’t have kids. It’s actually one of the challenges I’d say weirdly more [among] investors and media than at the customer level, where we get written as this kids’ retailer.
The site looks pretty different for different people. If you come in and you are a women’s shopper, you’re going to get a very different site experience than somebody who has kids.
It’s interesting. We’ll sit in focus groups with customers and they’ll say “Well, I must be your perfect Zulily customer” and to a certain extent, they’re right, because we’ve intended the site to be perfect for them where we’re optimizing even down to the photography.
WWD: Take us back two years ago to the decision to sell to Liberty Interactive and why that made sense.
D.C.: At the time we weren’t looking to sell the business. Liberty and QVC approached us and said they thought there were great synergies between QVC and Zulily and I think we said “Yeah, let’s have a conversation.” I always had a lot of respect for them and what they built. As we got into it, we’d gone through, I’d say, a wild ride in the public markets where the stock went up to an incredibly high valuation and then down low and we’d come back somewhat from that. But the volatility in the stock caused a lot of anxiety for employees and, really I think, was more of a distraction to us focusing on building a great business. So what we saw was an opportunity to get a good return for shareholders but also allow us to focus a little bit on the longer-term as opposed to chasing the quarterly numbers. The constant pressure of investors wondering what are you doing in the short-term versus the long-term was challenging and the QVC folks said “Look, we want to focus on how do we build a $5 billion, a $10 billion business here and not be so worried about the short-term.”
I think the team likes what we’re doing, sees the long-term opportunity and so it’s been a pretty great success. When you enter into something like this, you never totally know. You have to believe to jump in, but its been much more stable than I think a lot of folks anticipated.
It’s funny, I think back to, at the time of the IPO, friends and investors saying “Are you leaving now because you just did the IPO?” and it’s like, “No, I’m not going anywhere.” And when we sold the business, “Are you leaving now?” No, I’m not.
I’m trying to think what’s materially different [since the deal]. They’ve left us to focus on our customer and there’s absolutely areas where we’re collaborating and working together. I think that’s been a good benefit for us. Areas like transportation and logistics.
We continue to experiment. We’ve done everything from a Zulily TV show to listing the [QVC] Today’s Special Value products on Zulily for a while.
We’re going to continue to try and see, but the customer segments are pretty different and we don’t want to confuse the customer.
WWD: The dabbling with TV, what was learned from that experience?
D.C.: We dabble with a lot of things and we try to have a culture of trial and acceptance of failure. My hope is, if you were able to walk out here and talk to our engineering or our marketing team and you ask them about projects that failed, they would be OK telling you about them. They would be open that that’s OK and, candidly, expected here.
So I think when I look at the TV — not to say the TV was a failure, I don’t think it was — but it was a trial, aimed at exposing QVC customers to the Zulily brand. That was early on when we didn’t really understand that the customer bases are pretty different.
What we don’t want to do is say Zulily is just a part of QVC, or QVC’s a part of Zulily because [each then loses its] special uniqueness. It’s interesting. You watch in the industry a lot of different brands. You look at how Gap has Old Navy and Banana Republic and Athleta. You look at T.J. Maxx and HomeGoods….I think what we’ve said is, really, if it doesn’t help the customer to overlay [brands] let’s not do that. So that [TV] test we tried initially was, what if we told the QVC customer ‘Here’s Zulily. Welcome to Zulily.’
I think we saw very positive interaction, but we didn’t see the pickup that we had hoped we would see there and we said, “Let’s try something else.” And we’ve taken offers, like the Smart Pay. We’ve tested everything from in-the-box inserts and here’s an offer on both of them, to cross-e-mail.
So just constantly trying new things. We’re going to continue to try that. That’s what gets me excited every day. And it goes back to your first question on new business in the space. The way folks build new businesses is to stay innovative and not get in a rut. Try new things and so my hope is we can be the new start-up within Zulily and we can keep pushing the envelope a little bit there.
WWD: On the international front, what are the next steps there?
D.C.: All of our international today is shipped from the U.S. to those [overseas] markets and so our biggest two markets being Canada and Australia….We just launched in Canada drop ship so now vendors that have inventory in those markets, we can now work directly with them to drop ship to customers. We’re starting to look at more cross-border. We ship a lot of product from China to the U.S. today direct to consumer, so expanding that to the international markets.
We’re doing everything in English today, but I think bringing truly localized experiences to these [overseas] markets. I think we’re pretty intrigued with different markets in Europe. We’re not sure exactly where we go first. That’s part of the effort the team’s going after there and then continuing to lean into Canada and Australia in a big way. They’re at-scale businesses, but they’re still small relative to the core. They’re each tens of millions in sales. They can be dramatically more. There’s no reason in my mind we can’t have $100 million-plus businesses there and so we’ve just got to work at it.
Like in many of these areas, I think it’s 100 little things that make these businesses great, and so we’ve just got to keep driving those pieces together.
WWD: Aside from international, where are the other growth opportunities?
D.C.: I think there’s still just massive opportunity in the core in the U.S.
Generally, we’re a pretty frugal organization. We’re pretty disciplined on the cost control. If you were to go survey customers and ask them about Zulily, my guess is our unaided awareness in the U.S. is still fairly low, and I think there’s a lot more we can do to drive awareness on the marketing front and you’ll see us continue to lean into that. We spend a tremendous amount on marketing but I still think we are a tiny fraction relative to other retailers and I want to see us continue to invest more aggressively there and drive our awareness up.
When you look at the business today — I’m just trying to remember last year’s numbers, but roughly $1.55 billion in sales. I see no reason that the U.S. can’t be a $5 billion business. A lot of that comes down to a focus on great categories, great pricing, making sure we’ve got an aggressive marketing team that is driving new customer awareness as well as making sure we’ve got strong work on the retention side. It’s finding new vendors. It’s layering all those pieces.
We’re only eight years old — seven-and-a-half, not even eight. So in many ways I still look at us as a toddler. I still feel like we’re this young, somewhat immature business that has a lot of room for development and growth. And that’s what gets me excited, is that we’re not slow and steady.
We are continuing to try and innovate. One of the things I’m excited about — but it makes it hard to answer your question — is I don’t know exactly where the next $1 billion is going to come from but I’d say a lot of it is going to come from the core. It’s amazing to me that if I look at categories like home or some of the products we’ve sold even over the last year, I mean, we had a runaway success with mermaid tails last year. Mermaid tail blankets.
WWD: I’m trying to visualize that.
D.C.: They took off and we were able to build a very large business there. One of my favorite ones was a chicken swing that we sold. We sold huge amounts of urban chicken coops in a day, tens of thousands of dollars.
I love the diversity of what we can sell, the uniqueness and I think we’ve got to keep staying fresh and new and different in the offering. That’s what’s going to get the scale here.
WWD: Retail is in a period of self-reflection right now. Where do you see the industry going?
D.C.: It’s a big question.
I think it will continue to change. Consumers are smart. When we started Zulily, we had this bias that consumers are smart, and it gets easier for a customer to be smart through data transparency. That is going to make the industry just better and better over time. Now, I think that makes it harder. You’ve got to work harder to get there, but I think from a consumer standpoint it’s going to be better for the consumer. I think folks that are being incredibly efficient and are being consumer-centric are going to win.
Value is going to play a bigger and bigger part in retail and commerce over the long-term. I think offline and online continue to merge.
I think back to the humorous stories in 1998 about the death of stores and how pets.com was going to take over and there’d no longer be a pet store anymore. It’s probably not likely and I don’t think that happens today. There’s still a huge amount of retail that happens offline.
Where online will win is in convenience and the entertainment side. So Amazon and Wal-Mart are doing phenomenal things for the consumer about great value and a great selection of products. I look at Zulily and QVC, though, in a very different way in that we are more the entertainment side.
If you’re looking for a DVD player, it’s unlikely you’re going to turn on QVC and wait nine hours ‘til they run one right? It’s not that kind of experience. Consumers still want to be entertained.
But it’s impossible to predict what 10 years looks like other than it’ll be different.
Mobile will be a bigger and bigger piece of how folks shop. I look at categories like food delivery and the number of players in that market and how five years ago, food delivery was called Domino’s and get a pizza delivery. And now you can go online and order almost anything and have it delivered in 30 minutes from across town….I love the innovation that’s happening because it’s going to provide us all new ways to look at things, but I don’t know if I’m smart enough actually to know what it looks like. If I did, I would go open retail stores.