Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus.Unless the context otherwise requires, we use the terms “zulily,” “company,” “we,” “us” and “our” in this prospectus to refer to zulily, inc. and, where appropriate, our consolidated subsidiaries.
Company Overview
We launched the zulily website in January 2010 with the goal of revolutionizing the way moms shop. Today, we are one of the largest standalone e-commerce companies in the United States. Through our desktop and mobile websites and mobile applications, which we refer to as our “sites”, we help our customers discover new and unique products at great values that they would likely not find elsewhere. We provide moms a fun and entertaining shopping experience with a fresh selection of over 4,000 product styles offered on a typical day through various flash sales events, which are limited-time curated online sales of selected products launched each day on our sites. We source our merchandise from thousands of vendors, including emerging brands and smaller boutique vendors, as well as larger national brands. By bringing together millions of moms and a daily selection of products chosen from our vendor base, we have built a large scale and uniquely curated marketplace. Since inception through June 30, 2013, we have worked with over 10,000 brands, featured over 1.6 million product styles and sold over 42 million items to over 2.9 million customers across our platform.
zulily is a disruptive e-commerce company built to address a retail experience for moms that we believe has become uninspiring due to the concentration of sales among mass retailers and the commoditization of merchandise. We distinguish ourselves by offering a fresh and affordable selection of products that inspires moms to shop. Our merchandising team constantly scours the market for new and unique brands in children’s apparel, women’s apparel and other product categories, such as toys, infant gear, kitchen accessories and home décor. Once we find these brands, we invest in photography and editorial content to tell each brand’s story in our fun and engaging voice. We then sell these products through our flash sales model, creating an impulse-driven shopping experience that delivers entertainment, value and convenience for moms anytime and anywhere. Increasingly, moms are shopping at zulily throughout their day from their mobile devices, and as a result we have optimized our platform for mobile shopping. Our focus on delivering a better and more entertaining shopping experience for moms has driven strong new customer growth as well as repeat purchasing by existing customers, which have been the keys to the differentiated economics of our business.
We have become a trusted partner for our vendors because we provide them with access to a large and highly engaged consumer audience, creating significant brand exposure and revenue opportunities. Many of our vendors are small-to-medium sized businesses and may have difficulty reaching a targeted audience of moms on a broad scale. Our vendors can reach this audience while also eliminating wholesale, direct sales and fulfillment costs for the products they sell through our platform, making zulily an attractive channel for them.
To best serve our customers and vendors, we have in place a custom, fully integrated fulfillment infrastructure. Our supply chain solution efficiently handles the small-to-medium lot sizes and high inventory turnover required by our constantly changing, limited-time product offerings. We operate a -1- minimal inventory, intermediary model where we typically take customer orders before we purchase inventory from our vendors. As a result, we are able to offer a much larger selection of products to our customers and to generate greater sales for our vendors, who are able to match a broader range of their product supply to actual customer demand.
Continual innovation through investment in technology is core to our business. We have custom built a proprietary and scalable technology platform to enable our unique business model. Our technology is built to handle the significant spikes in site traffic and transactions which frequently occur when we launch our events each day. In order to enhance relevance for our customers, we have developed extensive data collection and analytics capabilities which allow us to anticipate the shopping preferences of our customers and then personalize their site experience. Our technology platform is also designed to meet the rapid order fulfillment needs that are unique to our flash sales model.
At the scale at which we now operate, the combination of our customers, vendors and fulfillment infrastructure has resulted in powerful network effects, which we believe is a significant competitive advantage. Our large and growing customer base in a highly desirable demographic has allowed us to attract and retain vendors offering high quality and unique products. The breadth and quality of our vendors’ merchandise, which we curate daily to provide a fresh selection, enables us to attract new and repeat customers.
We have achieved the following significant milestones:
For 2012 and the six months ended June 30, 2013, we reported $331.2 million and $272.0 million in net sales, representing growth of 132.4% and 114.2% from 2011 and the six months ended July 1, 2012, respectively. For 2012 and the six months ended June 30, 2013, we reported a net loss of $10.3 million and $2.4 million in net income, an improvement from net losses of $11.3 million and $6.2 million in 2011 and the six months ended July 1, 2012, respectively. For 2012 and the six months ended June 30, 2013, we reported $(5.9) million and $7.5 million in Adjusted EBITDA, an improvement from $(8.9) million and $(4.4) million in 2011 and the six months ended July 1, 2012, respectively. We have been free cash flow positive on an annual basis since 2011. For information on how we define and calculate active customers, revenue per active customer, the non-GAAP financial measures Adjusted EBITDA and free cash flow, and for reconciliations of Adjusted EBITDA to net loss and free cash flow to net cash (used in) provided by operating activities, see the sections of this prospectus captioned “Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Key Financial Metrics.”
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Our Industry
e-Commerce is a Large and Growing Market. Euromonitor, a consumer market research company, estimated that the North American retail market was $3.1 trillion in 2012 with online retail representing $183 billion, or 5.9% of the total retail market. As consumers continue to migrate online, the online retail market is expected to become a significantly larger portion of the total retail market. Euromonitor expects the North American online retail market to grow to $360 billion by 2017, a 14.5% compound annual growth rate, or CAGR, from 2012, as compared to a 2.9% CAGR for the offline retail market over the same time period.
Moms are an Influential Consumer Demographic. According to a 2012 report from the U.S. Census Bureau, 39 million U.S. households have children under the age of 18, representing 121 million people. In these households, we believe moms generally control an outsized share of spending, particularly spending on children’s apparel, women’s apparel and home décor. According to a 2009 report from Advertising Age, an advertising industry publication, women controlled 73% of household spending. Additionally, women and moms are over-represented as Internet shoppers. According to comScore, a market research firm, in February 2010, women accounted for 49.8% of the U.S. online population but made 61.1% of online purchases.
Women’s and Children’s Boutique Brands are Highly Fragmented. We believe that emerging brands and smaller boutique vendors are more prevalent in the children’s apparel, women’s apparel and home décor categories compared to other retail categories. We have sold products from over 10,000 brands to date and we discover new, emerging brands on a daily basis. This fragmentation is evident in our business, as over 65% of our U.S. product sales in 2012 came from vendors, generally emerging brands and smaller boutique vendors, selling less than $50,000 of product per event.
Mobile Commerce is Growing Rapidly. The proliferation of smartphones and tablets has made mobile commerce one of the fastest growing retail channels. According to International Data Corporation, or IDC, a market research firm, the number of U.S. mobile online shoppers is expected to grow from 52 million in 2012 to 189 million in 2017, a 29.3% CAGR. Moms also spend more time mobile shopping than the general consumer. According to eMarketer, a market research company, 23% of moms who use the Internet shop on their mobile devices as compared to 15% of the rest of the general Internet user population. Since consumers have access to their mobile devices virtually anytime and anywhere, this allows them the opportunity to browse and shop during their spare minutes throughout the day. Mobile devices also enable “push commerce” features that prompt consumers to visit mobile websites and use mobile applications.
Our Opportunity
Transforming How Moms Shop Online. A new wave of e-commerce is emerging. First generation e-commerce companies were generally vertically focused product websites that answered a consumer need for directed product search (for example, “I need a camera”). We believe moms are increasingly looking to the Internet to browse and be inspired through entertaining and engaging discovery-based online shopping (for example, “I want to go window shopping”), especially while they are out and about and on their mobile devices. We believe moms are increasingly using e-commerce as a form of entertainment in addition to satisfying specific product needs.
Transforming How Emerging Brands and Smaller Boutique Vendors Reach Moms. It is challenging for emerging brands and smaller boutique vendors to reach consumers cost effectively at scale. Smaller vendors can have great products but typically have limited marketing and distribution -3- capabilities. Without recognizable consumer brands, these vendors may struggle to attract consumers to their own websites, if they have them at all, and may also have trouble securing distribution among mass retailers. Additionally, many emerging brands and smaller boutique vendors can be limited by their branding, photographic and editorial capabilities and therefore can struggle to present their products to consumers in a compelling way, which we believe reduces consumer demand for these products.
Our Offering
Our Offering for Moms
Making shopping entertaining for moms is core to who we are and what we do. We think beyond just offering what our consumers are directly looking for and instead look to inspire purchasing by finding and offering a curated set of products from new and emerging brands that our customers could not otherwise easily find. Moms are passionate about buying products for their kids that stand out and make their kids look special, particularly at affordable prices. Our goal is to be part of mom’s daily routine, allowing her to visit our sites and discover a selection of fresh, new and affordable merchandise curated for her every morning.
Every morning, we launch a variety of flash sales events. Typically, these events feature over 4,000 product styles from different vendors and last for 72 hours. The day’s events are kicked off by an early morning email to our email subscribers and push communication to users of our mobile applications. Offerings are only available for a limited time and in a limited quantity, creating urgency to browse and purchase. The majority of our products are sourced from emerging brands and smaller boutique vendors that our customers may not have heard of and whose products are not widely available online. We also offer larger nationally known brands that appeal to our customers and draw new customers to our sites.
Before we launch an event, our photography team typically photographs our merchandise in our in-house studios and our editorial team writes about our merchandise so that we can present each day’s selection of product in our fun and engaging voice. The experience, creativity, resourcefulness and efficiency of our merchandising, creative and operations teams enable us to feature over 250,000 product styles per quarter. We work to create the most compelling price points for our customers, with the average item on our sites offered for over 50% off the manufacturer’s suggested retail price. We then use our proprietary technology, data analytics and personalization tools to segment our audience, offering each mom a curated and optimized shopping experience that features brands, products and events that we believe are most relevant for her.
Our Offering for Vendors
Our primary vendors are emerging brands and smaller boutique vendors. These are typically small-to-medium sized businesses, many of which were started by mom entrepreneurs. Since these vendors’ products are typically not available broadly online, the vendors generally work with us to gain brand awareness and generate incremental sales. We introduce these vendors to our large audience and help them tell their stories in a way that differentiates their products and properly reflects their brand attributes. Our entire operational infrastructure—photography studios, editorial writers, fulfillment operations and technology capabilities—is designed to showcase these emerging brands’ and smaller boutique vendors’ products in the most compelling, engaging and personalized way.
We serve as an important channel for our vendors because by working with us they eliminate wholesale, direct sales and fulfillment costs for the products they sell through our platform. Because of -4- our minimal inventory, intermediary model and short event cycle, we are able to experiment with a broad range of new products and a wide variety of vendors on a regular basis. Our vendors typically provide us with first-run, in-season merchandise as they are incentivized to get their best products in front of the broadest potential customer base. We supplement our boutique brand offerings with events from larger national brands and often become a meaningful partner for these larger national brands as well, driving significant sales and vendor loyalty. Of the vendors we featured for the first time in 2011, 75% have returned to sell again at least once on our sites through June 30, 2013.
Our Strengths
We are one of the largest standalone e-commerce companies in the United States. We have achieved this due to our following key strengths:
Our Strategy
Our objective is to be the leading online retail destination for moms. We plan to attain this goal through the following key strategies:
Risks Associated With Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section captioned “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:
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Our Corporate Information
We were incorporated in 2009 in Delaware as BSI Holdings, Inc. and subsequently changed our name to zulily, inc. Our headquarters are located at 2200 First Avenue South, Seattle, WA 98134, and our telephone number is (877) 779-5614. Our website address is www.zulily.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus.
“zulily,” the zulily logo and other trademarks or service marks of zulily, inc. appearing in this prospectus are the property of zulily, inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
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The Offering
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The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on no shares of Class A common stock and 461,624,111 shares of Class B common stock outstanding as of June 30, 2013, including 14,408,855 shares issued pursuant to early exercise of stock options and restricted stock issuances that are subject to repurchase and excludes, as of June 30, 2013, the following shares:
Unless otherwise indicated, all information in this prospectus reflects and assumes the following:
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The share and per share numbers included in the sections of this prospectus captioned “—Summary Consolidated Financial and Other Data,” “Capitalization,” “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes do not reflect the reclassification of our common stock into an equal number of our Class B common stock and the authorization of our Class A common stock, which will we expect will occur prior to the completion of this offering.
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