November 26, 2013, 1:58 PM

How zulily built a $500 million e-commerce business in four years

Following a successful IPO, an in-depth look at how zulily stacks up.

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Children’s gear e-retailer zulily Inc. raised $253 million during its recent initial public offering earlier this month. Shares are trading at more than $34—far above the company’s initial offering price of $22 per share, and zulily, a four-year-old web only merchant, is now valued at around $4.2 billion. By most measures, zulily’s IPO was a success.

It’s no surprise, as an analysis of e-commerce data on Top500Guide.com shows that when it comes to online retailing, zulily leads its competitors in many key performance metrics.

The first clear indicator of zulily’s strength in its category is annual e-commerce sales. The web-only retailer brought in $331 million in online sales last year, making it the second-largest online merchant in North America that sells primarily kids gear. Toys ‘R’ Us Inc., the largest, operates ToysRUs.com and BabiesRUs.com, and brought in $1.1 billion in e-commerce sales last year. 

Aside from store-based retail giant Toys ‘R’ Us, zulily’s $331 million in online sales is about 50% higher than its next largest competitor, The Children’s Place, also a well-known store brand. And zulily’s sales are more than seven times that of No. 4 on the list, Chelsea & Scott Inc., a catalog-based retailer that sells kids gear at OneStepAhead.com. Chelsea & Scott brought in $46.3 million in online sales last year.

Fast growth is zulily’s main claim to fame. The merchant brought itself to the No. 2 spot in only four years, making it the youngest retailer out of all 13 kids gear merchants ranked in the Internet Retailer Top 500 Guide and Second 500 Guide. Toys ‘R’ Us, in comparison, has been selling online since 1998, Children’s Place since 1999, and Chelsea & Scott since 2001.

Since 2010, zulily has grown at an average of 329% per year while, as a whole, all 13 merchants in the category have grown e-commerce sales by 31% per year, according to Top500Guide.com data. The second fastest-growing merchant since 2010 is Totsy.com, a retailer with a very similar business model as zulily’s, but one that, despite its fast growth, failed to turn a profit and went out of business in June of this year.

Zulily also leads many of its competitors when it comes to some key operating metrics. The retailer has the third-highest conversion rate of the group at 4.0%, and the second-highest volume of web site traffic, with 6.9 million monthly unique visitors on average. At $53, however, its average order value is on the low end of the spectrum. The average is $84 for the kids and baby gear merchants in the Top 1000.

Part of the secret sauce for zulily lies in the “incredibly high number” of employees it has dedicated to sourcing product, says Sucharita Mulpuru-Kodali, e-commerce analyst for Forrester Research. The e-retailer has a merchandising team of 302 employees, in addition to 39 in-house photography studios, according to public documents filed with the U.S. Securities and Exchange Commission.

“By sourcing a large number of vendors and providing them with strong support, we are able to offer our customers a broad and unique selection of curated products that is refreshed on a daily basis,” zulily says. “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 vendor base is highly diversified with our largest vendor in 2012 accounting for less than 1.5% of our net sales.”

In its public filings earlier this month, the merchant reported $438.7 million in online sales for the first nine months of this year, making it nearly certain it will surpass $500 million mark in total sales for 2013.

Net proceeds from the merchant’s IPO were $140 million, which will be used for possible acquisitions of “complementary businesses, products or technologies,” as well as for general administrative purposes, zulily says.

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