With its $350 million acquisition of Retail Convergence Inc., GSI Commerce Inc. sees a lucrative opportunity to provide additional third-party services to other retailers that want to target the fast-growing private sales business, executive vice president of partner strategy and marketing Fiona Dias tells Internet Retailer.
GSI already provides a number of big chain retailers and consumer brand manufacturers such as Toys “R” Us Inc. and adidas AG with e-commerce platform, marketing and other services. But with its acquisition of Retail Convergence, which owns and operates SmartBargains.com, No. 101 in the Internet Retailer Top 500 Guide, and especially RueLala.com, a fast-growing private sale e-commerce site, GSI can provide retailers with a new outlet to sell in-season and excess inventory to RueLaLa’s 1.2 million members.
GSI also has a prime opportunity to cross-sell other services to the 300 upscale brand manufacturers that already have a relationship with RueLaLa.com, such as watch maker Movado Group Inc., cookware manufacturer Calphalon Corp. and sportswear manufacturer and retailer Tommy Bahama Group Inc. “This is our largest acquisition ever and we see great synergy with Retail Convergence and a huge upside in the private sale e-commerce market,” says Dias. “We’ve been looking at this market and decided to buy a company rather than build one because there is a great advantage to being an early mover.”
Retail Convergence founded RueLaLa.com in April 2008 as an e-commerce site with a business model inspired by successful private-sale web sites in Europe. As a members-only site, RueLaLa.com sells upscale fashion, accessories, footwear, home, jewelry, and other luxury brand merchandise at discount prices and through limited-time sales, usually two-day events. RueLaLa.com is a fast-growing e-commerce property. In just the last 12 months the site has added nearly 800,000 members and in the third quarter of 2009 grew sales year over year by 383% to $28 million from $5.8 million. GSI says sales are on track to reach $100 million in 2009. “RueLaLa.com has a highly attractive business model because it features lower customer acquisition costs, high repeat purchases and uses word-of-mouth marketing to drive sales,” says Dias. “About 10% of RueLaLa.com’s customers return to the site each day to check out what’s new. They operate a new e-commerce business with lower costs that’s entirely driven by viral marketing.”
RueLaLa.com is one of the first e-commerce sites to target the online private sales market in the U.S., but it isn’t alone. Other private-sale online retailers include Gilt Groupe Inc., which sells designer fashions in 36-hour sales to 1.5 million registered consumers using a members-only format and expects revenue to top $150 million in 2009, and HauteLook.com, which has more than 1 million members and sells merchandise from 600 brands at discounts of up to 75%. “The acquisition creates cross-sell opportunities between e-commerce services, interactive marketing services, private sales space and consumer marketplaces that will benefit both GSI and RuLaLa.com clients,” says Dias.
To grow its stake in the private sales market, RueLaLa.com will leverage GSI’s e-commerce infrastructure and established client list. “The integration of RueLaLa.com and SmartBargains.com furthers our evolution to manage all aspects of online sales for leading retailers and global consumer brands,” says Dias. “We are positioned to capture the value from the private sale space by combining RueLaLa.com’s remarkable growth with GSI’s assets, customer relationships and large-scale operating infrastructure.”
Wall Street analysts also like the new GSI and RueLaLa.com relationship, in part because it allows fashion designers and retailers to quietly sell off excess inventory without undermining their brands with sales available to all consumers. “Unlike other clearance sites, RueLaLa.com operates controlled 48-hour sale events open only to members and this provides an attractive opaque channel to help retailers move inventory,” writes Deutsche Bank analyst Herman Leung in a research note. “The acquisition opens up the $500 billion secondary market opportunity for GSI Commerce.”
GSI will purchase Retail Convergence for $180 million at the closing of the deal, including $90 million in cash and the balance in shares of GSI stock. To earn the remaining $170 million, Retail Convergence must register at least $51.9 million in operating income in fiscal 2012. The deal is expected to close in about 30 days.
Dorian Sweet, vice president and executive creative director, GSI Interactive will be speaking at the Internet Retailer Web Design & Usability Conference, Feb. 15-17 in Orlando, in a session entitled Case study: Creating a community and more.
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