How Zulily Escaped The Flash-Sales Curse

ReadWriteShop is an occasional series about the intersection of technology and commerce.

Consumers have always been on the look out for a good deal, from waiting in a downpour for a Black Friday sale to clipping pages of coupons at the expense of paper cuts.

The rise of flash sale sites and daily deals made limited-time-offers even easier to score, and as the popularity of Groupon grew, the Internet became saturated with marketplaces that let consumers procure goods and services at a discount.

The fad has now lost its luster. Fab.com, once heralded for its flash sales, had to restructure its business model in 2012, and eliminated one-fifth of its workforce this year. Daily deals sites LivingSocial and Groupon—the poster children for the online deals craze—came under scrutiny, and many pundits predicted the sites could crumble.

Alexander Zacke, founder and CEO of the e-commerce platform Auctionata, says that while flash sale sites can be exciting for consumers, they can also struggle as a business. “Flash sale sites tend to target a problem, grow fast in the early stage, and slow down rapidly,” he said in an interview with ReadWrite.

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But in stark contrast to other e-commerce sites, Zulily appears to have avoided the fate of its predecessors and continues to be one of the top retail sites on the Web.

Zulily, the online retailer founded in 2010 that provides flash sales of products for moms, babies and kids, went public last month with an IPO that raised $253 million; its shares have since soared 68 percent over its opening price.

It Pays To Have A Narrow Focus

Young people are the most coveted market in tech. In today’s ecosystem, tech companies like Facebook are vying for the younger demographic’s selfies and screen time to court advertiser dollars.

Unlike other online platforms, Zulily doesn’t care about appealing to tech-savvy youngsters; the company has the mom market cornered. Busy moms are extremely efficient at scoring a good deal.

In its initial public offering, the company noted that while women account for half of the online market, they account for over 60 percent of online purchases. And women aren’t just hopping online and looking for what they need, they’re headed to e-commerce platforms as a way of virtual window shopping.

“We believe moms are increasingly using e-commerce as a form of entertainment in addition to satisfying specific product needs,” the company said in its IPO document.

When it comes to e-commerce and daily deal sites, it’s a narrow focus that really drives the success of the company. For Zulily, it’s moms and kids. In the early days of Fab.com, it was haute-couture design.

But as the market and sites like Fab.com have learned, once companies began to expand their focus, success faltered. A recent example is when flash sales site Ideeli restructured its site to focus on women’s fashion and eliminated travel, kids’ and men’s categories.

The changes will add “a lot of incremental sales,” Ideeli founder and CEO Paul Hurley told Women’s Wear Daily earlier this year. “We think there’s a $1 billion business to build here.”

Generate Excitement and Customer Loyalty

Because of the industry glut, consumer interest in flash sales has flattened. But Zacke contends that e-commerce platforms, like historically successful brick-and-mortar stores like Tiffany & Co., can combat indifference by continuously creating an exciting shopping experience.

One of the best parts of the shopping experience is the thrill you get purchasing something you want; you need to look no further than Breakfast at Tiffany’s to understand the excitement of shopping.

“If you go back to Fifth Avenue, all the highly successful stores target one specific audience with one specific product. Those businesses have been there forever because they’ve sold the same product,” Zacke said. “Create excitement around the product and it means you’re building trust among your consumers.”

And that trust and loyalty account for a significant part of online retailers’ revenue.

According to a report from RJMetrics, the top one percent of customers at online retailers spend as much as the bottom 50 percent combined, and return customers contribute up to 75 percent of revenue among online retailers.

“People can only handle so many deals before they crave that loyalty,” said Sarah Lang of RJMetrics. “It gets kind of tiring to chase the [Groupons] to get a massage. You can do three to five of them, and then consumers just want to go back to their favorite one.”

Advertising Doesn’t Always Work

In order to generate return customers, retailers have to walk a thin line between exciting customers and over-advertising. Those of us who have subscribed to flash sale or daily deal sites can commiserate about the deluge of emails and notifications we’ve received from companies. In many cases, I’ve been forced to unsubscribe because I’ve been bombarded one too many times.

For e-commerce sites, email marketing can be a huge driver of traffic, and spammy emails can eventually deter potential buyers. In fact, when Google redesigned its Gmail service to place promotional emails into a separate bucket, online retailers saw a steep decline in emails opened by consumers.

Because marketing emails tend to fall into the gutter (or spam folders), e-commerce sites are trying something a little more old school. Companies including Fab.com and Zulily have attempted television commercials.

“They’re trying to make flash sales sites more relevant to the average individual, instead of being a one-off shop,” said Jerry Jao, CEO of Retention Science, an online customer retention automation platform.

By using video advertising through platforms like Hulu and mainstream television networks, e-commerce platforms can theoretically position themselves as the Internet’s version of Marshall’s or TJMaxx.

They Just Keep Them Coming Back

Zulily rose above others because its offerings—inexpensive fashion for moms and kids— are things that parents will purchase over and over.

“How many super-cool clocks can you have in your apartment?” Jao said. “But I’m going to need baby clothes every two weeks.”

Like any retail business, the success of e-commerce sale sites have one job above all others: keep bringing customers back. By identifying a market that has a constant need and understanding the habits of customers, flash sales and daily deals can become a shopping staple, not just a flash in the pan.