Window-Shopping at Zulily

 | Feb 27, 2014 | 1:30 PM EST
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On Tuesday, during an episode of CNBC's "Mad Dash," Jim Cramer said Zulily (ZU) "is the first legitimate competitor to Amazon (AMZN) that I have ever seen." 

I read the company's prospectus a few months ago and it was a total page-turner. While I don't think it will make the New York Times Best Seller's List, I think Zulily has a very interesting take on e-commerce.

Zulily was founded just three years ago in Seattle. While people may think of Zulily as just another e-commerce retailer, the company has actually built a technology platform that aggressively sources unique items from as many as 4,500 vendors and showcases their products. The company photographs merchandise and features them on their mobile app and website for just 72 hours. Zulily handles the ordering and offers a fully integrated fulfillment infrastructure. By carrying small to medium lots that are sold out in 72 hours or less, the company greatly limits its inventory risk.

While the company offers a few nationally known brands, it focuses on emerging brands. The company specifically targets women and moms. The goal is to become a part of a mom's everyday routine and it is succeeding. Moms who are looking for unique items and children's clothes are flooding the site.

The company distinguishes itself by offering moms a fresh and affordable selection of merchandise. Zulily founders believe the retail experience has become uninspiring due to the concentration of sales among mass retailers and the commoditization of merchandise. By constantly refreshing the site with interesting merchandise that is available in limited supply, for only a short period of time, moms shop the site almost nonstop.

The superiority of its business model is clearly evident once you look at the company's financials. In 2010, Zulily had 157,000 active customers and total revenue of $18 million. On Tuesday, the company reported fourth-quarter sales of $257 million. For fiscal 2013, the company had sales of $695.7 million and 3.2 million active customers. (Yes, you read that right. They went from $18 million in revenue to almost $700 million in three years.)

Zulily went public on Nov. 15 at $22 per share. On Wednesday, the stock closed at $61.59, up almost 180% in three months.  With its dramatic stock performance, you can bet the investment banks have a bunch of these flash-sale, e-commerce initial public offerings (IPOs) queued up and ready to go.

Some investors fret about competition from Amazon, but I don't think that's much of a problem. Amazon is weighed down by its need to move huge volumes of commodity merchandise.  Amazon just can't move as quickly as Zulily. Zulily focuses on such a narrow niche, its just not enough to move the needle for Amazon. Amazon has bigger fish to fry.

Zulily has a market cap of $7.52 billion in three months, so I would wait for the stock to cool off. The company definitely has an interesting approach to e-commerce and it will be interesting to watch this space grow, but for now, I would rather window shop.



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