In the past 10 days, e-retailer Zulily’s share price took a rollercoaster ride from a 16% dip following last week’s Q1 report, to an 18% surge in the wake of a $56 million dollar investment from Alibaba Group.
While similar flash sale sites in China including VIPshop are experiencing steady gains, the model has proved to be less viable overseas, where companies have experienced rapid, unsustainable growth followed by a drop in revenue.
In Zulily’s recent earnings report it was revealed that the company’s growth has decelerating after revenue fell below the predicted analysis consensus of 314 million USD. The slow down was attributed to first-time customers failing to return to the site, despite active customers growing to 5 million in the same period.
Whether Alibaba has plans to integrate Zulily’s operations into the Chinese market is unclear, however the flash sale e-retail model has been shown to perform better in China that western countries due to their proximity to local manufacturing.
China’s Advantage in the Flash Sale Market
The e-retail site is one of the last western flash sale giants after the flash sale model spiked in popularity around 2012 before slumping just two years later. Despite a 1 billion USD valuation, flash sale site Fab sold for a disappointing 15 million, while there are rumblings that eBay affiliate Rue La La may be sold to Gilt Group, one of the few remaining big names in western flash sales.
Xiaoher, market newcomer and Chinese counterpart to Zulily, gained momentum locally last year after completing a 10 million USD A series a funding. In an interview with Technode at the time, CEO Michelle Meng said that the site’s popularity was due to the fact that they did not have to expand into in-house production because their proximity to manufacturers gave them a strategic advantage.
China’s largest online apparel discounter VIPshop hit a 52-week high in April this year as Chinese internet stocks rallied, and the company saw its stock rise strongly throughout 2014 following a 75% equity acquisition of cosmetics retailer Lefeng.com. Their mobile-driven model and short distribution chain has seen them become the market leader in China.
Alibaba’s Move Into Apparel E-retail Abroad
At the end of last year Alibaba made moves into the foreign fashion and consumer retail market by offering a ‘foreign direct purchase’ ePass service through Alipay for some of America’s largest department stores and fashion brands including Neiman Marcus, Macy’s, Bloomingdales and Sak’s Fifth Avenue. The company had previously opened similar partnerships with Ann Taylor and Aeropostale, making it easier for Chinese consumers to shop foreign without using intermediaries.
In February last year, two wholly owned American subsidiaries of Alibaba, Vendio and Auctiva, joined forces to launch a boutique fashion, jewelry and tech brand called 11 Main. The Alibaba expansion into foreign retail also includes investments in U.S. sports retailers Fanatics, e-commerce platform ShopRunner and a 15 million USD investment in luxury e-retailer 1stdibs.
Despite a hiring freeze and a new CEO, Alibaba appears to be moving ahead with a series of investments across multiple industries. At the time of the hiring freeze, Chairman Jack Ma revealed that he would be consolidating the business into seven segments, e-commerce, Ant Financial, Cainiao logistics, big data and cloud computing, advertising, trade and other internet services.
Image source: Zulily.com & Vipshop’s, Eric Shen, Co-Founder and CEO rings the opening bell at the New York Stock Exchange (Photo by Ben Hider/NYSE Euronext).