Will Hudson’s Bay Co. embark on a US$250M Gilt trip?
Mobile commerce
TORONTO • Reports t hat Hudson’s Bay Co. is looking to buy online “flash- sale” retailer Gilt. com for US$ 250 million had some in the industry questioning why the Toronto department store chain would want to acquire a Web retailer whose estimated value had slid from US$ 1- billion four years ago.
But others s ay it is a worthwhile price for the online discount retailer, given its vast consumer reach in mobile commerce, the fastest- growing channel in retail, and its database of more than nine million members, according to Gilt’s website.
Hudson’s Bay officials had no comment Tuesday on the Wall Street Journal report that cited unnamed sources, saying t he retailer would link Gilt with its Saks Off 5th discount luxury brand, and planned to open Gilt shops inside Saks Off 5th stores.
HBC has been investing heavily to expand its digital business in the past three years, and executives cited access to Saks’ thriving web business as one key driver behind its $ 2.9 billion purchase of t he veteran U. S. department store chain in 2013.
New York- based Gilt was founded i n 2007, dazzling the market with limited- time or “flash” online sales of discounted big- branded apparel, furniture, and jewelry.
But the company struggled to reach profitability, a planned IPO failed to materialize and the business was scaled back and employees laid off.
Industry analysts say the chief reason HBC may want Gilt is to leverage its customer database and integrate it with its own Saks Off Fifth brand.
Ed Strapagiel, a Toronto retail consultant, said it is unlikely HBC would want to run Gilt as a separate business. “Integration with Saks operations from both technology and subscriber points of view is where the biggest payoff is,” he said. “Doing retail e-commerce properly these days is an expensive proposition. If HBC can wring out the best synergies out of Gilt, then US$ 250 million will be a bargain.”
Jean - Pierre Lacroix, president of Toronto- based Shikatani Lacroix Design, said if HBC is really serious about buying Gilt, the company must know that the flash deal website does not have a heavy overlap with its own customers.
“US$ 250 million may not be a big price to pay when you consider what it would cost for Hudson’s Bay in both time and monies to build a similar platform through an organic process,” he said. “My guess time is a huge factor, as more purchases are going online.”
HBC shares rose 4.9 per cent to $17.55 in Toronto trading on Tuesday.
Alex Arifuzzaman, partner in Toronto retail real estate specialist InterStratics Consultants, noted the rumoured price is in the range of what Nordstrom paid for off- price web retailer HauteLook.com, partners in its off-price Nordstrom Rack website. Such a deal would also give HBC a broader online platform for liquidating older stock quickly.
But while access to Gilt’s subscribers may broaden HBC ’s online and mobile customer base, such a deal could foretell a flawed longer- term strategy, said Doug Stephens, founder of Toronto- based advisory firm Retail Prophet, suggesting too much discounting stands to irreparably tarnish the Saks brand.
“Outlet mall stores and flash sale sites could do precisely that,” he said. “And if they drain the equity and luxury positioning out of Saks, that leaves HBC with three department store chains in North America slugging it out in the mid- tier — essentially retail’s Death Valley.”
In the meantime, consumer appetite for deal sites such as Groupon appears to be on the wane, and valuations for such sites are falling. In August, Liberty Interactive Corp., owner of home shopping network QVC, announced the proposed acquisition of parenting and baby goods flash-site Zulily for US$ 2.4 billion, a 15- per- cent discount to the web retailer’s 2013 IPO price.
Bruce Winder, partner in Retail Advisors Network, said Gilt’s mobile capabilities would likely bring new millennial customers to HBC, but expressed reservations with the notion of attaching much value to a subscriber base. That recalls e-commerce deals i n around the year 2000, “where companies were bought and sold on customer counts as opposed to free cash flow, and other tried and true financial fundamentals,” such as earnings, he said. “The subscriber base thing sounds a bit nebulous to me.”