What Gilt Groupe could mean for Hudson’s Bay

December 15, 2015 03:34 PM

Hudson’s Bay Co., the Canada-based parent company of the iconic luxury department store Saks Fifth Avenue, may be in talks to purchase web-only flash sale apparel retailer Gilt Groupe Inc. for $250 million.

While neither Hudson’s Bay nor Gilt would comment on multiple reports suggesting the two merchants are discussing a deal, one analyst suggests the move could be a good one for Hudson’s Bay, No. 97 in the Internet Retailer 2015 Top 500 Guide. The department store retailer may be seeking to emulate the success of department store rival Nordstrom Inc., which has experienced gains online and offline since acquiring two Gilt Groupe competitors and Trunk Club.

“Hudson’s Bay is trying to give the consumer a spectrum of online and offline options, as now they’ll have Saks, Gilt and Off 5th,” says Tom Forte, an e-commerce analyst and senior vice president at Brean Capital LLC. Off 5th refers to Saks Fifth Avenue’s outlet store brand.

This mirrors the strategy Nordstrom (No. 19) put into place beginning in 2011 when it acquired web-only flash sale retailer for $180 million. Nordstrom executives have consistently reported strong results from the HauteLook brand, as it has given the merchant access to a younger demographic.

In its third quarter conference call with analysts, for example, chief financial officer Michael Koppel said off-price sales—which include, and sales in Nordstrom Rack stores and online—increased 12% year-over-year, reflecting online growth that “well surpassed expectations. Since our acquisition of HauteLook less than five years ago, this channel now represents over 10% of our off-price business,” he said. “In contrast, it took us over 10 years for to reach this level of online penetration.”

Combining HauteLook’s assets into Nordstrom also is driving significantly more store traffic for Nordstrom. In its Q4 2014 conference call, Nordstrom president Blake Nordstrom told analysts that in the year since it had begun allowing customers to return purchases from and to Rack stores, “This singular capability drove nearly 1 million incremental trips to our Rack stores.”

While any deal may benefit Hudson’s Bay, s $250 million acquisition price for Gilt Groupe Inc. is a significant drop from around a $1 billion valuation the retailer secured in 2011 when it raised $138 million from Japanese telecommunications company SoftBank Group. Analysts suggest this is another indication of the declining value of the flash sale business model.

The sale of home décor flash sale merchant earlier this year for $15 million was for a fraction of the $1 billion value it garnered just two years prior. Moreover, women and kids’ apparel retailer zulily Inc. sold to QVC parent company Liberty Interactive for $2.4 billion in October—a discount from its initial public offering price.

“The original pure-play e-commerce flash sale sites’ best days are behind us,” Forte says.

A spokeswoman for Gilt Groupe Inc. declines to comment on reports of the sale talks, saying company policy is to not respond to rumors or speculation.

In the last four years, Gilt has steadily fallen behind online competitors. The retailer is ranked No. 89 in the Internet Retailer 2015 Top 500 Guide—down from its peak of No. 49 in 2012.




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