What Happened to Zulily? The Shocking Story Behind the E-commerce Giant's Fall

What happened to Zulily? The e-commerce giant peaked at a $9 billion valuation after its 2013 IPO, but its story now serves as a cautionary tale.

Recent reports confirm Zulily's permanent closure. The company generated $300 million in cash during early 2023, yet failed to survive. Declining sales and intense market competition forced this once-promising business to shut down completely.

The early success of Zulily

Zulily started as a simple e-commerce idea that reshaped the scene. Mark Vadon and Darrell Cavens, two former Blue Nile executives, founded the company in 2009. Vadon's struggle as a new father to navigate the overwhelming world of baby products sparked this venture.

How Zulily captured a niche market

The company's original target was clear: mothers with young children. This focused strategy worked well. The site's official launch in January 2010 showed strong momentum because they understood what moms wanted.

Zulily's growth story became remarkable. The company hit $1 billion in sales by 2014, joining Amazon and Old Navy among the few retailers to reach this milestone so quickly.

This rapid growth caught everyone's attention and led to a successful IPO in 2013, with a $2.6 billion valuation. The company had 2.6 million active customers and $331 million in revenue when it went public.

Kevin Saliba joined the marketing team in 2012 and saw what he called "a good problem" – too many customers wanted their products. Their excellent focus on moms shopping for themselves and their families proved to be a profitable e-commerce niche.

Zulily stood out with its "surprise and delight" approach. One executive put it simply: "We're very much a surprise and delight type of company and we're trying to engage customers with new and different products every day". Shopping here became entertainment, not just a discount hunt.

Results proved impressive. Customer numbers grew 24% to 6.1 million active shoppers by 2017. Better yet, 91% of purchases came from loyal customers who kept coming back. They had found their sweet spot in the market.

The flash-sale model that drove early growth

Flash sales became Zulily's core strategy. Deals lasted 72 hours with deep discounts on children's apparel, toys, and home goods. This mix of urgency and exclusivity drove purchases effectively.

New sales started each morning at 6am. Dedicated shoppers set alarms to be first in line because popular items vanished by lunch. Shopping turned into a daily ritual for millions of women. Former co-founder Mark Vadon observed, "That feeling of getting a great deal on a really distinguished product, it created massive customer retention. They couldn't get enough".

Numbers tell an impressive story. Zulily launched over 100 events daily with more than 9,000 different SKUs. An executive boasted, "The average Costco has around 4,500 SKUs, so we like to say we're launching two Costcos a day". Fresh content kept customers returning.

The company used a unique "inventory-light" strategy by selling items before ordering from vendors. This gave them better control over supply chain and fulfillment while reducing inventory risk. Their tech team built sophisticated software that tailored each customer's experience based on clicks and purchases.

Revenue jumped from $143 million to $331 million by 2012. Active customers nearly doubled to 1.58 million year-over-year. Partnerships with over 15,000 vendors let Zulily offer up to 70% off retail prices. Customers loved the "treasure-hunt feel".

The company's value peaked at about $9 billion – impressive for a business focused on moms and families. Zulily created something special: an online shopping destination that customers eagerly visited every day.

The business model that couldn't scale

Zulily's original success came from business strategies that later led to its downfall. The company's expansion turned its innovative approaches into problems, especially when customer expectations changed.

Just-in-time inventory and its limitations

Zulily's inventory-light approach seemed brilliant at first—they didn't buy inventory until customers placed orders. This "virtual inventory" model needed minimal warehouse space and cut financial risk. But this strategy created a basic business contradiction: the company promised great deals while making customers wait much longer than industry standards.

Customers often waited 2-3 weeks for their orders, unlike Amazon's two-day shipping promise. This happened because Zulily would wait for a sale to end, place bulk orders with vendors, wait for items to reach their warehouses, and then ship to customers.

The company's CEO Darrell Cavens once said proudly, "We're not trying to compete on shipping speed." He believed customers would accept delays if they got deep discounts. This belief became harder to justify as competitors kept making delivery times shorter in the digital world.

Their just-in-time model also created operational headaches. Products arrived at fulfillment centers in huge batches that needed extensive manual sorting before shipping could start. Customers grew frustrated when their tracking numbers stayed inactive for days or weeks after purchase.

Shipping delays and customer frustration

Zulily soon got a bad reputation for very slow shipping. Online review sites had countless complaints from upset customers who waited weeks for orders. A harmful pattern emerged: new customers used to Amazon-speed delivery would place an order, get frustrated by the wait, and never shop again.

The company tried to fix these issues through several changes:

• Adding "Fast Ship" badges to show items that would ship quickly

• Creating a "My Orders" dashboard to show more information

• Setting up some pre-positioned inventory for popular items

In spite of that, these changes came too late to change how customers saw them. Former employees said shipping delays stayed the biggest problem throughout the company's life.

Zulily's return policy made customer frustration even worse. They gave store credit instead of refunds, unlike most retailers. They said processing returns would slow down their already lengthy shipping process—but customers just saw this as one more hassle.

Customer patience for long shipping times dropped as Amazon Prime membership grew. What worked in 2010 didn't work by 2020. The COVID-19 pandemic sped up online shopping adoption, and Zulily couldn't keep up with retailers offering quick, smooth fulfillment.

The fatal flaw in Zulily's model became clear: their approach cut business risks but created an experience that clashed with what consumers expected. This made it impossible to grow successfully in today's online shopping world.

Ownership changes and strategic missteps

Zulily's early growth gave way to a series of ownership changes that ended up speeding its downfall. What looked like promising acquisitions revealed deep problems that proved disastrous for the e-commerce retailer.

Qurate's acquisition and cultural mismatch

Qurate Retail (previously Liberty Interactive) bought Zulily for $2.4 billion in August 2015. The executives seemed optimistic about how the companies could work together. "I think our cultures will fit incredibly well," co-founder Darrell Cavens said at the time. This optimism turned out to be misplaced.

The biggest problem was simple: QVC had built its business around older TV shoppers, while Zulily focused on tech-savvy young mothers. Their different customer bases made it almost impossible to sell across platforms. Their merchandising approaches also clashed, which created problems in how they ran their operations.

Leadership teams started butting heads as different visions for Zulily's future emerged. "We were sort of operating in a different way," one former executive explained. "There was less of a growth mindset from Qurate". Zulily's revenue and active customers stayed flat for two years after the purchase.

The company bounced back briefly in 2018, hitting $1.8 billion in revenue. This success didn't last long. Zulily tried to move beyond its mom-focused market to become a general marketplace for "women or men, with or without kids". This move weakened the brand's special appeal and put it head-to-head with Amazon—a fight it couldn't possibly win.

Sales kept dropping through 2019. Revenue crashed to $906 million by 2022, less than half its 2018 peak. A former CMO summed it up perfectly: "We lost an identity".

Regent's short-lived ownership and liquidation

Qurate sold Zulily to Los Angeles investment firm Regent in May 2023 as losses piled up[113]. The deal required paying back about $80 million of Zulily's debt.

Regent chairman Michael Reinstein sounded confident at first: "We are excited to partner with the Zulily team to help the company return to its entrepreneurial roots as an independent business". He praised Zulily's technology and delivery network, announcing plans to expand.

Reality turned out much differently. Zulily completely fell apart under Regent in just seven months. 

The company started cutting costs right away:

• Moving Seattle headquarters to smaller offices

• Executing multiple rounds of layoffs

• Attempting to restructure vendor payments

Things got worse by early December 2023. Zulily announced layoffs of 292 employees in Seattle, then cut another 547 employees at warehouses in Nevada and Ohio. The company announced a "going-out-of-business sale" on December 9.

Rather than declare bankruptcy, Zulily chose an Assignment for the Benefit of Creditors (ABC). A special entity called Zulily ABC, LLC would handle selling off the company's assets. "This decision was not easy nor was it entered into lightly," Ryan Baker of Douglas Wilson Companies said as he managed the shutdown.

The final twist came when Beyond (formerly Overstock.com) bought Zulily's digital assets in early 2024 for just $4.5 million. They got the website, domain names, trademarks, customer database, and software—but none of the debts or obligations.

Zulily's ownership story shows how cultural conflicts and poor strategic choices can destroy even successful e-commerce companies quickly.

External pressures and rising competition

Zulily struggled against growing external forces that sped up its decline. The digital world looked completely different from when Zulily started, which created overwhelming competitive pressure the company couldn't handle.

Amazon's dominance and fast shipping expectations

Amazon changed what customers expect from online shopping. A 2020 eMarketer study showed that 79% of customers chose Amazon because of free and faster shipping. This ranked higher than product selection (68%) and pricing (49%). These new customer expectations hit Zulily's delayed-shipping model hard.

Reports show Amazon targeted Zulily as an "emerging online superstore" since 2019. The trouble started when Zulily announced it would "beat or match the prices of Amazon on any product." Amazon didn't take this well.

Zulily filed an antitrust lawsuit against Amazon in December 2023. The company claimed Amazon's anti-competitive behavior played a big role in its collapse. Amazon allegedly forced third-party retailers and suppliers to keep Zulily's prices at or above Amazon's levels. Suppliers who didn't follow these rules faced penalties from losing "Buy Box" placement to complete removal from Amazon's Marketplace.

An infant-care product supplier lost the Buy Box for almost 2,000 products after participating in Zulily flash sales. The pressure got so intense that about half the suppliers selling to both companies cut ties with Zulily within a year.

The rise of Shein and Temu in the U.S. market

Zulily faced more than just Amazon's pressure. Shein (founded 2008) and Temu (launched 2022) grabbed market share faster with their super-low prices and trendy products.

These Chinese-backed platforms brought unique advantages to the U.S. market. They worked directly with Chinese suppliers and shipped orders straight to customers. This helped them avoid U.S. import duties on packages worth less than $800. American retailers couldn't match these prices.

Shein stood out by using artificial intelligence to spot fashion trends and make popular items faster. This tech advantage let them adapt quickly to what customers wanted.

Shein's success showed in the numbers - they passed both H&M and Zara in U.S. sales by 2023. 

An Omnisend survey of 1,000 U.S. shoppers found that 70% bought from either Shein or Temu last year. Temu led with 57% while Shein had 43%. Amazon's shipping standards and these new budget-friendly competitors left Zulily with nowhere to go, leading to its final shutdown.

The final collapse and what followed

Zulily's 13-year trip in e-commerce ended when it officially ceased operations in December 2023.

Zulily shut down and liquidation process

Zulily announced its closure unexpectedly through a website message after months of financial instability. The company chose an Assignment for the Benefit of Creditors (ABC) instead of bankruptcy and transferred its liquidation management to Douglas Wilson Companies. This third-party fiduciary would spend 12-18 months liquidating Zulily's assets to recover maximum value for creditors.

The closure impacted 800 employees who lost their jobs, with 300 from Seattle's headquarters. Zulily worked to complete pending orders in its final days and promised most deliveries by January 5, 2024. The company set up a claims process through Omni Agent Solutions for undelivered orders.

Lawsuit against Amazon and media coverage

Zulily filed an antitrust lawsuit against Amazon just before closing down. The company claimed Amazon's predatory practices led to its downfall. Amazon allegedly forced suppliers to raise prices on Zulily's platform by threatening penalties from "Buy Box" disqualification to "total banishment" from Amazon's marketplace.

The legal documents revealed that "after just one year of being targeted by Amazon, Zulily lost nearly half of its suppliers" who also sold on Amazon. Amazon denied these claims, but a federal judge later allowed some claims to move forward.

Acquisition by Beyond and future possibilities

Beyond Inc. (formerly Overstock.com) bought Zulily's intellectual property for $4.5 million in March 2024. The deal included Zulily's website, domain names, trademarks, customer database, and software but excluded all debts and liabilities.

Beyond's Executive Chairman Marcus Lemonis stated: "This acquisition doubles down on our belief in the off-price market". The company aims to relaunch Zulily by Q2 2024 and exploit its 18 million customer base without adding "incremental fixed expense". Industry experts believe Beyond could provide the right environment where Zulily's business model might succeed finally.

Conclusion

Zulily's meteoric rise and dramatic fall serves as a warning sign for e-commerce businesses. The company started strong but their delayed-shipping model ended up falling short against Amazon's speedy delivery promises. The company's struggles grew worse with ownership changes. New discount retailers like Shein and Temu made the competition even tougher. Beyond bought Zulily's assets, but their story shows without doubt how fast market forces can change a business's fate.

FAQs

Q1. What led to Zulily's closure? 

Zulily's downfall was due to a combination of factors, including an unsustainable business model with long shipping times, increased competition from Amazon and ultra-discount retailers, and strategic missteps following ownership changes. The company ultimately shut down in December 2023 after failing to adapt to evolving customer expectations and market pressures.

Q2. How did Zulily's business model contribute to its failure? 

Zulily's inventory-light approach, which involved ordering products only after customers placed orders, resulted in extended shipping times of 2-3 weeks. This model became increasingly problematic as competitors like Amazon set new standards for fast delivery, leading to customer frustration and a decline in repeat business.

Q3. What happened to Zulily's assets after it closed? 

Following its closure, Zulily opted for an Assignment for the Benefit of Creditors (ABC) process to liquidate its assets. In March 2024, Beyond Inc. (formerly Overstock.com) acquired Zulily's intellectual property, including its website, domain names, trademarks, and customer database, for $4.5 million.

Q4. Did Zulily take any legal action against competitors? 

Yes, just before shutting down, Zulily filed an antitrust lawsuit against Amazon. The lawsuit alleged that Amazon engaged in predatory practices, coercing suppliers to raise prices on Zulily's platform and threatening punishments for those who didn't comply. A federal judge later ruled that some of these claims could proceed.

Q5. Is there a possibility of Zulily making a comeback? 

Beyond Inc. plans to relaunch Zulily by Q2 2024, leveraging its 18 million customer base. While the outcome remains uncertain, industry analysts believe that Beyond may provide a more suitable environment for Zulily's business model to succeed. However, the relaunch will face significant challenges in the highly competitive e-commerce landscape.