L.A. e-commerce company HauteLook might soon face the challenge of dealing with a changing marketplace.
HauteLook sells apparel and accessories at deep discounts in time-limited online events called flash sales, which flourished in the recession when brands had plenty of excess inventory.
Now that the economy is improving, that supply could fade. But HauteLook has an advantage over competing flash sale sites. It was acquired by Nordstrom Inc. two years ago and can get designer duds from the Seattle department store chain’s suppliers.
It’s one of many advantages the company has gained since the acquisition. HauteLook can continue its rapid growth and leverage Nordstrom’s market strength.
“We’re able to balance growth and profitability because we’re now part of a larger entity,” said Adam Bernhard, founder and chief executive of HauteLook.
In the last week of November, HauteLook surpassed 11 million registered members on its shopping website. That’s up from 4 million only two years ago.
Analysts estimate the company had revenue of about $150 million in its 2011 fiscal year, and HauteLook predicted as much as $240 million for 2012.
The company has been growing offline, too. In its five-year life span, it has had to move fulfillment centers three times – from Vernon to Commerce to Fontana – and it’s preparing for yet another.
In August, Bernhard told Women’s Wear Daily that the company is building a 750,000-square-foot, state-of-the-art fulfillment center. He didn’t specify a location, however. The company’s current fulfillment center near Ontario International Airport is about 300,000 square feet.
The website still isn’t making money for its parent company. Nordstrom did $10.5 billion of annual sales in 2011, and HauteLook’s share of that was 1.4 percent. But HauteLook’s losses shaved nearly 7 percent off Nordstrom’s earnings – or about $50 million.
However, much of the losses were attributable not to operations but to merger-related accounting adjustments, said Colin Johnson, a spokesman for Nordstrom.
In a third quarter conference call late last year, Mike Koppel, Nordstrom chief financial officer, said the company was close to breakeven.
Johnson said the chain was pleased with the results.
“HauteLook is definitely in line with our expectations,” he said.
The chain bought the startup because executives felt they had to be in the flash sales game.
“Any time we invest we do it with an eye for the long term and how it will add to the customer experience,” Johnson said. “It became clear a few years ago to us that our customers appreciate the discovery-based shopping experience that HauteLook provides. We needed to be there, and boy, it just made so much sense for us to team up with a group like HauteLook rather than try to develop these online capabilities on our own.”
The online retailer also offers free shipping and returns, an operations expense that isn’t cheap. But those costs could be offset by further integration, especially with the opportunity for cross-selling excess inventory on HauteLook and Nordstrom Rack stores.
“We continue to work together to find new ways that we can enhance all the channels we have available to us to sell product to customers,” Koppel said in the third quarter conference call.
HauteLook, founded in 2007, sells excess inventory from high-end brands such as Marc Jacobs, Nine West and Splendid at discounts between 50 percent and 75 percent off suggested retail prices. Nordstrom acquired the company for $180 million in February 2011.
Bernhard said Nordstrom now lends the online outfit credibility with customers.
“Obviously being part of a 111-year-old retailer gives the consumer confidence that we’re a legitimate business,” he said.
Before Nordstrom bought HauteLook in February 2011 for $180 million, offerings included apparel and accessories, as well as travel and service deals such as a massage or facial at a local spa.
After the acquisition, the website stopped selling travel and service deals and began to put more emphasis on the categories it had in common with Nordstrom, such as shoes.
“Nordstrom is the biggest, baddest shoe retailer in the country,” Bernhard said. “Their relationships in that marketplace allowed us to generate a huge supply that we previously didn’t have access to.”
Competitors in the designer flash-sales space include Gilt Groupe, Fab.com Inc. and Ideeli Inc. in New York, and Rue La La in Boston. Each has had to seek millions of dollars in venture capital funding in recent years to stay afloat.
But now that HauteLook is part of Nordstrom, Bernhard said it’s a relief that funding is no longer a survival issue.
“I see a lot of my competitors having to raise more and more money all the time,” he said. “Strategically we can think five years down the road rather than about what we have to do tomorrow.”
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