QVC’s Zulily Acquisition Has Expanded Their Combined Customer Base, But Can They Keep It Up?

On August 17th, 2015 Liberty Interactive, the parent company of QVC, agreed to buy online flash-deal retailer, Zulily, for US$2.4 billion. The purchase was completed two months later, on October 15th. Zulily had seen growth slow at the time and many wondered if QVC had not bought into the flash-deal phenomenon too late. One year has passed and it may be too early to truly tell if the purchase was worth it, but so far there are promising signs that Zulily is making use of QVC’s resources and building on its own strengths. This bodes well for both of their futures, but there are still plenty of challenges for each company to surmount.

How is QVC helping Zulily?

Often when companies merge, a great deal of value is predicted to be derived from cost savings. So far, Zulily appears to taking full advantage of this. Zulily’s Q1 2016 financials show that operating income is up by 475% thanks to these cost savings and some long-term fulfilment investments coming to fruition.

However, it is the access to QVC’s platform that holds the most unforeseen potential, giving Zulily access to customers and merchandise it has not had before.  Zulily made its first appearance on TV in December 2015, putting it in front of new customers. However it’s not just more customers that Zulily is after. In fact, it appears that for now the focus is on selling more to existing customers. Here QVC is even more valuable, with a much wider network of suppliers that allow Zulily to expand into categories that they weren’t deep in before like beauty and jewellery. Exposure to the sheer amount of merchandise that runs through QVC also supports Zulily’s flash-deal model. All-in-all, Zulily has seen both real and potential gains so far.

How will Zulily help QVC?

Things already appear to working out well for Zulily with sales and profits growing as of late, which is great for its new owner, but one year later, the strategic implications for QVC have begun to come into focus. There are two facets of Zulily’s business that will serve all of QVC in the long run:

  1. Personalized Merchandising:

Zulily’s reliance on flash sales belies their true focus of building upon a customer’s experience as they continue to place orders with Zulily over time. Mandatory sign-ins (even for browsing) allow the company to attribute every page view on the path to purchase, giving them an advantage in personally targeted deals. A 21% increase in sales per customer for 2Q 2016 compared to the previous year support this strength.

  1. Mobile spending:

Zulily Customer Base vs Mobile Device Usage

Zulily-customer-base-vs-mobile-device-usage

Note: Sourced from Liberty Interactive Corporation.’s Quarterly Financials

What Zulily’s entry into the QVC universe has not corresponded with is an increase in customers. Holding relatively steady at 5 million may be a long term concern, but the impressive stat to note is the rise in mobile orders from this steady customer base. With nearly 65% of orders coming from mobile as of Q2 2016, it is clear Zulily is doing something right when it comes to mobile conversion. New layouts instituted in 2016 make use of larger images and bigger viewing formats, lessons QVC will be able to utilize for its own, already healthy, mobile uptake.  Together the two can combine their expertise to figure out how to make mobile shopping apps that appeal to newer generations.

Zulily will fill in some of QVC’s gaps, but obtaining new customers over time is the true test

Zulily’s strengths lend themselves to one overarching strategy—appealing to a younger set of moms. These are moms that are young enough to be thoroughly addicted to their smartphones and with a history of flash deal familiarity from the likes of Groupon and Gilt. Having come under the umbrella of Liberty Interactive, Zulily helps bring this cohort with them. In their merger announcement Liberty noted that the customer overlap between QVC and Zulily was just 6%. QVC can rely on Zulily to maintain its expertise with this new subset of shoppers, which prepares it for the future as these shoppers see their purchasing power increase.

Much has been written about the long-term viability of flash deals, and Zulily’s own faltering in this category has contributed to these misgivings. Zulily seem to have turned it around for now with its current customers, but the lack of customer growth is concerning in the long-term. If Zulily can’t grow its customer base, Liberty Interactive will need to look outside once again to pull in younger generations. The most recent quarterly release from Liberty includes quotes from the CEO of QVC on the deceleration of domestic demand and a cautious short term outlook. If QVC hopes for Zulily to act as a bridge to new generations and new growth, it will only get so far on upselling the current customer base.  If Zulily can somehow turn its model and mobile expertise into an appealing venue for younger shoppers, then it may yet save flash deals from being a flash in the pan.