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Is Amazon Responsible for the Demise of Flash Retailer Zulily?

It’s too late for Zulily. Here’s what online sellers can learn from the final days of a former billion dollar brand

  • December 13, 2023
  • /
  • Chuck Kessler
An image of the Zulily logo against a purple background with shoppable items scattered across the screen such as shoes, glasses and clothing.

Earlier this week, Seattle-based online retailer Zulily announced plans to cut more than 800 employees across three U.S. states. Now, the news is accompanied by a current warning on their website specifying that after 12/8/23, “sales are final.” 

From the looks of that notice, it appears that Zulily, formerly a high-performing retailer, star of viral “flash” sales and – for a time – a pioneer of edgy marketing practices, is shutting down. 

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Online-selling experts looking closely at the apparent demise of Zulily view it in terms of forensic eCommerce crime-scene analysis. Specifically, “did Zulily fall, or were they pushed?”

Zulily’s revenue has been in decline – down 17% to $192M in the months before Qurate sold the business in May to global private equity firm Regent. Still, careful Amazon watchers suspect that there was an element of corporate infighting at play. 

This post is going to address that question, and detail two strategies that online sellers can use to build their eCommerce brand while NOT placing themselves squarely in Amazon’s line of fire. 

But first, how did Zulily come to be worth – at one time – over 7 billion dollars? 

The answer to that question has a lot to do with why it attracted so much attention from a certain oversized, online bookseller. 

The Birth of Viral “Flash Shopping” 

Zulily was established in 2009 by former Blue Nile executives Mark Vadon and Darrell Cavens. Vadon had just become a new father and was struggling to acquire all the baby supplies that new parents don’t anticipate needing. 

Focusing on young moms interested in established brands, Zulily held no inventory. In the place of a centralized warehouse, it consolidated shipments of vendor-owned merchandise at its fulfillment centers. 

They offered a variety of different discounts each day, with a majority of orders coming from mobile devices. For the most part, the “flash sales,” where thousands of items are featured for sale, lasted only 72 hours. 

These sales were announced through early-day emails and were exciting to consumers because the inventory was continually turned over. Zulily’s proprietary technology that matched consumers with vendors had a lot of industry cachet, and was a significant contributing factor behind their eventual sale to Liberty Interactive (QVCA). 

By 2013, Zulily had gone public and by 2014 was already doing $1 billion in annual sales with a market valuation of around $7 billion. 

A Shift in Focus at Zulily

Originally a pioneer of the online flash sale, Zulily’s business model gradually morphed in the direction of overall value and customer experience. Eventually, that became a challenge to none other than Amazon when Zulily said that they would “beat or match the prices of Amazon on any product.”

That got Amazon’s full attention. 

Amazon mobilized to eliminate the threat. Online-selling experts have theorized that Amazon strategically recalibrated its pricing algorithms and competitive monitoring teams to address Zulily’s competitive push. Then – according to newly unredacted portions of a Federal Trade Commission lawsuit – Amazon used a variety of negative reinforcement to punish merchants who offered lower prices. 

First, they reduced the visibility on Amazon of sellers who also sold products on Zulily. “Because they could not afford the retaliation meted out by Amazon’s anti-discounting scheme, several suppliers stopped selling to Zulily altogether,” the FTC said.

Feeling the pressure from Amazon, Zulily terminated its comparison-shopping feature and scaled back plans to expand beyond its core offerings for mothers and children. 

By abandoning efforts to grow into a general online “superstore” amid competition from Amazon, Zulily essentially conceded defeat in attempts to take on the eCommerce giant and retreated to focus on its niche parent and child segments where it maintains an edge. 

Zulily Files Suit Against Amazon

Zulily’s lawsuit against Amazon was filed on Monday (mid-December 2023) in Seattle’s U.S. District Court and is based in part on allegations in the FTC’s separate antitrust lawsuit against Amazon.

In the lawsuit, Zulily accused Amazon of employing strong-arm tactics that undermine competitors’ ability to vie on price in the marketplace. 

Zulily alleged that Amazon’s practices essentially compel suppliers to offer prices so low that it leaves merchants struggling to operate profitable businesses. According to Zulily, Amazon’s tactics forced the company into an untenable position – either agree to operate on razor-thin margins to try matching Amazon’s pricing, or maintain prices that would scare away deal-seeking customers. 

Zulily claimed this made fair competition impossible without placing key supplier partnerships in jeopardy and portrays Amazon as wielding its immense influence to box out rivals and bend the market to its will.

In the lawsuit, Zulily alleges that the punishments “ranged from disqualifying a seller from the Buy Box, to banishment from Amazon’s Marketplace.”

You Need the Buy Box to Make Money On Amazon

Zulily’s attempt at transitioning from a well-curated baby products brand to an aggressively priced mini-Amazon didn’t pan out. In the lawsuit, the FTC says it has a lot to do with Amazon’s outsized influence with suppliers. 

In the legal action, the FTC referenced an unnamed supplier of infant-care products that reported to Zulily that Amazon had removed the Buy Box from almost 2,000 products because the company had participated in Zulily flash sales.  

To an Amazon seller, it’s pretty easy to connect the dots from the loss of the Buy Box to a catastrophic brand-wide loss of revenue. 

What Can Amazon Sellers Learn From the Demise of Zulily?

Rather than building a loyal, dedicated customer base – the Zulily site primarily attracted deal-seeking customers through daily promotions.  Zulily struggled to recruit return shoppers after they made a purchase. 

At the same time, consumer preferences shifted, with quick shipping emerging as a fundamental requirement for online retailers rather than a value-added perk. 

Unlike nimble competitors, Zulily failed to adapt its logistics capabilities to keep pace with the delivery expectations initiated by Amazon Prime shipping. The combination of these challenges overwhelmed Zulily’s initial success catering to bargain hunters and budget-conscious parents.

Shoppers Want Fast Shipping 

In 2018, and as Zulily attempted to square off with Amazon for market-wide business, they cherry picked an Amazon executive, Jeff Yurcisin, and quickly moved beyond clothing, home goods and toys to categories such as groceries and pet supplies. 

At the time, Yurcisin told Bloomberg, “From our point of view, it’s not about next-day shipping, it’s actually about passing along savings to customers.” 

Amazon quickly moved to eliminate their ability to compete for price, and as far as next-day shipping is concerned, it seems that Jeff Yurcisin might have underestimated the desire of shoppers to receive their goods right now

Amazon Has Made Prime Available for All DTC Sellers

Last year Amazon launched their Buy with Prime program. In doing so, they made it easier for direct-to-consumer (DTC) entrepreneurs to do the three main things that often add up to eCommerce success, drive traffic, scale growth, and increase conversion rates. 

Amazon recently made a massive upgrade to the Buy with Prime platform and are now allowing multi-channel Amazon sellers to advertise their own DTC brand’s products on Amazon (with an accompanying customizable storefront) using sponsored brand ads. 

This is one of those situations where what’s good for Amazon is also good for you. Shoppers want fast shipping. At the same time, Amazon wants to use the availability of Prime shipping to nudge online sellers towards its powerful Fulfillment by Amazon (FBA) platform. 

If it means that you get to hang an Amazon Prime shipping on your off-Amazon listing, all the better! 

Find an Amazon “Sweet Spot” 

For the most part, it seems that Zulily’s problems started when they expanded their business enough to have attracted the attention of Amazon. That feels very much like what veteran Amazon entrepreneurs say happens when online sellers target an overly popular – and fought-over product niche. 

There has long been talk of an Amazon niche “sweet spot” with enough volume to be profitable, but not so much to attract the attention of either Amazon itself, OR, thousands of sometimes unethical copycat sellers. 

Unfortunately, there are literal armies of online sellers that will use whatever means necessary to “win” the Buy Box for trending, overly lucrative Amazon products. While there is obviously money to be made, the majority of experienced – and successful – Amazon sellers like to fly under the radar and avoid these products all together. 

Software from companies such as Jungle Scout or Helium 10 can help you quickly filter out these high-profit AND high-drama products. Instead, you can focus on products with a lower advertising cost of sales (ACoS) and better conversion rate. 

If you’d like to go one step better, an Amazon agency like Canopy Management can do all of this and much more. 

Like what you’ve read here? Follow the Canopy Management blog page to stay up to date with the latest eCommerce developments. 

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