Hudson’s Bay in talks to purchase Gilt Groupe: source

NY Times News Service

Wed, Dec 16, 2015 - Page 15

Gilt Groupe, a one-time darling of online fashion sales, is nearing a deal to sell itself — albeit at a steep discount to its once lofty valuation.

The Hudson’s Bay Co, which owns Saks Fifth Avenue, is in advanced talks to buy the start-up for about US$250 million, a person briefed on the matter said on Monday. That is down significantly from the US$1 billion valuation that Gilt fetched more than three years ago.

A deal could be announced early next year, although people briefed on the talks cautioned that negotiations were still underway and could still fall apart. Gilt is also speaking with a handful of other potential buyers in addition to Hudson’s Bay, according to another person briefed on the talks.

Should the two sides reach an agreement, it would cap a long and volatile ride for Gilt, which shook up the fashion industry when it opened for business eight years ago. The company focused on so-called flash sales, in which consumers have a limited amount of time to buy clothes, accessories and furniture sold by the site.

The business model was so popular that Gilt raised US$138 million from investors like Japan’s SoftBank Group Corp and the Goldman Sachs Group Inc in 2011, even as it remained unprofitable. And the online retailer was regarded as a star in New York City’s start-up community.

The company’s early success bolstered the reputations of its founders, including Alexis Maybank, Alexandra Wilkis Wilson and Kevin Ryan, the former CEO of online ad company DoubleClick, who also served as CEO of Gilt.

However, flash sale Web sites, like Gilt, have lost their luster as consumers become increasingly desensitized to deals, analysts said.

Estimated sales at the biggest flash sale sites, including Gilt, Rue La La and Zulily, have stalled in recent quarters, and Gilt most likely does not turn a profit, according to analysts. Gilt’s sales totaled less than US$700 million last year.

In February, Gilt raised US$50 million in funding from investors led by the equity firm General Atlantic, but it still had not taken a step toward an initial public offering, as had been discussed earlier with investors.

Hudson’s Bay is also looking for a turnaround. The Canadian department store operator, which bought Saks in 2013, has succumbed to wider retail blues, posting an unexpected loss of US$0.04 per share in the third quarter.

And while acquisitions including the German department store chain Galeria fueled a 34 percent jump in sales, the increase fell short of analyst expectations. During a conference call with investors, executives at Hudson’s Bay, which also owns Lord & Taylor, blamed sluggish mall traffic, as well as the abnormally warm weather across much of the eastern US that has stalled sales of winter items.

Despite Gilt’s misfortunes, Hudson’s Bay believes that the online retailer still has cachet. Chief among Gilt’s attractions is its solid presence in mobile sales, an area in which the brick-and-mortar retailer has been eager to expand.

Hudson’s Bay intends to combine Gilt with its Saks Off Fifth line of outlet stores, according to one of the people briefed on the matter.

A spokesman for Hudson’s Bay declined to comment. Jennifer Miller, a spokeswoman for Gilt, said in an e-mail that the company had no comment.