Hudson’s Bay Company, the owner of department chain stores like Saks Fifth Avenue, said today it was acquiring Gilt Groupe for $250 million.
The sale still represents a tough end to the story of Gilt. The startup was one of the original darling flash-sale sites coming out of New York. But that whole market has found itself challenged by slim operating margins, its initial popularity waning, and the difficulties of building a large-scale e-commerce operation.
HBC CEO Jerry Storch said the company expects to address primary issues with Gilt’s operation that can put a strain on its bottom line. The company hopes to reduce costs by lowering Gilt’s customer acquisition through a physical integration with its Saks Off 5th — where Gilt members can return items.
Part of that plan is to open Gilt concept shops inside Saks Off 5th stores with curated assortments, which the company thinks will be a prospecting tool for Gilt members. That could also bring with it additional customers to Saks Off 5th, Storch said. There’s also the benefit of sourcing merchandise from vendors together with its other properties — like Saks Off 5th — which can help lower costs.
“[Flash sale sites] continue to be quite successful, they grow with the customer,” HBC CEO Jerry Storch said. “The struggle is the bottom line, and we’re addressing two of the most critical pain points by sourcing customers at a lower cost and having returns to stores. These flash websites, it’s their manifest destiny to be part of brick and mortar.”
There’s also the mobile part of the equation: Storch said the company will continue to invest in Gilt’s mobile presence, which is one of the company’s strong points. “Gilt can teach us a lot for our other banners,” he said on the company’s mobile strategy.
Prior to the acquisition, the company had been widely considered to be part of the billion-dollar startup club. But the company struggled to become profitable, and in October last year the company continued cutting jobs (at that time laying off 45 people). The company previously said a few times that it would go public in 2013 and 2014, before putting that on hold indefinitely and raising additional capital.
It’s also not the greatest return for its investors. Prior to the sale the company had raised more than $270 million, which makes this look like a deal that will not return the total amount of money that it had raised. Fab, too, was valued at $1 billion before collapsing and eventually pivoting to a home design startup worth a tiny fraction of that. Re/code previously reported that the company could sell to HBC.
But perhaps with the scale of Hudson’s Bay Company, Gilt will find itself able to swing its way to profitability as a cog in a larger-scale operation. Storch seems to believe so, and as part of the acquisition, Hudson’s Bay Company expects Gilt to contribute approximately $40 million of Adjusted EBITDA by its fiscal 2017 year. The company also expects Gilt to contribute $500 million to its 2016 fiscal year sales.
HBC does not intend to reduce Gilt’s staff as part of the acquisition, Storch said. “Gilt will remain Gilt,” he said. “It has an incredible, loyal customer base, and a culture of innovation we intend on fostering and growing.”