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Lessons from the Zulily Business Model

On the surface, Zulily might seem like any other retail website. They offer a wide variety of products, low prices, and easy delivery options. Unlike big names like Amazon, however, the Zulily business model doesn’t include trying to have every product that anyone might ever think they’d want. Their approach is simple: instead of looking for a specific product, Zulily invites you to window shop within specific categories, find a great sale, and then want to purchase something.

Zulily specializes in home products, items for children, and items for moms. Founded in 2010 in Seattle, it employs nearly 4,000 people when its distribution centers are included. More than 50,000 orders are placed every day, equating to nearly $4 billion in sales per year. It’s no wonder why many are calling Zulily one of the best startups that has ever been.

Why Is the Zulily Business Model Succeeding?

There have been many other flash sale sites that have struggled to find success. Order levels at the competition are just a fraction of what Zulily is seeing. Add in the fact that the Zulily business model has incredibly slow shipping times and the successes seem more than just a little miraculous. How can Zulily see so much success when everything says they should be failing?

This business model proves one customer service concept: people are willing to wait for a world class product that exceeds their expectations.

What Zulily does as a flash sale site that no one else does is offer boutique products that are differentiated and fluid. It brings back memories of window shopping on a busy street because going through the site is just as much about having fun seeing the different items as it it purchasing them. What is exciting about Zulily is what is new every day on the site.

How Does Zulily Make Money?

As with any other retail site or dropshipping site, Zulily’s flash sales are based on selling items above the wholesale cost of obtaining them. They secure the inventory that is being sold at a specific price and then sell it for a lower than normal retail upcharge. It is not uncommon for retail prices to be 90% or more above the wholesale price. If Zulily sells an item at 50% above wholesale, then it saves customers money, but they’ll still make money on every purchase.

The other secret to Zulily’s success takes a lesson learned from the tele-shopping shows that sell similar boutique products. The flash sales are of a limited time, which provides customers with a level of scarcity that encourages a purchase. Zulily doubles down on this concept by also limiting the amount of inventory that is available for a flash sale. With limited time and limited inventory, if someone wants a boutique item from the site, then they’ll be inspired to buy now instead of wait because they might not get what they want.

How Does Zulily Continue To Grow?

With over 4 million active customers and over 15,000 brands featured, more than 100 events are launched every day to encourage shoppers to come to the site. The lesson that can be learned from the Zulily business model here is that being different can pay off. You need to find a niche and then dominate that niche in order to find success. That’s what Zulily does in the flash sale industry by offering boutique items.

Boutique items have a naturally higher price point, which means they are items that are out of reach of the average household. By bring sales to these items, more people can access them. Advertise that the sale is going to be 80% off the MSRP and you’ll really grab someone’s attention.

To make this business model work, however, Zulily still needs to be operating at a maximum level of efficiency. There can be no waste on the shipping and processing because the profit margins per product are so thin. Critics have focused on the slow delivery times as the way that Zulily makes profits, but overall what makes this company a billion dollar success is the fact that they stay small and nimble.

It’s stock price hovers around the $35 per share mark, at one point hitting over $72 per share. This business model is clearly working and its because there is a focus on having people talking to people. That is ultimately the one lesson to be learned from the Zulily business model.

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