The FINANCIAL — Alibaba Group Holding Ltd. has taken a stake of more than 9% in U.S. online retailer Zulily Inc., a move that could rekindle questions about the Chinese e-commerce giant’s plans for the American market, according to Nasdaq.
The stake, valued at more than $150 million, was disclosed in a securities filing that showed Alibaba last week spent $56 million buying Zulily stock as the U.S. company’s shares plunged following a disappointing earnings report.
It wasn’t previously known that Alibaba owned Zulily shares. The Seattle-based website sells clothing and other merchandise mostly aimed at moms. It offers deep discounts in “flash sales’ that typically have time limits.
Alibaba isn’t looking to acquire Zulily outright, a person familiar with the matter said. Zulily Chief Executive Darrell Cavens said his company has a lot of respect for Alibaba and welcomed it as a shareholder.
Formed in 1999, Alibaba was little known outside China until its $25 billion initial public offering last year. The company grew quickly by matching Chinese suppliers with buyers around the world and now is helping U.S. companies reach consumers in China. Its scale and financial resources make it a powerful global force.
Alibaba has made a string of small investments to learn more about the U.S. market. Last year, it invested $15 million in New York-based luxury e-commerce site 1stdibs and launched its own U.S. shopping website, 11 Main. In 2013, it led a $206 million round of investment in ShopRunner, which offers two-day shipping from U.S. retailers.
“The key issue is whether we are going to have something in the U.S. market that will really target U.S. consumers,” Alibaba Executive Vice Chairman Joe Tsai
told The Wall Street Journal in November. “We think in the long run that’s an interesting market to us. But today, our focus is very much on cross-border activities.”
Five-year-old Zulily went public in November 2013 at $22 a share. The stock surged above $70 in early 2014, as the company reported fast sales growth and added customers at a rapid pace. Its sales topped $1 billion last year, making it one of the fastest retailers to reach that milestone.
Zulily’s shares have plunged this year. The culprit has been disappointing quarterly reports that showed sharply decelerating sales growth and difficulty holding on to customers, many of whom aren’t returning to Zulily’s website after making a first purchase.
In a statement, Alibaba expressed confidence in the company, saying it thinks Zulily has “a compelling vision for the future.”
Zulily’s dual-class share structure would make it difficult for the company to be acquired without the consent of its management, who hold Class B shares with most of the voting power. The venture-capital firm Andreessen Horowitz also owns some Zulily Class B shares through various affiliated entities.
Zulily’s shares closed at $13.30 on Friday, down 43% so far this year. The company’s market capitalization is now close to $1.5 billion.
Amid the recent selloff, a unit of Alibaba bought around 4.8 million Zulily shares at prices ranging from $10.63 to $ 12.70 apiece. It now owns 11.5 million Class A shares, giving it a 9.3% stake based on the share count in Zulily’s latest quarterly filing.
Zulily has an unusual business model where it sells merchandise on its website before it places orders with vendors. That strategy results in slow shipping to customers, who typically have to wait for two to three weeks to receive items.
The retailer initially sold mostly children’s toys, clothes and accessories, then expanded its merchandise assortment to include women’s apparel, footwear, lawn furniture and men’s clothing. Zulily says in securities filings that it considers Alibaba a competitor.