Little more than two years after it purchased the flash sale site, Hudson’s Bay Company has offloaded Gilt.
Gilt will be acquired by competing flash sale site Rue La La. Though HBC hasn’t disclosed details of the deal, unnamed sources told The Wall Street Journal the sale price was far south of $100 million.
HBC acknowledged the sale in its first quarter earnings release out Tuesday, saying it expects the deal to close during the second quarter. The retail group said Gilt accounted for less than 4 percent of the company’s total sales in FY17 and the deal is expected to result in a $10 to $15 million improvement in adjusted EBITDA.
“Our decision to divest Gilt will allow us to focus our time and resources on the businesses with the greatest potential to drive operating performance,” Richard Baker, HBC’s governor and executive chairman said in the release.
Hudson’s Bay has been struggling to boost sales in an environment pressured by the online boom and changes in consumer tastes. The retail group is in the midst of a transformation plan that calls for cost cutting and boosting store productivity.
Rue La La’s owner, Michael Rubin, estimated that the two companies together generate $1 billion in annual sales with a total customer base of 20 million shoppers, spanning upscale to mass.
Gilt, which was one of the first to make a splash with its limited time discount model a decade ago, had been a drag on the company’s off-price performance. In March, the retailer said the company’s online comps were negatively affected by Gilt, resulting in a 2.8% increase for the period versus a 9 percent bump excluding Gilt.
At the time of its purchase for $250 million, a fraction of what it had been worth a few year prior, Gilt was a “deteriorating business,” according to Gerald Storch, HBC’s CEO at the time. But, he said, enthusiasm at the consumer level was still there.
To capitalize on this positive sentiment, in September HBC announced a relaunch of the site, which it hoped would put it on a similarly positive trajectory. The biggest change was the move to de-emphasize the flash sales, which had been at its core, allowing events to last longer instead of timing out. It also attempted to integrate the Gilt business into the full-line and Saks Off 5th organizations by allowing shoppers to pickup and return Gilt items in store, rolling out Gilt boutiques in its physical locations and adding Off 5th goods to Gilt.
The move away from flash sales runs counter to Rubin’s thinking.
He told WSJ, “People who say the flash sale model is dead don’t realize how much business is being transacted in this space by consumers—it’s tens of billions of dollars a year.”