The owner of the Saks Fifth Avenue and Lord & Taylor department stores could be close to buying the flash sales website Gilt Groupe for $250 million, The Wall Street Journal reported Monday. It should take another look before signing on the dotted line. That sale price sure looks like a discount -- it values Gilt at about a quarter of what the reported $1.1 billion venture capitalists thought the company was worth back in 2011. But just because an ugly sweater from last season is on sale doesn't mean it's a steal. And Hudson's Bay shouldn't waste its money buying a company well past its prime, even at a discount.
There was a time when daily deals and flash sales web sites were all the rage. Bloomberg Gadfly's Tara Lachapelle recently reminded us how Google wanted to buy Groupon for $6 billion back in 2010, when tech unicorns were actually rare and venture capitalists thought websites like Gilt, Fab, and Ruelala were poised to overtake the outlet mall.
But shoppers fell out of love with the model after being inundated with marketing emails that made it difficult to differentiate one website from the next. The excitement waned further when retailers such as Saks Fifth Avenue and Neiman Marcus began offering their own online discounts on luxury goods. Five years later, a dozen or so flash sale sites are no longer around, and the others -- Groupon, One Kings Lane, Ruelala -- struggle to grow sales as they lay off staff and, like Gilt, try to turn profitable.
The Bay's bid for Gilt follows similar moves from Nordstrom, which acquired HauteLook in 2011 for $180 million in stock; and QVC, which bought Zulilly at a fraction of its IPO price. But this is 2015, and Hudson's Bay can do better. It's smart for the Canadian department store chain to want to bolster its e-commerce operations. But why choose a dud like Gilt when there are other pure-play online retailers out there to consider, such as Bonobos, Everlane, or German e-retailer Zalando? Those companies are actually growing and could teach the Bay a thing or two about running a luxury e-commerce company.
Most likely, Hudson's Bay will have to take on more debt to fund the purchase of Gilt, or structure the deal with stock. Other options include tapping an existing credit line, or selling some of its real estate assets, as it did to fund the $2.7 billion purchase of European department store chain Galeria Kaufhof. Either way, Hudson's Bay is stretching its financial capacity to buy a retailer that, in the end, most likely won't be worth it. It's not too late to avoid buyer's remorse.