Pennsylvania Firm Buys Rue La La, Smart Bargains for As Much As $350 Million; Throws Open Doors to Invitation-Only Retail Site

GSI Commerce (NASDAQ: GSIC), an e-commerce company that powers the online stores for dozens of prominent consumer brands, announced yesterday that it will purchase Boston-based Retail Convergence Incorporated (RCI) for $180 million in cash and stock and up to $170 million in follow-on payments, depending on RCI’s performance.

RCI owns both Rue La La, a private website that sells discounted premium designer clothing and accessories, and Smart Bargains, a more affordable online clearinghouse for clothing, jewelry, and home and kitchen goods. Rue La La is famous for being an invitation-only site generally limited to high-net-worth individuals. But GSI said yesterday that for a limited, 48-hour period, anyone can join Rue La La by going to

RCI was funded in part by venture firm General Catalyst of Cambridge, MA. In a remarkably detailed press release, GSI, which is based in King of Prussia, PA, outlined the goals RCI will need to meet in order to earn the company’s shareholders the full $350 million purchase price. GSI said RCI is on track to earn at least $15 million in 2010 before interest, taxes, deductions, and amortization. But if it can hit $18.3 million in income that year, it will earn an additional $40 million in payments. If it earns $34.4 million in 2011, it will get an additional $55 million, and if it earns $51.9 million in 2012, it will get a final $75 million.

Smart Bargains was established in 2000 and purchased by RCI in 2008. Rue La La, which opened for business in early 2008, is one of the leading examples of a relatively new species of “curated marketplaces” that hold limited-time sales, often of overstocked or distressed merchandise, and often to a restricted clientele. It competes with similar sites such as, owned by New York-based Gilt Groupe.

Rue La La has more than 1.2 million members, according to GSI, and these members are extremely loyal, perhaps explaining how RCI attracted such a large purchase price: on any given day, GSI said, approximately 10 percent of Rue La La’s members visit the site, and have demonstrated a high repeat purchase rate.

Gilt has a slightly larger member base and daily traffic rate, according to Web traffic analytics firm, but both sites have continued to grow unabated throughout the recession.

Ben Fischman, RCI’s CEO, said in GSI’s announcement that “The private sale sector is changing e-commerce through exceptional levels of virality, dynamic customer experience and highly engaged members.” He said that joining GSI would give RCI access to GSI’s technological infrastructure as well as its marketing services and brand relationships. GSI CEO Michael Rubin said Fischman will stay on as manager of Rue La La and Smart Bargains, and that RCI’s team of almost 200 sales associates will “remain intact” following the acquisition.

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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