With Orders Piling Up, Zulily Built a Shipping Arm—in 8 Weeks

When you build a fast-growing business, there are bound to be a few “oh shit” moments. Darrell Cavens, the CEO of moms-and-kids retailer Zulily, knows that feeling well.

Cavens runs one of the fastest growing startups in the Seattle area, a private-sales site that has amassed more than 5 million daily e-mail subscribers since launching publicly in early 2010. Today, Cavens says, Zulily has more than 300 employees and adds about 5,000 products to its site each day. Its headquarters includes 17 photo studios just to showcase the new product samples that constantly roll in.

But last summer, all that growth meant Zulily was facing some big problems. The company was selling more than it could get out the door, even though it had contracted with a Fortune 500 company to handle all of its shipping logistics.

“We said `Wow, we’re going to outsource this, it’s going to be great. We’re going to focus on the marketing and the merchandising, these guys are going to handle this,’” Cavens says. “Within five months, we blew them out of the water, to the point where they were busing in staff from around the country. They were bringing management in, they were bringing in their special operations engineering teams to come and figure out how the heck did they get in this situation.”

Zulily’s business is a twist on traditional e-commerce known as flash sales or private sales, a model also followed by upstarts like Gilt Groupe and Fab.com. These companies contract with suppliers to sell their products directly to a membership list, often offering significant discounts.

Private-sale sites typically focus on “curating” their product offerings, aiming for an affordable high-end brand. They typically don’t hold stock themselves, instead generating supplier orders as they accumulate demand from customers.

Zulily’s niche is clothing and products for babies, kids, and moms—a cute sun dress for your daughter, wall art for the nursery, sandals and heels for mom. By last summer, business was booming enough that Zulily had a week’s worth of customer orders sitting on its dock waiting to be sent out for shipping at the contractor’s distribution center.

Cavens, speaking at last night’s University of Washington’s Business Plan Competition, estimated the backlog was nearly 300,000 units deep. “So we sat down in August of last year and said, `Oh shit—we’re in a world of hurt,’” Cavens recalled. The cure was clear, he says: Zulily had to bring shipping in-house, and build its own fulfillment center.

The team charged with investigating that project came back to Zulily’s executives and said it would take a year. With the holiday season coming up and customers getting upset with shipping lags, Cavens and company said that wouldn’t cut it. The second estimate was eight months—also too long, he says.

“So we sat down and said, we want to hit Nov. 1. This was the end of August, first of September,” Cavens says. That was impossible, the team replied. But they Zulily’s leaders went down the list and tried to get each item done as fast as possible—getting a building, finding a software product to handle the logistics, and hiring all of the people to make it happen.

“This was a Friday. We went out on a Monday, hopped on an airplane, went and leased space in Reno, NV. We went and found a software solution by the end of the week. We hired a consulting firm the following week to help us staff, and we had 200 employees in Nevada with an operating fulfillment center eight weeks later,” Cavens says. “We then went and opened another fulfillment center 10 weeks later on the East Coast, just because we’re a little bit crazy.”

That’s the pace of an Internet-fueled consumer business today—if the entrepreneurs hit their target right, and get a little lucky. “It can be done. If you’re running fast, looking at how can you as opposed to how can’t you,” Cavens says. “It’s built in our DNA. It’s what we do every single day.”

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