Sunday, August 19News That Matters

Online fashion brand Lulus raises $120 million

Fashion e-retailer Lulus has raised $120 million from venture capital firm IVP and Canada Pension Plan Investment Board, the company said on Wednesday.

The fundraise demonstrates the continued bets that investors are willing to take on the start-ups looking to take on the rapidly changing retail industry.

Founded in 1996 by Debra Cannon and her daughter Colleen Winter, Lulus is an online website and fashion brand that caters to shoppers in their twenties. It calls its clothes fashionable and affordable — shoppers can buy a $96 champagne-colored maxi dress for prom or a $52 wrap dress for graduation.

More than 85 percent of the website is Lulus branded clothes, though it sells other brands like Free People as well. Lulus has also begun to sell its clothes in Nordstrom stores.

A large part of the brand’s success has rested on its social media prowess, fostering a loyal shopper base frequently reminded of the brand’s prevalence.

“It would be very hard to go out to Instagram, YouTube, Pinterest – look for fashion in our demographic and not find something from Lulus,” said CEO Colleen Winter.

With its new funds, Lulus plans to support growth initiatives like building out its East Coast fulfillment center, going into new categories like shoes, and building out headcount.

It has no short-term plans to build out brick-and-mortar stores, but the company isn’t ruling out the idea either.

“We do think it might make sense at one point to have a couple of core outlets,” Winter said.

Lulus has “been built on a foundation of profitability,” said Winter. It has “a couple hundred” million in sales and has been profitable since its first year. It has been growing a rate of roughly 50 percent yearly and has “very meaningful” EBITDA margins.

Part of its focus on profitability is a culture born out of its Chico headquarters, a Californian town isolated from the piles of venture money in San Francisco and New York.

“Where funding is plentiful, you don’t always operate discipline,” said Eric Liaw, a general partner at IVP.

That culture includes a heavy reliance on data to help it more efficiently order clothes, sidestepping the burdensome costs of unused merchandise.

Still, many digitally native retailer,s like Stitch Fix, have watched their profitability drop as the initial buzz from social media and word of mouth tempered, forcing them to put in more marketing dollars to compete with easily distracted internet shoppers.

Lulus focus on more methodically growing its shopping base, rather than explosive growth, should help it avoid unexpected profitability cliffs, said Winter. It has a passionate following among those who know the brand, but remains under the radar among a broader set.

“We don’t feel there’s anything to yell from the rooftop,” said Winter. “We know who we are – and our customers love us.”

Longer term, an IPO is on the table, though not likely to occur in the next six months.

“Companies at [Lulus] scale and that are growing and are as profitable as they have historically been are attractive IPO candidates. That’s something we will consider collectively, but we are certainly are in no hurry,” said Liaw.

Should the company take the public route, Liaw pointed to U.K.-based online retailers Asos and as public market reference points.

Other investors in Lulus include H.I.G. Growth Partners.

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