Paul Hurley of ideeli, the midmarket fashion juggernaut, on how he rose to the top of this year's Inc. 500
2011 Inc. 5000 Rank: 1
Headquarters: New York, NY
Year Founded: 2006
2010 Revenue: $77.7 million
3-Year Growth: 40,882%
Dreamy jazz floats in the background, but the woman vogueing for the camera is so Olivia Newton-John that the theme from Xanadu springs unbidden to the brain. Tangled blond ponytail. Gold lamé body suit over a bandage-size black halter. Plummy purple leggings.
The leggings have to go. "That purple is too magazine," pronounces merchandising director Marie Ivanoff, by which she means outré or aggressive. (The magazine reporter present takes no offense.) "It should be more accessible." The model promptly withdraws into a narrow dressing space beside the photo backdrop and, a few moments later, is back in black. Such quick-change artistry is de rigueur at ideeli, which runs fashion shoots with the efficiency of a high-tech warehouse to produce the roughly 3,500 images that grace its popular flash-sale site each week.
Velocity and complexity are words you hear a lot around ideeli. Every day, employees at the New York City company hustle more than 1,000 products across a phalanx of photographers, touch-up artists, and copywriters so their images can live for 40 hours online. The photo studios run night and day, and ideeli is one of the largest employers of models in New York City. "We put up a new store every day," says co-founder and CEO Paul Hurley. Speed of growth mirrors speed of operations. At $77.7 million, ideeli's revenue is up 40,882 percent since 2007, landing the company at the top of this year's Inc. 500.
Flash-shopping sites, a decade-old phenomenon in Europe, took root in this country around the time of the recession, when ideeli and its three best-known competitors launched. Members (a nonexclusive group—ask, and ye shall become one) receive e-mail alerts about sales, and the clock starts ticking. For customers, the appeal is brands at a discount, which at ideeli can reach 80 percent.
Dan Ciporin, an expert in Internet retail and former CEO of Shopping.com, says the appeal for brands is customers—many of them new—aggregated in one place and eager to soak up overstock. "The recession propelled the flash-sale model greatly. Merchants had a lot of excess inventory to get rid of, but distributing it through odd-lots retail outlets is not brand friendly," says Ciporin, who is now a partner at venture fund Canaan Partners. (Canaan is not among ideeli's investors. Ideeli has raised $70 million from, among others, Kodiak Venture Partners and Next World Capital.) "Membership helps protect the brand," Ciporin continues. "You can't find a sale on Prada or whatever just by Googling. It's behind a wall."
Ideeli, which has 4.5 million members, sells apparel, accessories, housewares, and travel, a mix similar to that of its best-known independent competitor, Gilt Groupe. (Two other rivals, Rue La La and HauteLook, were acquired by larger companies in 2009 and 2011, respectively. Amazon launched MyHabit in May.) Although Gilt's revenue is higher than ideeli's, the number of visitors to ideeli is growing faster, according to comScore. And Hurley argues that his company's "mass affluent and aspirational" demographic is larger than that for higher-end Gilt.
Not that this is a horse race. The market for flash sales, private shopping clubs, and other Costco/Bloomies/Home Shopping Channel hybrids is big enough to support multiple players. "We believe the disruption in retail has made an enormous green field for us and others," says Hurley. "Ideeli is really a lab for what retail is going to become."
Paul Hurley bears no resemblance to the typical ideeli customer. He is 47, bald, a conservative dresser, and a man. He doesn't seem like a guy who loves fashion or even the business of fashion. In more than two hours of conversation, he rarely talks about the products. But he clearly loves this company, which he boldly predicts will become a multibillion-dollar bellwether of the evolution of retail.
Ideeli is Hurley's Moby Dick, the big one he has been chasing all his life. Or at least since age 10, when he started filching his father's copies of Forbes the way other kids steal Playboys. At 12, Hurley read an article arguing that small oil-company stocks were undervalued and got his father's permission to invest. It was a smart call. With the money he made, Hurley bought equipment to start a lawn care business, even though he had to hire someone who had a license, because he couldn't drive the truck. A year later, on a trip to California, Hurley noticed used convertibles selling for higher prices than in his hometown of Westhampton Beach, New York. He concocted a plan to buy cars in New York, send them across the country, and resell them at a healthy markup. Still too young to drive, Hurley teamed up with his brother and a friend. But the venture failed when it turned out there was a reason California convertibles fetched a higher price: The New York ones were rusty.
Hurley was a political-science major at Yale, but he crafted a personal entrepreneurship program in his dorm room. He experimented with a series of tiny companies to master direct mail, business-model design, importing, and other business basics. In 1988, he and his brother launched Cypress Research, a venture-backed communications software company. A few years later, they recapitalized that business, renamed it Aveo, and began offering what they called preemptive tech support-software that throws up warnings when it detects that PC users are about to do something dumb. That product was bundled in tens of millions of computers, but the Hurleys missed the IPO window, and Aveo expired postbust. "We were on track to have a big win, and then the downturn came, and we got caught," says Hurley. "I was completely wiped out."
From 2001 to 2006, Hurley returned to experimental mode. With the help of Mark Uhrmacher, ideeli's co-founder and chief technology officer, he launched six or seven businesses in swift succession. None made more than $2 million a year. But Hurley was content to breed ponies until he found a Thoroughbred. He was seeking a megatrend to ride, and in 2006, he identified two. First, brick-and-mortar retailers were losing share to off-price stores and online retailers. Second, brands were having difficulty engaging consumers in such a fragmented marketplace.
The original business was not an online store but a marketing platform; the customers were not consumers but brands hoping to build awareness. Then Hurley learned about Vente-Privee, the Paris-based grand-père of private shopping clubs, and decided that was a better business to be in. In 2008, ideeli became a full-fledged retailer of women's apparel and other goods. Validation was swift. "The day after Lehman failed, which was a spectacular day for us, you could fire a gun in Saks and not hit anybody," Hurley says. "No one was shopping. But they were shopping at ideeli. So that was a big epiphany moment."
Ideeli's offices are several sizes too small. Two hundred employees sit cheek by jowl (or would if this largely young, attractive crowd had jowls) at long rows of desks bathed in natural light. The company recently sublet a third floor in the stately building it shares with the U.S. headquarters of Dolce & Gabbana, in the SoHo neighborhood of Manhattan. But on a visit in June, Ikea tables had been set up between rows to accommodate the human overflow.
Hurley was seeking a megatrend to ride, and in 2006, he identified two.
Despite the crowding, one cluster of desks is often vacant. The company's buyers spend much of their time away from the office, meeting with ideeli's brand partners. A flash site's success depends on its relationships with suppliers. (Some brands create merchandise especially for ideeli, but Hurley won't say which ones or how much.) "You have to be pretty aggressive about going out there and talking to them," says Hurley. "Sometimes it's opportunistic. We say, 'Boy, they've got some extra. We'll buy that and sell it.' Other times, we're working more closely with them to figure out where it should go on the calendar, when they expect to have things."
Ideeli has more than a thousand suppliers, including familiar labels such as BCBG, Nicole Miller, and Betsey Johnson. It also spotlights niche-ier designers, such as Desigual, a 27-year-old Barcelona-based clothing brand. A longtime devotee of flash sites in Europe, Desigual signed on with ideeli this year to raise its profile in the United States, where it has nine stores. "Ideeli has given us something like 15,000 purchases in three events," says Segundo Broggi, Desigual's vice president of North American sales. "These are people located in areas of the country where we don't have retail stores." Geographic data gathered by ideeli is helping guide Desigual as it expands its presence here.
Ideeli buys some merchandise outright, which means it is ready to ship to consumers from the company's New Jersey warehouse. It takes other goods on consignment. That's great for inventory management but can cause delays and unhappy customers as the business awaits deliveries from suppliers before fulfilling its own orders. Kate Frucher, an ideeli senior vice president, attributes the problems to fast growth, a new warehouse contractor adapting to unfamiliar consignment processes, and slow turnaround by some small suppliers. Frucher recently completed an assignment to streamline and standardize fulfillment.
Frucher is an even more atypical denizen of the fashion world than Hurley. Her resumé includes teaching at West Point, helping launch the AmeriCorps national service program, and advising New York City's fire department on post-9/11 emergency preparedness. Before taking on fulfillment, she streamlined ideeli's photo-studio operations to cope with expanding volume and pare costs. Among other modifications, she applied time-motion studies to improve production speed (by, for example, creating those handy changing spaces that abut each of the four studios in which models work, eliminating trips to a dressing room).
The intense focus on process is a function of Hurley's obsession with scale. Ideeli recently ratcheted up its travel offerings, and Hurley says he will methodically evaluate other product categories, although he insists ideeli can be a multibillion-dollar business with the categories it has now. It is hiring with gusto: Seventy employees joined in the first six months of this year. "We're going to build something big and have a meaningful impact," says Hurley. "There is no more interesting job in retail in the world today than here."